High Court sets aside revenue's hasty refund adjustment, emphasizes procedural compliance

The High Court found the revenue's adjustment of the refund against outstanding demands for multiple Assessment Years to be hasty and contrary to the law. The Court directed the revenue to release the excess amount beyond 20% of the disputed demand, along with applicable interest, to the petitioner within four weeks. The judgment stressed the importance of adhering to procedural requirements and guidelines, such as the Office Memorandum, in refund adjustments, and highlighted the necessity of proper orders under the Income Tax Act. The decision aimed to rectify the revenue's hasty actions and ensure compliance with legal provisions.

---

---

Issues:
Adjustment of refund against outstanding demands for multiple Assessment Years (AYs), compliance with Office Memorandum (OM) dated 29.02.2016 and 31.07.2017, requirement of passing an order under Section 245 of the Income Tax Act, 1961, pending appeals before the Commissioner of Income Tax (Appeals) (CIT(A)), and the application of the judgment in Glaxo Smith Kline Asia (P.) Ltd vs. CIT and Jindal Steel and Power Ltd vs. PCIT.

The High Court heard arguments regarding the adjustment made by the revenue against the refund due for AY 2022-23 concerning demands for AYs 2011-12, 2012-13, and 2014-15. The petitioner contended that the adjustment exceeded 20% contrary to the OM dated 29.02.2016 and 31.07.2017, and was made without a proper order under Section 245 of the Income Tax Act, 1961. The petitioner sought the balance amount exceeding 20% of the disputed demand, citing relevant judgments for support.

The Court acknowledged a typographical error in the previous order mentioning AY 2013-14 instead of AY 2014-15. No counter-affidavit was filed, and the revenue did not dispute the facts mentioned in the order. The revenue argued that the petitioner should have filed an application under Section 220 of the Act for appropriate action by the Assessing Officer (AO). The petitioner claimed that the adjustment was made hastily without providing an opportunity to respond, referencing communications highlighting the issue.

After hearing both sides, the Court found the AO's action of adjusting the refund against disputed demands for AYs 2011-12, 2012-13, and 2014-15 to be hasty and against the law. The Court emphasized the requirement to adjust not more than 20% of the disputed demand as per the OM, unless specific criteria were met, which was not demonstrated in this case. The Court directed the revenue to release the excess amount beyond 20% of the disputed demand, along with applicable interest, to the petitioner within four weeks.

The judgment highlighted the importance of following procedural requirements and guidelines, such as the OM, in adjusting refunds against outstanding demands. It emphasized the need for proper orders under the Income Tax Act and considered relevant judgments to support the petitioner's claim for the release of the excess amount. The Court's decision aimed to rectify the hasty adjustment made by the revenue and ensure compliance with legal provisions.

---