Case Law Details
Bothra Shipping Services Pvt. Ltd. Vs Union of India (Calcutta High Court)
Summary: The petitioner challenged the adjustment of its income tax refund for Assessment Year (AY) 2021-22 against an outstanding demand relating to AY 2023-24. The principal grievance was that the adjustment had been made even though a Stay Application under Section 220(6) before the Assessing Officer and an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] for AY 2023-24 were still pending.
The petitioner contended that the refund due for AY 2021-22 had already been determined and had become payable. However, the respondents adjusted the refund against the demand for AY 2023-24 without issuing notice or granting an opportunity of hearing. It was argued that since the stay application and appeal regarding AY 2023-24 had not been decided, the demand had not attained finality and could not be enforced. The petitioner relied on CBDT Instruction No. 1914 dated 21 March 1996 and subsequent circulars, submitting that adjustment should not be made when a stay application is pending or where the demand is disputed. Reliance was also placed on earlier decisions of the Calcutta High Court in Danieli India Limited and Gaurav Enterprises, where recovery exceeding permissible limits through adjustment of refunds during the pendency of appeals was held to be unsustainable.
The respondents argued that Section 245 of the Income Tax Act empowered the Assessing Officer to set off refunds against tax dues. According to the respondents, the pendency of an appeal or stay application did not automatically prohibit such adjustment. Since no stay order had been granted for AY 2023-24, the demand remained recoverable. It was also contended that intimation had been provided through the CPC portal and that the petitioner could seek rectification or pursue the stay application. Reliance was placed on judicial precedents to submit that adjustment under Section 245 was an administrative act and should not ordinarily be interfered with unless shown to be arbitrary or mala fide.
After considering the rival submissions and examining the records, the High Court set aside and quashed the adjustment of the AY 2021-22 refund against the demand for AY 2023-24. The Court followed the principles laid down in Danieli India Limited and Gaurav Enterprises. The respondents were directed to release the refund for AY 2021-22 together with interest under Section 244A within six weeks from the communication of the order.
The Court further directed that no coercive steps should be taken by the Assessing Officer for recovery of the demand for AY 2023-24 until the Stay Application is decided. The CIT(A) was requested to dispose of the pending appeal in a time-bound manner, preferably within eight weeks. The writ petition was accordingly disposed of without examining the merits of the underlying tax dispute, and no order as to costs was passed.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. The petitioner in the present case challenges inter alia, the adjustment of refund due for the Assessment Year 2021-22 against the outstanding demand for Assessment Year 2023-24.
2. Main grievance is that such adjustment has been made despite the fact that the Stay Application is pending before the Assessing Officer and an appeal is pending before the CITA for Assessment Year 2023-24. The issues involved herein are as follows:-
i) Whether the Department can adjust a refund against the disputed demand when a Stay Application and Appeal are pending.
ii) Whether such adjustment violates the principles of natural justice and statutory safeguard under the income Tax Act.
iii) The Learned counsel for the petitioner submits that the refund for Assessment Year 2021-22 has been determined and has become due to the petitioner. Without issuing any notice or affording any opportunity of hearing the respondents adjusted the said refund against the demand for Assessment Year 2023-24. It is further contended that for Assessment Year 2023-24 a Stay Application is pending before the Assessing Officer under Section 220(6) and an Appeal is also pending before the CITA, therefore, the demand for Assessment year 2023-24 is not final and cannot be enforced.
3. Reliance is placed upon CBDT Instruction No. 1914 dated 21.03.1996 and subsequent Circular which provides that no adjustment shall be made where stay application is pending or demand is not final. It is well settled proposition that an adjustment of refund against disputed demand during pendency of appeal is impermissible.
4. It is further submitted that adjustment without adjudication of Stay and Appeal causes financial prejudice and defeats the purpose of the statutory remedies. The learned counsel appearing for the petitioner places reliance upon two judgments of this Court which are respectively reproduced below:
i) DANIELI INDIA LIMITED Versus THE ASST. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2 (2), KOLKATA reported in 2023 (9) TMI 1726 –CALCUTTA HIGH COURT.
