TaxTMI 
TaxTMI 
2026 (5) TMI 332
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....sessment year 2018-19 along with appropriate interest under Section 244A of the 1961 Act. FACTS OF THE CASE: 2. The relevant facts of the case are as follows:- a. The petitioner is a partnership firm. On October 15, 2018 it had filed its return of income (hereafter "return") for the assessment year 2018-19 thereby declaring a total income of Rs. 1,16,24,230/- (Rupees One Crore Sixteen Lakh Twenty Four Thousand Two Hundred and Thirty) only. b. The petitioner's case was selected for scrutiny assessment and ultimately an order dated September 11, 2021 was passed under Section 143(3) read with Section 144B of the 1961 Act thereby assessing the total income of the petitioner at Rs. 6,60,76,120/-. The said assessment was also followed by a notice of demand of even date. c. The petitioner assailed such assessment in appeal before the appellate authority on September 22, 2021 under Section 246A of the 1961 Act. Such appeal is pending. d. On March 15, 2022 the petitioner filed its return for the assessment year 2021-22 declaring a total income of Rs. 4,85,23,350/- and claimed a refund of Rs. 7,59,274/. The return was processed and a refund of Rs. 7,....
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.... Memorandum being F. No. 404/72/93-ITCC dated August 25, 2017 the respondent Revenue Authorities cannot recover any sum in excess of 20% of the disputed demand upon an appeal being preferred by the assessee against the assessment order that gives rise to the disputed demand. b. Attention was invited to paragraph 3 of the Office Memorandum being F. No. 404/72/93-ITCC dated February 29, 2016 to submit that the instruction was necessitated in view of hardships faced by the assessee upon the Revenue's insistence to pay high proportion of disputed demand. It was submitted that in terms of the said Memorandum (which was subsequently revised as aforesaid), if the Assessing Officer was of the view that the case required payment in excess of 20% of the disputed demand, it was incumbent on him to refer it to the administrative Pr. CIT/CIT who would then decide the quantum of payment to be made for staying the recovery of the balance sum. c. Once an appeal is preferred against the assessment order and the demand is thus disputed, any adjustment beyond 20% of the disputed demand would be without jurisdiction, if the same falls foul of the provisions of the aforesaid two Offic....
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....der Section 245 of the 1961 Act. i. Two unreported decisions of the Co-ordinate Benches of this Court in the case of Danieli India Limited vs. The Assistant Commissioner of Income Tax Central Certificate 2(2), Kolkata W.P.O. No. 2294 of 2022, decided on September 01, 2023 and Gaurav Enterprises vs. Union of India & Others W.P.O. No. 700 of 2025, decided on December 01, 2025 were also cited for the same proposition. j. A decision of the Hon'ble Supreme Court in the case of Assistant Commissioner of Income-Tax vs. Rajendra Kumar [2023] 154 taxmann.com 534 (SC) was next cited to demonstrate that the aforesaid judgment of the Hon'ble Rajasthan High Court had been carried in SLP before the Hon'ble Supreme Court but the Revenue did not press the matter on merits and prayed only for waiver of costs. k. A judgment of the Hon'ble Division Bench of the Hon'ble Bombay High Court in the case of M/s. Andrew Telecommunications India Private Limited vs. Principal Commissioner of Income Tax & Others 2016 SCC OnLine Bom 9925 was next pressed into service for the proposition that a sum in excess of the threshold percentage of the disputed demand (which was 15% at the mater....
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....16 Taxman 63 (SC) was cited in support of the proposition. b. A judgment of the Hon'ble Division Bench of the Hon'ble High Court of Madhya Pradesh in Northern Coal Fields Limited vs. Assistant Commissioner of Income-Tax & Others [2017] 398 ITR 508 (MP) was cited to contend that the Revenue was well within its authority to adjust refunds against outstanding demands even beyond 20% of the disputed demand and that the mandate of Section 245 of the 1961 Act stood complied with upon intimation being given to the assessee. c. The judgment of the Hon'ble Madhya Pradesh High Court in the case of Northern Coal Fields Limited (supra) was assailed in SLP Northern Coal Fields Limited vs. Assistant Commissioner of Income-Tax & Others, SLP Appeal (C) No. 18140 of 2017 before the Hon'ble Supreme Court but the same was not interfered with by a reasoned order observing that after adjustment, any balance refund shall be returned to the assessee. d. A judgment of the Hon'ble Delhi High Court in the case of Chemester Food Industry Private Limited vs. Central Processing Centre [2025] 174 taxmann.com 791 (Delhi) was cited to argue that in absence of conditions for grant of sta....
