Mohan Clothing Co Pvt Ltd vs Deputy Commissioner Of Income Tax, Circle 16(1) Delhi & Anr.

$~24
* IN THE HIGH COURT OF DELHI AT NEW DELHI

th
Date of decision: 13 October, 2026
# CNR No. DLHC010840842024
+ W.P.(C) 16193/2024 & CM APPLs. 52209/2026, CM APPL.
52210/2026

MOHAN CLOTHING CO PVT LTD .....Petitioner
Through: Ms.Ananya Kapoor, Mr.Sumit
Lalchandani, Mr.Tanmay Doneria,
Advs.
versus

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 16(1)
DELHI & ANR. .....Respondents
Through: Mr.Gaurav Gupta, SSC,
Mr.Shivendra Singh, Mr.Yojit Pareek,
JSCs, Mr.Surya Jindal, Advocate.

CORAM:
HON'BLE MR. JUSTICE DINESH MEHTA
HON'BLE DR. JUSTICE ADITI CHOUDHARY
J U D G M E N T
DINESH MEHTA, J. (ORAL)

1. Instant petition has been preferred for the following reliefs:
“A. Issue a writ in the nature of Mandamus directing the
Respondents to issue refund of Rs. 4,70,12,866/- along with up-
to-date interest after adjusting the 20% of the total demand,
amounting to Rs. 1,50,84,414/-, against the total demand of Rs.
7,57,22,070/- for AY 2020-21 as the action of the Respondents is
unjust, arbitrary and against the provision of the Income Tax
Act, 1961;
B. Directions to dispose off the appeal filed by the Petitioner
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Signed By:PRATIMA
Signing Date:28.10.2026
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before the CIT(A)/NFAC for AY 2020-21 in a time-bound
manner.”

2. Ms.Ananya Kapoor, learned counsel for the petitioner submitted that
immediately after the Assessing Officer had passed the Assessment Order
on 29.09.2022 and raised a demand of Rs.7,54,22,070/- for the Assessment
Year 2020-21, the petitioner had filed an appeal before the Commissioner of
Income Tax (Appeals) ( hereinafter referred to as ‘CIT(A)’ ) on 26.10.2022
and before the appeal could be decided, the Assessing Officer started taking
coercive action for recovery of the demand.
3. She submitted that when the refund for Assessment Year 2022-23
became payable, the AO issued an intimation dated 17.01.2023 under
Section 245 of the Income Tax Act, 1961 (for brevity, ‘Act of 1961’) and
sought adjustment of petitioner’s refund of Rs.6,20,97,280/- against the
above referred demand for the Assessment Year 2020-21.
4. She raised a grievance that without giving any opportunity to the
petitioner to respond to the aforesaid notice, the adjustment of
Rs.6,20,97,280/- was made which was way exceeding 20% of the total due
demand against the petitioner. She argued that the recovery beyond the limit
prescribed by the CBDT in Memorandum F.No. 404/72/93-ITCC dated
29.02.2016 read with Memorandum dated 31.07.2017 was illegal.

5. Learned counsel submitted that the petitioner thereafter preferred the
instant writ petition wherein a Coordinate Bench of this Court vide order
dated 22.11.2024 directed the National Faceless Appeal Centre (NFAC) to
decide the appeal expeditiously.
6. She raised a grievance that in spite of direction so issued, the
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Signed By:PRATIMA
Signing Date:28.10.2026
11:47:27

