In a significant ruling, the Karnataka High Court has directed the refund of Rs. 17.48 crore, which was erroneously adjusted towards an Income Tax demand, along with interest.
The petitioner, LSI India Research and Development Pvt Ltd, requested the issuance of directions to the respondents for the immediate refund of ₹17, 48,31,871. This amount, determined as a refund for the assessment year 2014-15, was erroneously adjusted against a demand for the assessment year 2017-18. The petitioner also sought the applicable interest on the refund.
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Although the petitioner initially sought an additional refund of ₹9, 50,32,320 for the assessment year 2014-15, this claim was not pursued further since the amount had already been refunded.
The petitioner’s counsel T. Surya Narayana argued that for the assessment year 2014-15, a refund of ₹26,98,64,191 was determined in an order passed on January 24, 2024. However, a demand was raised for the assessment year 2017-18, following an assessment order which is currently under appeal. The petitioner had paid 20% of the disputed amount, leading to a stay order on the demand dated August 10, 2021
Despite the stay order, the refund due for 2014-15 was adjusted against the demand for 2017-18. The counsel argued that this adjustment was unjustified since the stay on the 2017-18 demand remained in effect. This fact was not contested.
The counsel further emphasized that the refund order could not have been legally adjusted while the stay order was active. A receipt confirmed the payment of 20% of the disputed amount during the appeal process. Therefore, adjusting the refund towards the 2017-18 demand lacked legal authority, given the active stay on the demand.
The case referenced Office Memo No. 404/72/93-ITCC dated February 29, 2016, and its subsequent amendment on July 31, 2017. These memos clarify that once 20% of the disputed demand is paid, the assessing officer must grant a stay of the demand until the appeal is resolved. The assessing officer has no discretion in this regard once the deposit is made.
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Given that the stay order was issued before the adjustment of the refund, the adjustment was deemed illegal. As a result, the single bench of Justice Sunil Dutt Yadav directed the third respondent to refund ₹17, 48, 45,320 within eight weeks, along with applicable interest. The petition was thereby disposed of.
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