Income Tax Dept Arbitrarily Recovers Demand from Refund While Appeal Pending: Madras HC Orders Refund, Stays Recovery [Read More]

In a recent ruling, the Madras High Court directed the Income Tax Department to refund Rs. 3 crore to Greaves Electric Mobility Limited and to stay recovery proceedings while the company’s appeal and rectification petition are pending.

Greaves Electric Mobility Limited, a company that manufactures and sells electric two-wheelers, filed a writ petition challenging the Income Tax Department's action of adjusting its Rs. 3.74 crore refund for the assessment year 2024-25 against an earlier tax demand for the assessment year 2016-17. The company argued that the department acted unfairly by recovering the demand from the refund despite the pending appeal before the CIT(A) and a rectification petition regarding the same demand.

The dispute began when the department reopened Greaves Electric’s assessment for AY 2016-17 under Section 263, adding Rs. 5.36 crore and raising a demand of Rs. 1.34 crore, along with a penalty of Rs. 1.77 crore, totaling around Rs. 3.11 crore.

The petitioner’s counsel argued that the assessing officer had failed to allow the set-off of unabsorbed depreciation of Rs. 3.44 crore, which would have nullified the demand entirely. The company filed appeals in September and October 2022 and a rectification petition in June 2024 while paying over 20% of the disputed demand through deposits and refund adjustments, which it argued entitled it to a stay on recovery under the department's guidelines.

The Income Tax Department’s counsel argued that the company had not fully met the pre-deposit requirements, stating that the 20% of the disputed demand would amount to Rs. 63 lakh, and defended the department’s action of adjusting the refund.

The company’s counsel argued that the company had complied with the payment requirement through partial payments and refund adjustments, and that the department's refusal to grant a stay while forcibly recovering the entire demand from the refund was arbitrary and caused severe hardship, affecting its operations and employee salary disbursement.

The single-judge bench comprising Justice Krishnan Ramasamy observed that the department’s action of adjusting the entire refund while the appeals and rectification were pending was arbitrary. The court also observed that the company had complied with the requirement to pay 20% of the demand to secure a stay and that the department’s conduct was unfair given the pending legal proceedings.

The court ordered the Income Tax Department to refund Rs. 3 crore to Greaves Electric within four weeks, along with applicable interest, and to stay further recovery proceedings until the appeal before the CIT(A) is disposed of. The court also directed the department to dispose of the company’s rectification petition within four weeks. The writ petition was allowed.

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