Delhi High Court Limits Tax Refund Adjustment against Disputed Demands at 20 Percent

Delhi High Court Limits Tax Refund Adjustment against Disputed Demands at 20 Percent

Terms the action of the assessing officer as hasty and contrary to the law

The Delhi High Court has limited the adjustment of tax refunds against disputed demands to 20 percent.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that the action of the Assessing Officer (AO) in adjusting the refund due to the petitioner/assessee was not only hasty but also contrary to the law.

The grievance of the petitioner was that the Income Tax department adjusted the refund payable for the Assessment Year 2022–2023 against the disputed demands for Assessment Years 2011–2012, 2012–2013, and 2014–2015.

The Department contended that the petitioner should have filed an application under Section 220 of the Income Tax Act, 1961, so that an appropriate order could be passed by the AO.

On the other hand, the assessee submitted that the intimation was given to him on 2 March 2023, under Section 245. The adjustment was made on the very same date, despite him submitting the response on the designated portal.

The assessee stated that the AO did not provide any time to respond to the intimation, proposing an adjustment of the outstanding demand against the due refund. He added that the AO should have applied his mind and passed an appropriate order.

The Court noted that under the 29 February 2016 Office Memorandum, as amended on 31 July 2017, the AO should have, in terms of Paragraph 4A, adjusted not more than 20 percent of the disputed demand. This was because an appeal concerning the disputed demand was pending before the Commissioner of Income Tax (Appeals).

Thus, the Judges directed the Income Tax department to release the amount, along with applicable interest, which was more than 20 percent of the disputed demand concerning the Assessment Years.