Coercive tax recovery restrained during first appeal where more than half the disputed demand was already paid.

During pendency of the first appeal, further coercive recovery of a disputed tax demand was found impermissible where the assessee had already deposited more than 50% of the demand. Adjustment of refunds and garnishee action were treated as unsustainable in light of the governing recovery instructions and the facts of the case. The Court protected the assessee from additional recovery steps until disposal of the appeal, and directed release of the recovered sum with interest.

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Issues: Whether the Assessing Officer could adjust refunds and initiate garnishee proceedings for recovery of the disputed demand for assessment year 2011-12 when the assessee had already deposited more than 50% of the demand and the appeal before the Commissioner of Income Tax (Appeals) was pending.

Analysis: The dispute concerned recovery of outstanding tax demand during the pendency of the first appeal. The assessee had already paid more than 50% of the disputed demand, and the recoveries were effected by adjustment of refunds for later assessment years as well as by garnishee notices. The Court found such adjustment unsustainable in the light of the governing administrative instructions and the binding principles already applied by the Court in similar matters. It held that, in the facts of the case, the assessee was entitled to protection against further recovery action during the pendency of the appeal.

Conclusion: The adjustment of refunds and the coercive recovery steps were held to be illegal and unsustainable. The Revenue was directed to release the recovered sum with interest, and no further coercive steps were permitted until disposal of the pending appeal.

Ratio Decidendi: Where an assessee has already deposited more than 50% of the disputed demand, further coercive recovery by adjustment of refunds or garnishee action during the pendency of the first appeal is impermissible in the facts of the case.

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