Income Tax Department cannot recover more than 20% of the tax once the demand is disputed – Delhi High Court
In a recent landmark ruling in the case of M/s Essjay Ericsson Pvt. Ltd. v. CIT, Delhi, the DB of Hon’ble Delhi High Court has directed the department to refund the money recovered/adjusted in excess to 20%.
The Hon’ble Delhi High Court also quashed the notices/orders adjusting the refunds of the Petitioner, on account of noncompliance of the procedure enumerated in Section 245 of the IT Act, specifically the “Hearing Opportunity”.
The brief facts of the case are that Department had passed an assessment order, re-assessing the income of the Company at 28 Crores against the returned income of Rs. 4 Crores. The Company had filed an appeal and stay application before the CIT(A) which is yet to be decided. In pursuance to the assessment order, the Department also dispose of the stay application and rectification application of the Company.
Post disposal of Stay Application and Rectification Application, the Department attached the bank account of the Company and recovered 2.13 Crores from the bank account of the Company against the assessed demand of Rs. 10 Crores. Aggrieved by the action of the Department, the Company had preferred W.P.(C) No. 1449 of 2020 before the Hon’ble Delhi High Court. The Hon’ble Delhi High Court directed the Petitioner to file the stay application before the CIT(A) and directions were given to CIT(A) to dispose of the stay application of the Petitioner by passing speaking order within 2 weeks.
While the Stay Application and the Appeal were pending before the CIT(A), the Department within a period of 1 and a half year, adjusted Rs. 6 Crores against the TDS refunds due to the Company. In totality the Department recovered/adjusted a total of Rs. 8 Crores against the demand of Rs. 10 Crores.
Ruling of the Hon’ble Delhi High Court
The Hon’ble Delhi High Court by relying on its previous judgements in the case of Skyline Engineering Contracts (India) Pvt. Ltd. v. Deputy Commissioner of Income Tax Circle 22(2), W.P.(C) 6172/2021, directed the Respondents to refund 6.05 Crores, recovered and adjusted in excess to 20% of the disputed demand. The Hon’ble High Court also made reference to the Board’s Office Memorandum dated 29.02.2016 and Office Memorandum dated 31.07.2017, which prescribe for automatic stay on payment of 20% of the disputed demand.
The Hon’ble Bench also set aside the notices and adjustment orders passed by the Department, holding that the adjustment have been done without following the procedure prescribed under Section 245 of the Act, inasmuch as no notice or opportunity of pre-decisional hearing had been provided to the Petitioner prior to such adjustment of refund. The Bench also relied upon its previous judgements in the case of Glaxo Smith Kline Asia Pvt. Ltd. vs. The Commissioner of Income Tax & Ors., 2007 (94) DRJ 681(DB) and The Oriental Insurance Co. Ltd. vs. Deputy Commissioner of Income Tax & Anr., 2014 (10) TMI 746.
Read the judgement of the Hon’ble High Court at HC_Essjay
Yuvraj is an advocate and has completed his B.A. LL.B(Hons) from RGNUL-Punjab. He is a practicing advocate and has been involved in matters pertaining to GST and other indirect taxes as well as Direct Tax. He is active in Writ Courts and has involvement in a few landmark judgments like Pitambra Books Pvt. Ltd. V. Union of India (W.P.C. No. 627 of 2020), and represented Sales Tax Bar Association (Delhi) to resolve GST issues and glitches.