Case Law Details
Bothra Shipping Services Pvt. Ltd. Vs Union of India And Ors. (Calcutta High Court)
The Calcutta High Court considered a writ petition challenging the adjustment of the refund due for Assessment Year (AY) 2021-22 against the outstanding tax demand for AY 2023-24. The petitioner contended that the adjustment was made despite a stay application being pending before the Assessing Officer under Section 220(6) and an appeal pending before the Commissioner of Income Tax (Appeals) (CIT(A)). The issues before the Court included whether the Department could adjust a refund against a disputed demand during the pendency of a stay application and appeal, and whether such adjustment violated the principles of natural justice and the statutory safeguards under the Income Tax Act. The petitioner submitted that the refund had already become due and that it was adjusted without issuing any notice or affording an opportunity of hearing. It was further argued that, since the demand for AY 2023-24 was under challenge and the stay application had not yet been decided, the demand had not attained finality and should not have been enforced.
The petitioner relied upon the CBDT Instruction No. 1914 dated March 21, 1996 and subsequent circulars, contending that no adjustment should be made where a stay application is pending or the demand has not become final. Reliance was also placed on the Calcutta High Court’s earlier decisions in Danieli India Limited and Gaurav Enterprises, wherein the Court had held that recovery in excess of the permissible limit from refunds during the pendency of appeals was not sustainable in law.
The Revenue contended that Section 245 empowers the Assessing Officer to set off refunds against outstanding tax dues and argued that mere pendency of a stay application or appeal does not automatically prohibit such adjustment. It submitted that, in the absence of a stay order for AY 2023-24, the demand continued to remain outstanding and recoverable. The Revenue further stated that intimation had been given through the CPC Portal, that the petitioner had adequate opportunity to seek rectification or pursue the stay application, and relied upon the decision in Northern Coal Fields Ltd. as well as CIT v. Chhabilal Agarwal to contend that adjustment under Section 245 is an administrative action and should not ordinarily be interfered with unless shown to be arbitrary or mala fide.
After considering the rival submissions and the records, the Calcutta High Court set aside and quashed the adjustment of the refund for AY 2021-22 against the demand for AY 2023-24, following the principles laid down in its earlier decisions in Danieli India Limited and Gaurav Enterprises. The Court directed the Income Tax authorities to release the refund for AY 2021-22 together with interest under Section 244A within six weeks from the date of communication of the order. It further directed that the Assessing Officer shall not take any coercive steps to recover the demand for AY 2023-24 until the stay application is decided. Observing that the appeal before the CIT(A) was pending, the Court requested the appellate authority to dispose of the appeal in a time-bound manner, preferably within eight weeks. The writ petition was accordingly disposed of without examining the merits of the assessment 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).
16. 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.
17. 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.
Author Bio