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....61 Act therefore the Revenue proceeded to adjust the refund against the outstanding demand pertaining to assessment year 2018-19 on November 13, 2023. k. The writ petition suffers from gross delay and laches. The cause of action as regards adjustment of refund under Section 245 of the 1961 Act arose on October 25, 2022 and thereafter on November 11, 2023. The petitioner remained completely silent for all these years and approached the Court only on October 27, 2025 after an unexplained delay of more than three years from the accrual of cause action at the first instance and nearly two years from the subsequent adjustment. Such inordinate and unexplained delay disentitles the petitioner to any relief under Article 226 of the Constitution of India. PETITIONER'S REJOINDER SUBMISSIONS: 5. Mr. Majumdar learned Senior Advocate appearing for the petitioner rejoined by submitting as follows:- a. While the intimation dated November 10, 2023 under Section 245 of the 1961 Act granted 21 days' time for response by the petitioner, the respondent no. 2 adjusted the entire refund on the very next day thereby preventing the petitioner from raising any objection to the propo....
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....aharashtra & Others (1974) 1 SCC 317 which was an Article 32 case before the Hon'ble Supreme Court and then in M/s. Dehri Rohtas Light Railway Company Limited vs. District Board, Bhojpur & Others (1992) 2 SCC 598, (which had emanated from a writ petition under Article 226 of the Constitution of India) it was elucidated that the rule which says Court may not inquire into belated and stale claims is not a rule of law, but a rule of practice based on sound and proper exercise of discretion, and there is no inviolable rule that whenever there is delay, the Court must necessarily refuse to entertain the petition. In the case of Karnataka Power Corpn. Ltd. & Another vs. K. Thangappan & Another (2006) 4 SCC 322, the Hon'ble Supreme Court while referring to several celebrated authorities of the Hon'ble Supreme Court which approved the dictum of Sir Barnes Peacock in the Privy Council judgment in the case of Lindsay Petroleum Co. vs. Prosper Armstrong Hurd (1874) 5 PC 221 instructed as follows:- "6. Delay or laches is one of the factors which is to be borne in mind by the High Court when they exercise their discretionary powers under Article 226 of the Constitution. In an appropria....
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....on intimations dated October 25, 2022 and November 10, 2023 being issued under Section 245 of the 1961 Act. 12. It can be easily noticed that the first of the two adjustments by which the petitioner is aggrieved was done more than three years prior to the institution of the writ petition. To be precise, the adjustment from sums refundable to the assessee in respect of assessment year 2021-22 was done on October 25, 2022 upon issuing intimation under Section 245 of the 1961 Act on the same date, but the writ petition has been filed only on October 27, 2025 i.e. three years thereafter. There is no explanation at all, in the writ petition for the belated approach to this Court. The claim for refund is in the nature of a money claim, a suit wherefor would have been barred by limitation after three years. In such view of the matter, having regard to the law laid down by the Hon'ble Supreme Court in the case of Bhailal Bhai (supra), this Court is not inclined to exercise its discretion and entertain any challenge to the said adjustment in this proceeding. The said adjustment will, in any case, be subject to the result of the pending appeal filed by the assessee against the assessment ....
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....lowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand. (1-A) Where any notice of demand has been served upon an assessee and any appeal or other proceeding, as the case may be, is filed or initiated in respect of the amount specified in the said notice of demand, then, such demand shall be deemed to be valid till the disposal of the appeal by the last appellate authority or disposal of the proceedings, as the case may be, and any such notice of demand shall have the effect as specified in Section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 (11 of 1964).] *********************** *********************** *********************** (3) Without prejudice to the provisions contained in sub-section (2), on an application made by the assessee before the expiry of the due date under sub-section (1), the Assessing Officer may extend the time for payment or allow payment by instalments, subject to such conditions as....
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....the Assessing Officer may exercise the discretion suo motu. But such discretion can be exercised only where an appeal is preferred. Such information can be brought within the notice of the Assessing Officer by the assessee. In the process, it is up to the assessee to make an application seeking to invoke the discretion. Therefore, an application is not forbidden or prohibited. The expression used in this sub-section makes it clear that the scope of making an application is implicit in the section. 10. When such discretion is invoked, the authority has to exercise this discretion guided by certain considerations. The consideration which may form guidance for exercising the discretion may be summarised thus: (1) Whether there is a prima facie case in favour of the assessee; (2) the amount to tax and penalty involved in the appeal; (3) the capacity of the assessee of pay the amount; (4) undue hardship to the assessee; and (5) nature of security offered by the assessee. While considering the above aspects, the authority must have also in mind the adverse effect that may ensue on the public revenue in case stay is granted, t....
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....g an opportunity to the assessee to register its objection to such adjustment and it is not a formality aimed at merely informing the assessee about the contemplated adjustment [Glaxo Smith Kline Asia (P) Ltd. vs. CIT, (2007) 290 ITR 35; Hindustan Unilever Ltd. vs. CIT, (2015) 377 ITR 281; S. Narayanan vs. CIT, (2017) 395 ITR 271; Avana Global FZCO vs. CIT, 2024 SCC OnLine Bom 6086; Graphite India (supra)]. Indeed, if keeping the assessee informed had been the only purpose, the same could be done post adjustment as well. 21. In fact the legal position could not have been otherwise. Section 245 of the 1961 Act vests discretionary authority in the Revenue to adjust any sum refundable to the assessee against any outstanding demand. Exercise of such authority would visit the assessee with civil consequences. That being so it must be exercised in a fair and reasonable manner compatible with the principles of natural justice. It is well settled that any act or order involving civil consequences must be preceded by observance of principles of natural justice and that even if a statute is silent as regards the same such principles can be read into it, unless the same are excluded by nec....
