Calcutta HC Orders Income Tax Refund Release as 20% Disputed Demand Was Already Paid

Asa International India Microfinance Limited Vs DCIT (Calcutta High Court)

The Calcutta High Court considered a writ petition challenging the recovery of disputed income tax demand for Assessment Year (AY) 2012-13 during the pendency of the petitioner’s appeal before the Commissioner of Income Tax (Appeals). The petitioner challenged the adjustment of refunds due for AYs 2018-19 to 2022-23 against the disputed demand.

The assessment for AY 2012-13 was completed under Section 143(3) of the Income Tax Act, 1961, on 19 March 2015, resulting in a demand of Rs.48,95,220. A further demand of Rs.7,99,50,700 was raised for AY 2011-12 through a reassessment order passed on 25 December 2019 under Sections 144/147. The petitioner filed an application for rectification and stay of demand on 22 January 2020 and preferred appeals before the Commissioner of Income Tax (Appeals) on 24 January 2020.

On 3 March 2020, the Assessing Officer issued garnishee notices under Section 226(3) to the petitioner’s bankers for recovery of the disputed demands for AYs 2011-12 and 2012-13. Subsequently, on 17 March 2020, the petitioner sought adjustment of its refund for AY 2017-18 and undertook to pay an additional Rs.3,76,950 so that more than 20% of the disputed demand stood paid. The refund of Rs.1,67,50,378 for AY 2017-18 had already been adjusted on 28 February 2020, and the additional amount was paid on 19 March 2020. Thereafter, the garnishee notices were withdrawn.

The petitioner contended that, having paid more than 20% of the disputed demand in accordance with the CBDT Office Memoranda dated 29 February 2016 and 31 July 2017, it became entitled to stay of the remaining disputed demand. The petitioner argued that no order had been passed by the Principal Commissioner or Commissioner requiring payment of an amount exceeding 20%. Despite this, between May 2020 and December 2022, the Department adjusted refunds aggregating Rs.8,98,17,185 relating to AYs 2018-19 to 2022-23 against the disputed demands.

The petitioner further submitted that the adjustment of Rs.8,19,18,502 without issuing prior notice under Section 245 was illegal and that coercive recovery during the pendency of the appeal violated the principles of natural justice. The Revenue argued that Section 245 expressly permits adjustment of refunds against sums payable by an assessee and that Section 220(6) gives discretion to the Assessing Officer regarding stay of demand. It also contended that the CBDT Office Memoranda were directory and not mandatory.

The High Court identified the sole issue as whether refunds for AYs 2018-19 to 2022-23 could be adjusted against disputed demands for AYs 2011-12 and 2012-13 during the pendency of the appeal when more than 20% of the disputed demand had already been paid in accordance with the CBDT Office Memoranda.

After examining the record, the Court held that the petitioner had complied with the CBDT Office Memorandum dated 31 July 2017 by paying more than 20% of the disputed demand. Since there was no order from the Principal Commissioner directing payment of an amount higher than 20%, the petitioner was entitled to stay of recovery. The Court further held that the adjustment of refunds amounting to Rs.8,98,17,185, particularly Rs.8,19,18,502 adjusted without prior intimation under Section 245, was contrary to law. The Court found the Assessing Officer’s action unsustainable in light of earlier decisions of the Court.

Accordingly, the writ petition was disposed of with directions to release Rs.8,98,17,155 for AYs 2018-19 to 2022-23 along with interest under Section 244A within six weeks. The Commissioner of Income Tax (Appeals) was directed to dispose of the pending appeal preferably within eight weeks, and the Assessing Officer was restrained from taking coercive recovery steps for AY 2012-13 until disposal of the appeal.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

1. The petitioner in the present case, inter alia, challenges the recovery of the disputed demand for the assessment year 2012-13 during the pendency of the petitioner’s appeal before the Commissioner of Income Tax (Appeals) by adjusting refunds due to the petitioner for the assessment years 2018-19, 2019-20, 2020­21, 2021-22 and 2022-23.

2. The petitioner’s assessment for the assessment year 2012-13 was completed on March 19, 2015 under Section 143(3) of the Income Tax Act, 1961 (“the Act”) raising a demand of Rs.48,95,220/-. A further demand of Rs.7,99,50,700/- was raised for Assessment Year 2011-12. The petitioner preferred appeal before Commissioner of Income Tax (Appeals) on 24.01.2020. Prior thereto on 22.01.2020 an application for rectification and stay of demand was filed.

