2026 (3) TMI 281 - HC - Income Tax

Refund adjustment ceiling prescribed by memorandum upheld; excess adjustments must be refunded and recovery stayed pending appeal.

Assessing authority adjusted tax refunds in excess of the Office Memorandum threshold that conditions stay on payment/adjustment up to 20% of the disputed ... Adjustment of refunds limited to 20% of disputed demand - stay of demand on payment of 20% pending first appeal - Whether refunds adjusted by the revenue against the assessed demands exceeded the permissible limit of 20% of the disputed demand and require refund - HELD THAT: - The Court examined the Office Memorandum F. No. 404/72/93-ITCC dated 29.02.2016 as amended by the Office Memorandum dated 31.07.2017 which standardized grant of stay of demand on payment of a lump sum of 20% of the disputed demand where the demand is disputed before the CIT(Appeals). Since the AO had called for payment of 20% under that mandate, the proper construction is that when an application for stay is pending and refunds are available, adjustment of refunds against the disputed demand is permissible only to the extent of 20% falling under para 4(A) of the Office Memorandum. The petitioner's tabulation showed adjustments in excess of 20% for the assessment years in question. The Court concluded that those excess adjustments were contrary to the Office Memorandum and therefore unlawful, entitling the petitioner to refund of the excess amount adjusted. Refund the amount adjusted in excess of 20% of the disputed demand for AYs 2017-18, 2018-19 and 2019-20. Stay of demand on payment of 20% pending first appeal - In light of the pendency of the appeals and the restriction on adjustments to 20%, the respondents were restrained from effecting further recovery of the disputed demands for the specified assessment years until finalisation of the appeals. The Court also recorded that the assessing officer should record the stay on the portal so that the concession is reflected administratively. Respondents restrained from recovering any portion of the demand pertaining to AYs 2017-18, 2018-19 and 2019-20 during pendency of the appeals, subject to adjustment/payment not exceeding 20% and with appropriate entries made on the portal. Final Conclusion: The petition is allowed: the revenue shall refund amounts adjusted in excess of 20% of the disputed demand for AYs 2017-18, 2018-19 and 2019-20, and, having regard to pending appeals and the Office Memorandum, further recovery is restrained while the appeals remain pending; the assessing officer shall record the stay on the portal. Issues: Whether the assessing authority adjusted refunds in excess of the ceiling prescribed by the Office Memorandum and whether the petitioner is entitled to refund of amounts adjusted beyond 20% of the disputed demand and restraint on recovery pending disposal of appeals.Analysis: The Court examined the assessing authority's communications calling for deposit of 20% of the disputed demand and the Office Memorandum F. No. 404/72/93-ITCC dated 29.02.2016 as amended by Office Memorandum F. No. 404/72/93-ITCC dated 31.07.2017 which prescribes payment/adjustment up to 20% of disputed demand as condition for stay where appeals are pending. The Court compared the quantified demands, the 20% threshold for each assessment year, and the refunds adjusted by the revenue, finding that the adjustments made exceeded the 20% limit shown in the petition's table for the assessment years 2017-18, 2018-19 and 2019-20. The Court held that where applications for stay are pending and refunds are adjusted, the mandate of the Office Memorandum permits adjustment only up to the prescribed 20% in cases under paragraph 4(A), and therefore adjustments beyond that ceiling cannot stand.Conclusion: The petition is allowed; respondent No.1 is directed to refund amounts adjusted in excess of 20% of the disputed demand for assessment years 2017-18, 2018-19 and 2019-20, and respondents are restrained from recovering any portion of the demands for those years pending finalisation of the appeals.