Adjustment u/s 245 Violative of Natural Justice: Calcutta HC Directs Refund of Amount Adjusted in Excess of 20% of Disputed Demand [Read Order]
The Court relied on Graphite India Limited to hold that the Revenue cannot adjust more than 20% of the disputed demand when an appeal is pending without providing specific reasons.
![Adjustment u/s 245 Violative of Natural Justice: Calcutta HC Directs Refund of Amount Adjusted in Excess of 20% of Disputed Demand [Read Order]](https://images.taxscan.in/h-upload/2026/05/06/2135636-site-img6-4jpg.webp "Adjustment u/s 245 Violative of Natural Justice: Calcutta HC Directs Refund of Amount Adjusted in Excess of 20% of Disputed Demand [Read Order]")
The Calcutta High Court held that the adjustment of tax refunds against disputed demands in excess of 20% without affording a hearing is violative of natural justice. The Court directed the Revenue to refund the amount adjusted in excess of the 20% threshold within eight weeks, subject to the outcome of the pending appeal. P. S. Srijan Height Developers, the petitioner, challenged...
The Calcutta High Court held that the adjustment of tax refunds against disputed demands in excess of 20% without affording a hearing is violative of natural justice. The Court directed the Revenue to refund the amount adjusted in excess of the 20% threshold within eight weeks, subject to the outcome of the pending appeal.
P. S. Srijan Height Developers, the petitioner, challenged the adjustment of refunds for AY 2021-22 and AY 2022-23 against a disputed demand for AY 2018-19. While the petitioner had filed an appeal against the AY 2018-19 assessment, the Revenue adjusted the entire refund without waiting for the response period to expire.
The petitioner argued that these adjustments violated CBDT Instructions and Office Memorandums, which restrict recovery to 20% of the disputed demand during the pendency of an appeal, and that the procedure under Section 245 of the Income Tax Act requires the disposal of objections before adjustment.
The Revenue argued that the petitioner was in default and that the adjustments were valid. They contended that the petitioner failed to object to the outstanding demand via the portal and that the writ petition was barred by delay and laches.
Justice Om Narayan Rai observed that Section 245 adjustments involve civil consequences and must adhere to principles of natural justice. The Court found that the Revenue had adjusted the refund merely one day after issuing the intimation, effectively denying the petitioner the opportunity to object.
The Court relied on Graphite India Limited to hold that the Revenue cannot adjust more than 20% of the disputed demand when an appeal is pending without providing specific reasons. While the Court refused to interfere with the earlier adjustment due to the petitioner's inordinate delay, it ruled the subsequent adjustment illegal.
Consequently, the Court directed the refund of the amount adjusted in excess of 20% of the disputed demand from the 2023 adjustment within eight weeks and directed the Commissioner (Appeals) to dispose of the pending appeal within two months.
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