Refund Adjustment against stayed Income Tax Demand Violates S.220(6) of Income Tax Act: Calcutta HC [Read Order]

The Calcutta High Court has ruled that a refund adjustment against income tax demand that has already been stayed violates section 220(6) of the Income Tax Act, 1961

The case arose from an assessment order passed against the petitioner, Little More Engineering Private Limited, for the assessment year 2013-14. The petitioner carried the said assessment order in appeal before the Commissioner of IncomeTax (Appeals) (CIT(A)).

During the pendency of the appeal, the petitioner made an application under Section 220(6) of the IT Act before the AO and deposited a sum in excess of 20% of the tax in dispute.

The AO, after considering the petitioner’s application under Section 220(6) of the said Act , stayed the demand.

Despite the AO having passed an order treating the assessee/petitioner as not in default in terms of Section 220(6) of the said Act of 1961, the respondents/revenue authorities proceeded to adjust sums refundable to the petitioner in respect of the assessment year 2024-25 against the outstanding demand of the assessment year 2013-2014, which had been stayed by the AO under Section 220(6) of the said Act

The counsel for the petitioner submitted that such action of the respondents/revenue authorities is absolutely de hors law. It was also submitted that the petitioner is entitled to a refund of the entire sum that has been adjusted from the petitioner’s refundable amounts in respect of the assessment year 2024-25 against the stayed demand in respect of the assessment year 2013-14.

The counsel for respondents/revenue authorities argued that instead of directing a refund, the respondents can settle the matter expeditiously.

Justice Om Narayan Rai observed that once the petitioner’s application under Section 220(6) of the said Act of 1961 was considered and answered favourably by the AO and the petitioner was treated to be not in default it was no longer open to the respondents/revenue authorities to make any adjustment against the said stayed demand.

Also the petitioner had deposited a sum in excess of 20% of the tax in dispute for the purpose of being treated as an assessee not in default.

It was held that the respondents' authorities shall refund to the petitioner the amounts that have been adjusted from the amounts refundable to the petitioner in respect of the assessment year 2024- 25 against the outstanding demand in respect of the assessment year 2013-14.

The sum that has been deposited by the petitioner while seeking a stay of demand by way of the petitioner’s application under Section 220(6) of the said Act of 1961 has to be excepted.

And the repayment has to be done within a period of six weeks from the date of communication of this order. Also, it was directed that the petitioner’s appeal before the CIT(A), which has been pending since 2016, has to be disposed of expeditiously.

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