Is adjustment of refund in excess of 20% contrary to guidelines issued by CBDT?

Adjustment of refund is in excess of 20% against outstanding demand payable which is contrary to the guidelines contained in the Office Memorandum, dated 29.02.2016, issued by the Central Board of Direct Taxes.

EKO INDIA FINANCIAL SERVICES PRIVATE LIMITED V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 7(1) & ANR (Delhi High Court)

The brief fact of the case: The petitioner is aggrieved as, the refund available to it in respect of the assessment year (AY) 2019 -2020, was adjusted against the disputed demand qua AY 2017-2018. The adjustment is in excess of 20%, which is contrary to the guidelines contained in the Office Memorandum, dated 29.02.2016, issued by the Central Board of Direct Taxes.

On perusal of the records, it is found that the assessee has filed an appeal before Ld CIT (Appeal), Delhi-19 which is pending decision. Application for stay of demand of Rs. 9,68,76,426/- for A.Y. 2017-18 was filed by the CA/AR of the assessee. The assessee has also paid Rs. 10,00,000/- and an amount of Rs. 3,79,51,268/- had been adjusted against refund of A.Y. 2019-20. More than 20% of the demand has already been recovered. The demand of the assessee for A.Y. 2017-18 is already collected 40.21%. The assessee would not be treated as assessee in default for the remaining demand of A.Y. 2017-18 till the disposal of the first appeal of the assessee or 31.03.2022, whichever is earlier. It is further clarified that till then no further refund if determined or due to the assessee would be adjusted against the demand.

As per section 220(6), the assessing officer in his discretion and subject to such conditions as he may think fit to the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal. Further, as per section 220(3), an application made by the assessee before the expiry of due date under subsection (1), the assessing officer may extend the time of payment or allow payment in installments, subject to such conditions as he may think fit to impose in the circumstances of the case.

Thus, after considering the facts of the case, as the assessee has deposited 10 lac and adjustment of refund of Rs. 3,79,51,268/- against the demand has been made which is more than 20% of the demand, thus it is a fit case for a stay of demand till the disposal of the appeal.

The stay granted on the following terms and conditions:-

• That is would not affect the chargability of interest u/s 220(2) as per law.
• That the assessee would cooperate with appellate authorities for proceedings, and would not seek adjournment.
• That if any refunds are determined in any assessment year till the disposal of the first appeal, the same will be adjusted against the outstanding demand
• That the undersigned reserves the right to review this order from time to time.”

This Court is of the view that the Government is bound to follow the rules and standards they themselves had set on the pain of their action being invalidated. The respondent is entitled to seek a pre-deposit of only 20% of the disputed demand during the pendency of the appeal. under Section 245 of the Act for adjustments of refunds as well as the order on stay of demand under Section 220(6) of the Act do not give any special/particular reason as to why any amount in excess of 20% of the outstanding demand should be recovered from the petitioner-assessee at this stage in accordance with paragraph 4(B) of the office memorandum dated 29 February 2016.

It is directed to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year 2017-18, within four weeks.