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....under Section 220(6) of the 1961 Act, the Assessing Officer is required to act fairly, reasonably and judiciously keeping in mind the guidelines mentioned in the Instruction dated February 02, 1993 and the Office Memorandum dated February 29, 2016, July 31, 2017 and August 25, 2017. 28. In Graphite India Limited (supra) a Co-ordinate Bench of this Court directed refund of the amount adjusted in excess of 20% of the disputed demand upon finding that an appeal against the assessment order wherefrom the demand had arisen was pending and that neither the order under Section 245 of the Act nor the order of stay of demand under Section 220(6) of the 1961 Act cited any special/particular reason as to why any sum in excess of 20% of the disputed demand was required to be adjusted. 29. In Danieli India Limited (supra) the Court found that in the facts of the said case, the Assessing Officer could not have adjusted more than 20% of the disputed demand when the appeals against the assessment orders were pending. 30. In Gaurav Enterprises (supra), the Court has followed Graphite India Limited (supra) and Danieli India Limited (supra) and directed refund of the amounts adjusted in exce....
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.... mere filing of appeal would have amounted to stay of demand or would have led to the assessee not being treated in default, then by that logic the requirement of making any payment or deposit, not to speak of 20% of the disputed demand, would not have been there at all. Moving further, if the lodgement of appeal would mean that the assessee would not be in default, the provision of Section 220(6) of the 1961 Act which allows the Assessing Officer to exercise discretion not to treat an assessee in default would also be rendered meaningless. The Assessing Officer would be left with nothing to exercise discretion for. Therefore, this Court respectfully disagrees with the observations made in Rajendra Kumar (supra) to the limited extent "that once an appeal is filed within the time in the prescribed format, the assessee will not be deemed as an "assessee-in-default." 35. However, this Court hastens to add that while there is no dearth of jurisdiction in the Assessing Officer to treat the assessee in default in absence of an order staying the demand as aforesaid, yet when the Assessing Officer would proceed to adjust any sum from the amounts refundable to the assessee by exercising ....
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....e determining such an application, the authority exercising discretion should not act in the role of a mere tax-gatherer." [Emphasis supplied] 36. The following observations of the Hon'ble Gujarat High Court in the case of Sun Pharmaceutical Industries Limited vs. Deputy Commissioner of Income-Tax & Another (2021) 438 ITR 357 : 2021 SCC OnLine Guj 3070 : (2021) 322 CTR 787 are also pertinent in the present context:- "21. So far as section 245 of the Act is concerned, there need not be any debate as regards the power of the Department to adjust the refund, however, such power should be exercised in a reasonable manner. Here is a case wherein the assessee is sought to be deprived of a huge amount towards the refund. A huge amount towards refund is being declined on the ground that a demand is pending for the previous year. If such unbridled power is assumed by the Revenue to adjust the refund, it would result in a situation where two assessees against whom equal demands are raised will be treated differently. One assessee who has to recover significant amount towards the refunds and another who has not to recover the refunds would be put in two different categori....
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....een rightly contended by the petitioner that the Revenue had adjusted the amounts much prior to the dates when the notices calling upon the petitioner to file written submissions were issued. The belated filing of written submissions by the petitioner therefore cannot, in the facts of this case, help the Revenue. Indeed if the petitioner had been instrumental in delaying the appeal after being granted stay, that might have been a good ground to recall or appropriately review or modify an order of stay, in accordance with law. 41. The judgment in the case of Mohan Wahi (supra) is an authority for the proposition that for the purpose of treating an assessee in default, a notice of demand must be served upon the assessee. If after service of notice the assessee does not pay the sum demanded in terms of the provisions of Section 220 of the 1961 Act, then recovery proceedings can be launched. In the said case, the sale conducted in recovery proceedings was set aside by the Hon'ble Supreme Court upon finding that the assessee was not in default as notice of demand had not been served upon the assessee. The said judgment is of no avail for the Revenue in the facts of the present case. ....
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....a position to pay the amount of demand in question. Mr. Dutta also could not satisfy from the record that any specific order was passed on the application of the petitioner under section 220(6) of the Act either rejecting or accepting the same before taking such coercive action under section 245 of the Act and more so in adjusting the amount more than 20 per cent. of the demand in question by disregarding and ignoring the aforesaid office memorandum of the Central Board of Direct Taxes which was binding upon him is bad in law." [Emphasis supplied] 43. In such view of the matter, the said judgment cannot aid the Revenue at all. 44. The order of the Hon'ble Supreme Court in the case of Northern Coal Fields Limited (supra) is clearly an order in the facts of the case. The very opening words of the said order dismissing the SLP make it clear that the same has been passed "In the facts of" the case. The facts of the present case being evidently different from the facts of Northern Coal Fields Limited (supra), the said order cannot help the Revenue at all. 45. Chemester Food Industry Private Limited (supra) is again a case where the Assessing Officer had found that gran....