“Considering the facts and circumstances of this case which appears from record and submission of the parties and decision in the case of Graphite India Ltd. (supra), this writ petition being WPO 2294 of 2022 is disposed of by holding that the action of the assessing officer recovering amount in excess of 20% of the demand arising out of relevant assessment orders against which Appeals are pending before CIT (Appeals) by way of adjustment from the admitted refund relating to other assessment years are arbitrary and not sustainable in law. Accordingly, the respondent Income Tax Authority concerned is directed to refund the amount in excess of 20% which has been recovered from the refund of assessment years 2010-11 and 2017-18 for recovery of the demand arising out of the assessment orders relating to assessment years 2011-12, 2012-13 and 2013-14 against which appeals are pending before the CIT (Appeals), within a period of four weeks from the date of communication of this order subject to verification of the actual amount recovered and for this purpose respondent Income Tax Authority concerned shall afford an opportunity of hearing to the petitioner if required for clarification in support of such claim.
With these observations and directions, this writ petition stands disposed of.”
ii) GAURAV ENTERPRISES VERSUS UNION OF INDIA AND ORS. reported in 2025(12) TMI 624 – CALCUTTA HIGH COURT.
“15. As recorded hereinabove, the assertion of the revenue authorities is that unless the petitioner puts in a sum equivalent to 20% of the disputed demand, recovery of the entire outstanding demand is permissible. It has not been demonstrated before this Court to any degree of satisfaction that any such situation as mentioned in paragraph 4B of the Office Memorandum dated February 29, 2016 as amended by the officer memorandum dated July 31, 2017 exists in the case at hand. In such view of the matter, this Court is inclined to pass the same order as passed by the Co-ordinate Bench of this Court in the case of Danieli India Limited (supra) while relying on M/s. Graphite India Limited (supra).
Accordingly, the respondent Income Tax authorities are directed to refund to the petitioner the amount dated April 17, 2021 issued pursuant to the assessment order dated April 17, 2021 against which an appeal is pending), from the amounts refundable to the petitioner in respect of assessment years 2020-21 to 2023-24 within a period of eight weeks from the date of communication of this order upon due verification of the actual amount recovered thus far. The respondent Income Tax authorities shall be free to afford an opportunity of hearing to the petitioner for the purpose of any clarification in respect of the petitioner’s claim as regards the amount recovered.
it is submitted that the appeal that has been preferred before the CIT (Appeals) under Section 246A of the Income Tax Act, 1961 has been pending since 2021. In such view of the matter, the appellate authority being the respondent no. 6 herein is requested to expedite the hearing of the appeal and dispose of the same as early as possible.”
5. The learned counsel appearing for the respondent submits that under Section 245 the Assessing Officer is empowered to set off refund against any tax due under the Act.
6. It is further contended that pendency of a stay application or appeal does not automatically bar adjustment. The Assessing Officer has discretion to adjust after considering the facts. Since there is no order of Stay granted by the Assessing Officer for the Assessment Year 2023-24, the demand continues to be outstanding and recoverable.
7. The adjustment has been made after giving intimation through the CPC Portal and the petitioner has sufficient opportunity to file a rectification of Stay Application. Learned counsel appearing for the respondent relies upon a judgment NORTHERN COAL FIELDS LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX AND ORS. which has subsequently travelled up to the Apex Court wherein it has been observed as follows:
“ In the facts of this case, we are not inclined to interfere with the order of the High Court. However, after the adjustment of the tax in the next year, the balance amount, if any, should be refunded to the petitioner by the Income Tax Department. The Special Leave Petition is dismissed.
Pending applications(s), if any, stands disposed of accordingly.”
8. The respondents submit that adjustment under Section 245 is an administrative act. Unless malafide or arbitrariness is shown the Court should not interfere as held in CIT Vs. CHABILAL AGARWAL (2014) 1 SCC 603.
9. After hearing the rival contention of the parties upon perusing the records made available that the adjustment of refund for Assessment Year 2021-22 against the demand for Assessment Year 2023-24 is set aside and quashed in light of the judgment/order passed by the coordinate Bench of this Court in DANIELI INDIA LIMITED (supra) and GAURAV ENTERPRISES (supra). Accordingly, respondent Nos. 2 and 3 are directed to release the refund for Assessment Year 2021-22 along with interest under Section 244A within six weeks from the date of communication of this order.
10. The Assessing Officer shall not take any coercive steps for recovery of demand for Assessment Year 2023-24 until the Stay Application is disposed of. The CITA is requested to dispose of the pending appeal in a time bound manner preferably within 8 weeks.
11. In view of the above the Writ Petition being WPO No. 139 of 2026 is disposed of without going into the merits of this case. No order as to costs.
12. Urgent photostat certified copy of this order, if applied for, be given to the learned counsel for the parties on usual undertakings.
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