2025 (5) TMI 1414 - HC - Income Tax

Taxpayer wins refund of excess amount above 20% deposit requirement during pending appeal proceedings

Karnataka HC allowed petitioner's writ petition challenging respondents' adjustment of amounts exceeding 20% despite pending appeal and stay application. ... Adjustment of amount in excess of 20% being adjusted by the respondents despite pendency of an appeal and pendency of the application for Stay filed by the petitioner - HELD THAT:- In the instant case, it is an undisputed fact that the petitioner has already deposited 20% of the total demand and the application of stay is still pending consideration before the Assessing Officer. In these circumstances, we deem it appropriate to allow and dispose of the same. The petition is hereby allowed and disposed of in terms of M/s. Price Waterhouse, Bengaluru [2024 (9) TMI 1734 - KARNATAKA HIGH COURT] The concerned respondents are directed to refund the entire amount in excess of 20% for the assessment year 2023-2024 together with interest, if applicable, back to the petitioner after due verification within a period of six weeks from the date of receipt of copy of this order. The core legal questions considered in this judgment are:1. Whether the adjustment of refund amounts exceeding 20% of the tax demand, during the pendency of an appeal and stay application under the Income-Tax Act, 1961, is permissible in law.2. Whether the petitioner is entitled to a refund of the amount illegally adjusted in excess of 20% of the demand.3. Whether the respondents are justified in pursuing recovery of the balance tax demand during the pendency of the appeal before the Commissioner of Income Tax (Appeals).4. The procedural obligations of the respondents regarding disposal of stay applications and appeals within a reasonable time frame.Issue-wise Detailed AnalysisIssue 1: Legality of Adjusting Refunds in Excess of 20% of Tax Demand During Pendency of Appeal and Stay ApplicationThe legal framework revolves around Section 245 and Section 243-A of the Income-Tax Act, 1961, which govern assessment proceedings and appeals respectively. Additionally, the Circular/Office Memorandum dated 31.07.2017 issued under Section 220 of the Act provides that a pre-deposit of 20% of the demand is sufficient to seek a stay of recovery during appeal proceedings.Precedents relied upon include judgments of this Court in W.P. No. 23784/2024 (M/s. Price Waterhouse, Bengaluru v. National Faceless Appeal Centre, Delhi and others) and W.P.No.1204/2025 (Careworks Foundation v. Centralized Processing Centre and others). These decisions establish that once the petitioner has deposited 20% of the demand and filed an appeal, the respondents cannot adjust refunds exceeding that 20% towards recovery of the balance demand.The Court interpreted these precedents to mean that the maximum permissible adjustment against the refund is limited to the 20% pre-deposit, and any further adjustment is illegal and without jurisdiction. The respondents' practice of adjusting amounts beyond 20% was held to be contrary to the Circular and judicial pronouncements.The key evidence includes the petitioner's deposit of 20% of the demand and the appeal and stay application filed within prescribed periods. Despite this, the respondents adjusted Rs. 2,59,55,300/- in excess of 20%, which the Court found impermissible.The Court rejected competing arguments by the respondents that no illegality existed, emphasizing the binding nature of the Circular and judicial precedents. The Court also highlighted the respondents' failure to dispose of stay applications in a timely manner, which exacerbated the petitioner's grievance.Conclusion: The adjustment of refunds beyond 20% of the demand during pendency of appeal and stay application is illegal and must be refunded.Issue 2: Entitlement to Refund of Excess Amount AdjustedThe petitioner sought refund of the excess amount adjusted beyond the 20% pre-deposit, along with applicable interest. The Court, relying on prior judgments, held that the petitioner is entitled to such refund.The Court ordered the respondents to refund the entire amount exceeding 20% of the demand, after due verification, within six weeks from receipt of the order. Interest was also to be paid if applicable.The Court also quashed the communication dated 25.03.2025 rejecting the petitioner's representation for refund, as it was passed during pendency of the petition and was contrary to the legal position.This relief was granted to ensure the petitioner's rights are protected and to prevent illegal recovery measures.Issue 3: Restraining Recovery of Balance Demand During Pendency of AppealThe petitioner sought a direction restraining respondents from initiating or pursuing recovery of the balance demand during the pendency of the appeal before the Commissioner of Income Tax (Appeals).The Court, following the principle established in the cited precedents, directed the respondents not to take any precipitative or coercive steps to recover the balance demand until three weeks after disposal of the appeal.This direction was intended to protect the petitioner from undue harassment and to uphold the statutory right to appeal and stay of recovery upon pre-deposit.Issue 4: Disposal of Stay Application and Appeal in a Timely MannerThe petitioner requested directions for the 2nd respondent to dispose of the stay application filed on 21.12.2023 in accordance with law and CBDT instructions, after affording a reasonable opportunity of hearing.The Court noted the respondents' failure to dispose of stay applications and appeals expeditiously, despite repeated filings by the petitioner over several years in related matters.It directed the appellate authority to dispose of the appeal within three months from receipt of the order and emphasized the importance of timely adjudication to prevent prolonged uncertainty and hardship.The Court also referred to the Office Memorandum dated 31.07.2017, which mandates stay of demand upon deposit of 20% and pendency of appeal, underscoring the need for prompt disposal.Cross-References and Related PointsThe Court extensively relied on the precedent set in the Price Waterhouse case, which dealt with identical issues of illegal adjustment of refunds beyond 20% and delayed disposal of appeals and stay applications. The principles established therein were applied mutatis mutandis to the present case.Further, the Court's interim order dated 25.02.2025 directed the petitioner to make a representation for refund, which was rejected, leading to the quashing of that rejection in the present order.Significant Holdings'The respondents were clearly not justified in adjusting the refund amounts payable to the petitioner in excess of 20% and consequently, necessary directions have to be issued to the respondents to refund the entire amounts payable to the petitioner in excess of 20% of the demand for the assessment year 2012-13 within a stipulated time frame and by directing respondent No.1 to dispose of the appeals within a stipulated time frame.''Respondents are directed not to enforce the balance demand raised by any demand notice... till the expiry of period of three weeks after disposal of the appeal by the Appellate Authority.''The petition is hereby allowed and disposed of in terms of M/s. Price Waterhouse, Bengaluru Vs. National Faceless Appeal Centre, Delhi and Ors passed in W.P.No.23784/2024 dated 25.09.2024.'Core principles established include:The maximum pre-deposit required for stay of demand under the Income-Tax Act is 20% of the demand.Any adjustment of refunds beyond this 20% during pendency of appeal and stay application is illegal and without jurisdiction.The assessing authorities must dispose of stay applications and appeals expeditiously to avoid undue hardship.The revenue authorities are restrained from coercive recovery actions during the pendency of appeal and for a reasonable period thereafter.Final determinations on each issue are:The impugned order adjusting refund in excess of 20% is quashed.The respondents are directed to refund the excess amount with applicable interest within six weeks.The respondents must dispose of the stay application and appeal within a stipulated timeframe.The respondents are restrained from enforcing recovery of balance demand during pendency of appeal and for three weeks thereafter.