3. On December 25, 2019, a re-assessment order was passed under Sections 144/147 for the said assessment year raising a demand of Rs.7,99,50,700/-.

4. On March 3, 2020, the Assessing Officer issued garnishee notices under Section 226(3) of the Act to the petitioner’s Bankers for recovery of the disputed demands for Assessment years 2011-12 and 2012-13.

5. On March 17, 2020, the petitioner applied for adjustment of its refunds for Assessment Year 2017-18 and undertook to pay a further sum of Rs.3,76,950/-so that 20% of the disputed demand stood paid.

6. The garnishee notices were withdrawn on 17.03.2020, since a refund of Rs.1,67,50,378/- for Assessment Year 2017-18 was already adjusted on 28.02.2020. Against the said disputed demand a further sum of Rs.3,76,950/-was paid on 19.03.2020.

7. In view of the said office memoranda dated February 29, 2016 and July 31, 2017, the petitioner has already paid more than 20% of the disputed demand, it was entitled to stay of the balance outstanding disputed demand. In the instant case, there is nothing to show that the Principal Commissioner of Income Tax/Commissioner of Income Tax had decided that there should be payment of a lumpsum amount higher than 20% of the disputed demand. The petitioner had prayed for stay in its letter dated March 17, 2020 addressed to the Assessing Officer. By withdrawing the garnishee notices, the Assessing Officer granted such request.

8. Notwithstanding the same between May, 2020 and December, 2022, the Department adjusted further refunds aggregating Rs.8,98,17,185/- for Assessment Years 2018-19 to 2022-23 against the disputed demands.

9. The petitioner through learned Senior counsel submitted that action of the Assessing Officer in issuing garnishee notices and adjusting refunds is contrary to the binding CBDT Office Memoranda dated 29.2.2016 and 31.07.2017.

10. The petitioner is entitled to stay of recovery as more than 20% of the disputed demand has been adjusted.

11. It is further submitted that adjustment of Rs.8,19,18,502/- without notice under Section 245 of the Act is illegal. Coercive recovery during pendency of appeal before CIT(A) is violation of principles of natural justice.

12. The learned counsel for the respondents submits that Section 245 expressly permits the Assessing Officer to set off refunds against any sum payable by the assessee. Section 220(6) vests discretion in the Assessing Officer to treat the assessee as not being in default. Thus, stay is not automatic. The OM of CBDT is directory and not mandatory.

13. The sole issue involved in the present case is as follows:

Whether refunds for the Assessment Years 2018-19 to 2022-23 can be adjusted against disputed demand for Assessment Years 2011-12 and 2012-13 during pendency of appeal when 20% of disputed demand has already been paid as per CBDT OM dated 29.02.2016 and 31.07.2017.

14. After hearing the rival contention of the parties and upon perusing the records made available, this Court finds that the petitioner has complied with the CBDT Office Memorandum dated 31.07.2017 by paying more than 20% of the disputed demand for Assessment Years 2011-12 and 2012-13. There is no order from the principal Commissioner directing payment higher than. 20%. Therefore, the petitioner is entitled to stay of recovery. The adjustment of refunds amounting to Rs.8,98,17,185/-, specifically Rs.8,19,18,502/-without issuing prior intimation under Section 245 of the said Act runs contrary to law. The action of the Assessing Officer is unsustainable in light of the judgment of the Co-ordinate Bench of this Court in Danieli India Limited Vs. Assistant CIT, reported at 2023 (9) TMI 1726, Gaurav Enterprises Vs. Union of India reported at 2025(12) TMI 624 and decision dated 12.05.2026 in WPO/139/2026 (Bothra Shipping Services Pvt. Ltd Vs. Union of India).

15. In view of the above, the Writ Petition being WPO No. 1249 of 2023 is disposed of with the following directions:-

a) The respondents are directed to release a sum of Rs.8,98,17,155/- for the Assessment Years 2018-19 to 2022-23 along with interest under Section 244A within six weeks from the date of communication of this order.

b) The Commissioner of Income Tax (Appeals) is directed to dispose of the pending appeal in a time bound manner, preferably within eight weeks from the date of communication of this order.

c) The Assessing Officer shall not take any coercive steps for recovery of the demand for Assessment Year 2012-13 until the appeal pending before Commissioner of Income Tax (Appeals) is disposed of.

16. Urgent photostat certified copy of this order, if applied for, be given to the learned counsel for the parties on usual undertakings.