Income Tax Refund adjusted Despite 20% Pre-deposit and Pending Appeal: Bombay HC directs to Refund Adjusted Amount [Read Order]

The Bombay High Court has directed the Income Tax Department to pay back the refund amount, which was erroneously adjusted against the tax demand on grounds that the appeal against the disputed year is already pending to date and petitioner has already made 20% pre-deposit.

The bench of Justice Jitendra Jain and Justice M.S. Sonak, after considering the submissions noted that “In our view, since the appeal for assessment year 2016-17 is pending and the Petitioner has made payment of 20%, the reasoning given by the Respondent that the balance demand has not been paid and therefore the adjustment is justified is erroneous and contrary to the decision of this Court.”

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The petitioner, Kishore Mohanlal Dingra had filed the writ petition challenging the adjustment of their refund for the assessment year (AY) 2014–15 against a tax demand raised for AY 2016–17.

The demand of ₹23.63 lakh for AY 2016–17 was raised on 30 December 2018 under Section 143(3) of the Income Tax Act. The petitioner promptly filed an appeal against this assessment and simultaneously paid 20% of the demand, complying with the CBDT Circular that mandates a stay on recovery beyond 20% pending appeal. Notably, the appeal remains pending even after six years.

Subsequently, the petitioner became eligible for a refund in AY 2014–15 after the appellate authority ruled in their favour. However, only a partial refund was issued, and the remaining amount was adjusted against the pending demand for AY 2016–17, despite the prior 20% payment. The petitioner raised objections under Section 245 of the Income Tax Act, but these were not adequately addressed in the impugned order.

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Counsel for the petitioner argued that the adjustment was not only against the CBDT circular but also contrary to binding precedent laid down by the Bombay High Court in the case of Mahesh Mathuradas Ganatra v. Centralised Processing Center & Ors.

According to the counsel, once 20% of the demand is paid then as per the Circular of the Respondent, the balance demand would be stayed till the disposal of the appeal. Inspite of the said Circular and various decisions, the Respondent adjusted the refunds over and above the 20% which the Petitioner had already paid.

Mr. Suresh Kumar, Counsel for the Respondent, supported the Department’s action, contending that the adjustment of the refund was justified as the entire demand had not been discharged.

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The court concurred with the submission of the petitioner’s counsel that as per the CBDT Circular once payment of 20% of the demand is made, the balance demand would be stayed till the disposal of the appeal.

The High Court concluded that the adjustment of the refund arising out of the assessment for the year 2014–15 against the outstanding demand for the assessment year 2016–17 was both unjustified and illegal. Accordingly, the Court directed the Income Tax Department to refund the erroneously adjusted amount within a period of four weeks from the date of the order.

Additionally, the Court instructed the Commissioner of Income Tax (Appeals) to expeditiously dispose of the pending appeal for AY 2016–17, and in any event, within a period of four months from the date of uploading of the order. With these directions, the Court made the rule absolute and concluded the matter.

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To Read the full text of the Order CLICK HERE

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