Civitech Housing India Private Limited Vs DCIT (Delhi High Court)
Summary: The Delhi High Court held that where a refund is admittedly due to an assessee and the Revenue proposes adjustment under section 245 of the Income-tax Act, 1961, the entire refund cannot be withheld merely because an outstanding demand is pending. An order dated 21.07.2026 had determined a refund of ₹71,71,049 payable to the petitioner, but it was not released because of demands relating to AY 2010-11. An intimation proposing adjustment under section 245 was issued on 06.08.2026. The CPC’s email dated 10.08.2026 showed two demands of ₹49,439 under section 250 and ₹75,950 under section 154, aggregating to ₹1,25,389. The Court questioned withholding the entire refund of ₹71.71 lakh against this comparatively small demand. Without deciding whether the Revenue was legally entitled to adjust ₹1,25,389 or whether the underlying demand was valid, the Court held that only the amount proposed to be withheld or adjusted could be retained and the balance refund had to be released forthwith. Accordingly, the respondents were directed to credit ₹70,45,660 within seven days, failing which, if the amount was not credited on or before 05.09.2026, it would carry interest at 1% per month. The Court preserved the parties’ respective rights regarding the proposed adjustment and also permitted the petitioner to approach the Assessing Authority regarding any grievance concerning computation of the refund or applicable interest.
Income-tax refund – adjustment under section 245 – entire refund cannot be withheld against a small outstanding demand – only proposed adjustment amount may be retained
The Delhi High Court held that where a refund is admittedly due to an assessee and the Revenue proposes adjustment under section 245, it cannot withhold the entire refund merely because an outstanding demand is pending. Only the amount proposed to be withheld or adjusted may be retained, while the balance refund must be released forthwith, without prejudice to the parties’ respective rights regarding the validity of the demand or the proposed adjustment.
Facts: An order dated 21.07.2026 determined a refund of ₹71,71,049 payable to the petitioner. However, the refund was not released because of outstanding demands for AY 2010-11. An intimation under section 245 proposing adjustment was issued on 06.08.2026.
The Revenue produced an email dated 10.08.2026 from the CPC showing two outstanding demands for AY 2010-11: ₹49,439 under section 250 and ₹75,950 under section 154, aggregating to only ₹1,25,389.
The Court questioned the withholding of the entire refund of ₹71.71 lakh against such a relatively small demand, particularly when the refund had already been determined on 21.07.2026.
High Court finding: Without deciding whether the Revenue was legally entitled to adjust or withhold the amount of ₹1,25,389, or whether the underlying demand itself was valid, the Court held that there was no justification for retaining the entire refund.
The Court directed that where the CPC determines that a refund is due and an outstanding demand exists against which adjustment is proposed under section 245, the Revenue should retain only the amount proposed to be withheld or adjusted and immediately release the remaining refund. This direction is without prejudice to the assessee’s right to challenge the proposed adjustment and to the Revenue’s right to defend it.
Accordingly, out of the total refund of ₹71,71,049, the Court directed release of ₹70,45,660, representing the balance after retaining ₹1,25,389.
Specific direction: The respondents were directed to credit ₹70,45,660 within seven days. The Court further directed that if the amount was not credited by 05.09.2026, it would carry interest at 1% per month.
The Court also clarified that if the petitioner had any grievance regarding the computation of the refund or applicable interest, it could approach the Assessing Authority by an appropriate application, which was required to be considered in accordance with law.
Ratio: Section 245 cannot be used as a justification for indiscriminate withholding of the entire refund. Where the Revenue proposes to adjust a specified outstanding demand against a determined refund, retention should be restricted to the amount proposed for adjustment, and the undisputed balance should be released immediately. The question whether the proposed adjustment itself is legally permissible remains open for adjudication.
Key proposition: An outstanding demand does not confer an unrestricted right upon the Revenue to withhold the entire refund. Where adjustment under section 245 is proposed, only the proposed adjustment amount may be retained and the balance refund must be promptly released.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Mr. Indruj Singh Rai, learned Senior Standing Counsel submitted that true it is that the order calculating the refund due to the petitioner had been passed on 21.07.2026 and a sum of Rs.71,71,049/- has been found payable to the petitioner however, the same has not been credited to the petitioner because of the pending demand of Assessment Year 2010-11.
2. He submitted that in this regard, an intimation proposing to make adjustment under Section 245 of the Income Tax Act (hereinafter referred to as the “Act of 1961”) has been issued to the petitioner on 06.08.2026.
3. Mr. Rai has produced before us an e-mail dated 10.08.2026 which has addressed to the Assessing Officer by the Centralized Processing Centre (hereinafter referred to as the “CPC”).
4. On perusal of the said e-mail dated 10.08.2026, we find that two demands, for the Assessment Year 2010-11, one under Section 250 and other under Section 154 of the Act of 1961, amounting to Rs.49,439/- and Rs.75,950/- respectively are shown pending against the petitioner. We fail to comprehend that while would the respondents withheld the entire refund of Rs.71,71,049/- for a meagre demand of Rs.1,25,389/- which has been calculated way back on 21.07.2026.
5. Without making any comment as to whether, the respondents are justified in withholding the amount equal to a sum of Rs.1,25,389/- and whether such demand is due or not because for such amount, an intimation under Section 245 of the Act of 1961 has already been issued to the assessee. We feel that it is imperative upon the respondents to at least disburse the remaining amount i.e., Rs.70,45,660/- to the petitioner forthwith.
6. We hereby direct that in case, the CPC finds that a refund is due to an assessee and correspondingly there is a demand outstanding and it proposes to withhold/adjust the refund under Section 245 of the Act of 1961, then it shall retain amount equal to the proposed amount to be withheld/adjusted and should immediately remit the remaining amount, subject of course to rival parties right to contend as to whether the amount proposed in intimation under Section 245 of the Act of 1961 can be withheld or not.
7. We, therefore, direct the respondents to credit the amount of Rs.70,45,660/- within a period of seven days from today. In case, the amount is not credited on or before 05.09.2026, the same shall carry interest at the rate of 1% per month.
8. With these observations, the petition stands disposed of.
9. In case, the petitioner is any grievance in relation to quantification of the amount of refund and applicable interest thereupon, it shall be free to move appropriate application before the Assessing Authority, which application shall be considered by the Authority in accordance with law.
10. Pending application stands disposed of.
