2023 (8) TMI 1078 - HC - Income Tax

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. ... Stay of Disputed demand - AO in adjusting the refund due to the petitioner/assessee for AY 2022-23, against the disputed demands for AYs 2011-12, 2012-13, and 2014-15 - HELD THAT:- Under the Office Memorandum (“OM”) dated 29.02.2016, as amended by OM dated 31.07.2017, AO should have, ordinarily, in terms of para 4A adjusted not more than 20% of the disputed demand, considering the fact that an appeal concerning the disputed demand was, admittedly, pending before the CIT(A). Higher amount can only be retained, only if, as per the aforementioned OMs, the assessee’s case falls in the situation captured in para 4B (a). No material has been furnished by the respondent/revenue which would suggest that the petitioner/assessee’s case would fall within 4(B)(a). Given this position, the writ petition is disposed of with the direction to the respondents/revenue to release the amount, along with applicable interest, which is in excess of 20% of the disputed demand, concerning the aforementioned AYs. We may also note (something we have recorded in our order dated 14.07.2023), according to the petitioner/assessee, the excess amount which is available with the respondents/revenue. Respondents/revenue will make their own calculation and ascertain whether the amount indicated by the petitioner/assessee is the excess amount. Thus, the excess amount beyond 20%, along with applicable interest, will be released to the petitioner within four (4) weeks of the receipt of a copy of the judgement. 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.