Madras HC Orders Income Tax Department to Refund Excess Recovery Beyond 20%

Southern Explosives Company P. Ltd. Vs PCIT (Madras High Court)

Introduction: In a significant ruling, the Madras High Court has addressed the issue of excessive tax collection by the Income Tax Department. The case in contention is between Southern Explosives Company P. Ltd. and the Principal Commissioner of Income Tax, Chennai.

Analysis: The petitioner, Southern Explosives Company P. Ltd., challenged the proceedings from the Income Tax Department dated 11.01.2022, urging the court to annul them and instruct the respondents to return the amount they had collected exceeding the 20% limit. The background of this case dates back to 26.03.2015, when the petitioner received an unfavorable assessment order and subsequently appealed against it on 21.04.2015. Since then, there have been several developments, including the case’s transfer to the National Faceless Appeal Centre in New Delhi. In the interim, the petitioner was entitled to a refund of Rs.28,78,728/- for different assessment years, which was adjusted on various dates. However, the petitioner emphasized that, according to prevailing guidelines, only 20% (amounting to Rs.9,73,728/-) could be demanded while the appeal was still under the Appellate Commissioner’s consideration. The department’s communication on 11.01.2022 confirmed the stay of further collections until the disposal of the appeal by the CIT(A).

Conclusion: Considering the stance of the respondents and the regulations in place, the Madras High Court directed the Income Tax Department to refund the excess amount of Rs.19,04,552/- to the petitioner. Moreover, this amount is to be returned with the relevant interest rate within six weeks from the order’s receipt. With this judgment, the court has emphasized the importance of adhering to the defined limits of tax collection and ensuring fairness in the appeal process.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

The petitioner has challenged the impugned proceedings of the 1st respondent dated 11.01.2022 in DIN and Letter No. ITBA/COM/F/17/2021-22/1038646163(1), to quash the same and to direct the respondents to refund the excessively recovered amount over and above 20%.

2. The petitioner has suffered an adverse assessment order on 26.03.2015. Aggrieved by the same, the petitioner preferred an appeal on 21.04.2015 before the Commissioner of Income Tax (Appeals), Chennai.

3. It appears that the petitioner was heard and thereafter the Commissioner of Appeals has called for a remand report on several days. However, no order has been passed in ITA.No.184/CIT(A)-15/2015-16.

4. Meanwhile, the case appears to have been transferred to the National Faceless Appeal Centre, New Delhi and it is yet to be re­numbered and taken up for hearing by the aforesaid Centre. Meanwhile, the petitioner was entitled to refund of a sum of Rs.28,78,728/- for various assessment years, which has been adjusted on the following dates:

5. The petitioner submits that maximum amount that can be demanded pending appeal before the Appellate Commissioner is only 20% as per the prevailing circular which would amount to Rs.9,73,728/-. However, vide impugned communication dated 11.01.2022, the respondents have stated as follows:

“I am directed to communicate that the Principal Commissioner of Income Tax-3, Chennai has considered your petition for grant of stay of collection of demand since CPC has collected more than 20% of demand by way of refund adjustment. Accordingly, the PCIT-3, Chennai has stayed further collection till the disposal of Appeal by the CIT(A).”

6. In view of the above stand of the respondents in the counter, the respondents are directed to refund the excess amount of Rs.19,04,552/-(Rs.28,78,280/- – Rs.9,73,728/-) to the petitioner.

7. This amount shall be refunded to the petitioner by the respondents together with applicable rate of interest, within a period of six weeks from the date of receipt of a copy of this order.

8. The Writ Petition stands disposed of with the above observations.