Adjustment of refund above 20% of demand, where appeal is filed: An Interesting ruling by Bombay HC


Adjustment of refund above 20% of demand, where appeal is filed: An Interesting ruling by Bombay HC



Tata Communication (WP 732 OF 2021)
1. The IT authorities had adjusted the IT refunds against the tax dues of the previous/later years.
2. Unique condition in the stay order:
The Interesting fact was that, the assessee had legally filed an appeal against the tax demand and so as per CBDT instructions on the issue, amount upto 20% of the demand was adjusted against the earlier year refunds, but going further, the authorities reserved the right to adjust the remaining demand, later on, in the stay order.
3. So the authorities then went on the adjust the entire demand due against the refund for the next years U/S 245.
4. Before the High Court (HC), the taxpayer requested that condition in the stay order be declared void, without jurisdiction and illegal.
5. Authorities contended that every demand should be recovered as soon as it becomes due and demand kept in abeyance for valid reasons only.
The Hon Bombay HC held as below:
1. The exercise of power to have set off/adjustment of refund is regulated by legislative provisions and instructions.
2. Refunds of amounts over and above the amount as per instructions/guidelines may not be adjusted towards tax demand till disposal of appeal and so the relevant amount should be returned to the assessee with interest.
Note:  Para E of the Office Memorandum dated 29 February 2016:
(E) In granting stay, the Assessing Officer may impose such conditions as he may think fit. He may, inter alia,-
(i) ……;
(ii) ……;
(iii) reserve the right to adjust refunds arising, if any, against the demand, to the extent of the amount required for granting stay and subject to the provisions of section 245.

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