2025 (5) TMI 524 - HC - Income Tax

Adjustment of refunds beyond 20% of the demand raised - HELD THAT - As on 24.01.2024 and 07.08.2024 the first respondent issued a letter granting stay of demand for Assessment year under dispute. Subsequently the petitioner submitted a representation/application dated 05.09.2024 and 24.10.2024 seeking the respondents for the refund of the adjust amount along with interest for which the petitioner neither received a reply nor the refund. However having regard to the fact that the respondents have neither replied to the application filed by the petitioner nor have granted refund as sought for by the petitioner deem it just and appropriate to direct the respondents to refund entire amount in excess of 20% for the assessment years 2022-23 and 2019-20. The petitions are hereby allowed. The concerned respondents are directed to refund the entire amount in excess of 20% for the assessment years 2022-2023 and 2019-20 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.

2024 (9) TMI 1734 - HC

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the adjustment or set-off of refunds beyond 20% of the demand raised for the relevant assessment years is legally permissible, particularly when appeals and stay applications are pending disposal before the Appellate Authority;

(b) Whether the petitioner is entitled to refund of amounts adjusted in excess of the permissible 20% pre-deposit limit as per the Office Memorandum dated 31.07.2017 and relevant judicial precedents;

(d) Whether coercive or precipitative steps can be taken by the tax authorities to enforce the balance demand before disposal of the appeals;

(e) The obligation of the tax authorities to dispose of pending appeals and stay applications within a reasonable and stipulated time frame.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Legality of adjustment of refunds beyond 20% of demand and entitlement to refund

Relevant legal framework and precedents: The Office Memorandum dated 31.07.2017 issued under Section 220 of the Income Tax Act provides that if a taxpayer deposits 20% of the disputed demand as pre-deposit, the demand shall be stayed pending disposal of the appeal. The petitioner relies on the judgment of this Court in W.P. No. 9835/2024 (Pan Synthetics Private Limited) and the coordinate Bench decision in W.P. No. 23784/2024 (M/s. Price Waterhouse) which held that adjustment of refunds beyond the 20% pre-deposit is impermissible.

Court's interpretation and reasoning: The Court observed that the respondents have adjusted the refund amounts payable to the petitioner in excess of the 20% pre-deposit limit, which is contrary to the Office Memorandum and judicial pronouncements. The Court emphasized that the petitioner had filed appeals and multiple stay applications well before the adjustment and that the appeals were still pending disposal. The Court held that the adjustment of amounts beyond 20% of the demand raised is "clearly impermissible in law."

Key evidence and findings: The petitioner filed appeals and stay applications between 2015 and 2016 for AY 2012-13 and subsequent years, and the respondents neither disposed of the appeals nor granted refunds timely. The adjustment of refunds for AY 2019-20 and AY 2022-23 was also made despite pending appeals and stay applications. The Court noted letters dated 24.01.2024 and 07.08.2024 granting stay of demand, and the absence of any response to the petitioner's refund applications dated 05.09.2024 and 24.10.2024.

Application of law to facts: The Court applied the principles from the Office Memorandum and the precedent decisions to the facts, concluding that the respondents' actions in adjusting refunds beyond 20% violated the legal framework and the rights of the petitioner. The Court directed the respondents to refund the amounts adjusted in excess of 20% along with applicable interest.

Treatment of competing arguments: The respondents contended that they would dispose of the appeals expeditiously. However, the Court found that despite the passage of significant time, no disposal had occurred, and the adjustment of excess refunds was unjustified. The Court rejected the respondents' arguments on procedural grounds and emphasized adherence to the Office Memorandum and judicial rulings.

Conclusions: The Court held that the adjustment of refunds beyond 20% of the demand is unlawful and directed refund of the excess amounts with interest. The Court also mandated timely disposal of pending appeals.

Issue (c): Entitlement to interest on refunds under Section 244A

Relevant legal framework: Section 244A of the Income Tax Act mandates payment of interest on delayed refunds.

Court's reasoning: The Court noted that the petitioner sought interest on the refunds as per Section 244A. Given the respondents' delay and failure to refund the excess amounts, the Court found it appropriate to direct payment of interest along with the refund.

Application of law to facts: Since the refund was delayed without justification, the petitioner was entitled to interest on the refunded amounts.

Conclusion: The Court directed the respondents to pay interest on the refunded amounts as stipulated under Section 244A.

Issue (d): Prohibition on coercive or precipitative enforcement of balance demand before disposal of appeals

Relevant legal framework: The Office Memorandum and judicial decisions establish that enforcement of demand beyond the pre-deposit amount is stayed pending appeal disposal.

Court's reasoning: The Court observed that the respondents were directed not to take coercive steps to recover the balance demand until three weeks after disposal of the appeal. This protects the petitioner's rights and prevents undue harassment.

Application of law to facts: The Court applied this principle to the present facts, restraining the respondents from enforcing the balance demand prematurely.

Conclusion: The Court prohibited any coercive action till three weeks after the appeal disposal.

Issue (e): Obligation to dispose of appeals and stay applications within stipulated time

Relevant legal framework: The principles of natural justice and judicial discipline require timely disposal of appeals and related applications.

Court's reasoning: The Court noted the petitioner's repeated efforts to get the appeals and stay applications disposed of, which remained pending for years. The Court emphasized the need for expeditious disposal to prevent undue hardship.

Application of law to facts: The Court directed the Appellate Authority to dispose of the appeals within three months from receipt of the order.

Conclusion: Timely disposal was mandated to uphold justice and procedural fairness.

3. SIGNIFICANT HOLDINGS

The Court held:

"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 ... within a stipulated time frame."

"In the event, the petitioner deposits 20% by way of pre-deposit, there shall be stay of demand till disposal of the appeal by the Appellate Authority."

"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 concerned respondents are directed to refund the entire amount in excess of 20% ... 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."

Core principles established include the inviolability of the 20% pre-deposit limit under the Office Memorandum dated 31.07.2017, the entitlement to interest on delayed refunds under Section 244A, and the prohibition on coercive recovery beyond the pre-deposit amount pending appeal disposal.

The Court's final determinations were to allow the petitions, direct refund of the excess amounts with interest, mandate expeditious disposal of appeals within three months, and restrain enforcement of balance demand until three weeks after appeal disposal.

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