Appellate Authority has not decided the appeal and in the meantime, the
Assessing Officer issued another notice dated 07.01.2025 to the petitioner
seeking to adjust a sum of Rs.1,93,15,522/- against the
remaining/outstanding demand qua which the petitioner filed a detailed
reply/ representation dated 22.01.2025 and submitted that the Assessing
Officer had already recovered more than 20% of the outstanding demand
and in view of Memorandum F.No. 404/72/93-ITCC dated 29.02.2016 read
with Memorandum dated 31.07.2017 issued by CBDT till the disposal of the
assessee’s appeal, which was pending before the CIT (Appeal), recovery of
the remaining demand over and above 20% should have been stayed.
7. She further submitted that despite knowing that petitioner’s appeal
was pending, the Assessing Officer had adjusted the amount refundable
(Rs.1,93,15,522/-) to the petitioner, which makes the total recovered amount
to be about 110% of the total demand.
8. Learned counsel argued that the petitioner is entitled for refund of the
amount over and above 20% of the total demand, as has been directed by
this Court in a number of cases.
9. Mr.Gaurav Gupta, learned Senior Standing Counsel for the
respondents submitted that the facts are not as simple as have been portrayed
by the petitioner. He submitted that it is true that the petitioner has filed the
appeal on 26.10.2022 but it had not filed any stay application along with the
appeal neither before the Assessing Officer nor before the CIT (appeals) and
therefore, the Memorandum F.No. 404/72/93-ITCC dated 29.02.2016 read
with Memorandum dated 31.07.2017 issued by the CBDT do not apply.
10. It was argued that the Assessing Officer had passed an order under
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Signed By:PRATIMA
Signing Date:28.10.2026
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Section 220(4) of the Act of 1961 holding the petitioner deemed to be in
default and thereafter he had adjusted the amount from the refund payable to
the petitioner by way of a separate order under Section 245 of the Act of
1961. He argued that once the petitioner had been held to be in default, the
petitioner’s reply/ representation dated 22.01.2025 was of no avail inasmuch
as the assessee, who had been once held in default, cannot be held to be “not
in default” until the entire demand is paid.
11. He further contended that since amount has been recovered, no relief
be granted and at the best, direction be issued to the Appellate Authority to
decide petitioner’s appeal at an early date.
12. Heard learned counsel for the parties.
13. Undisputedly until 30.01.2024, the petitioner had filed stay
application neither before the Assessing Officer nor before the Appellate
Authority and by the time the stay application was filed (on 17.01.2023),
more than 80% of the amount (Rs. 6,20,97,280/-) had already been
recovered from the petitioner. The petitioner has admittedly approached this
Court after said amount (Rs. 6,20,97,280/-) stood recovered.
14. In our opinion, direction to refund such amount as prayed by the
petitioner in the facts of the present case cannot be granted, since the
petitioner did not even pray for a stay before any of the Competent
Authority. As such neither the Memorandum issued by the CBDT apply nor
can the respondents’ action be faulted with.
15. So far as the petitioner’s contention that on 17.01.2023, the amount
had been recovered or refund has been adjusted without providing
opportunity of hearing is concerned, the same may be termed as an arbitrary
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Signing Date:28.10.2026
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action of the Assessing Officer but in our opinion, the amount cannot be
ordered to be refunded in the facts of the case, more particularly when more
than 3 years have passed.
16. So far as the recovery of Rs.1,93,15,522/- is concerned, we have a
different view. For that, we are of the considered opinion that said recovery
was a colourable exercise of power to say the least. It is to be noted that the
matter was pending before this Court and petitioner’s stay application was
pending consideration. That apart, pursuant to the notice issued on
07.01.2025 by the Assessing Officer, the petitioner had filed a
reply/representation dated 22.01.2025 and pointed out that more than 80%
of the amount had already been recovered and a request was made to keep
the recovery in abeyance, but the Assessing Officer paid no heed to the
petitioner’s genuine request which was supported by CBDT circular and
law.
17. When the remaining amount (Rs.1,93,15,522/-) was recovered on
18.02.2025 and the notice dated 07.01.2025 was issued, petitioner’s stay
application before the CIT (appeals) so also before this Court was pending
and more than 80% of the demand amount has already been recovered. ‘The
circulars issued by CBDT are binding upon the Assessing Officer’, is not
something which this Court is supposed to reiterate. Simply because the
petitioner had been declared to be an assessee in default, does not mean that
he has committed a sin so as to be deprived of the benefit of CBDT circular.
That apart, prior to adjusting the refund, an intimation under Section 245 of
the Act of 1961 was necessary which we do not find on record.
18. Writ petition is, therefore partly allowed and Assessing Officer is
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Signed By:PRATIMA
Signing Date:28.10.2026
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directed to refund the amount of Rs.1,93,15,522/- recovered on 18.02.2025,
within a period of 30 days from today with applicable interest in accordance
with law.
19. Though it is a case, warranting imposition of cost upon the Assessing
Officer who has proceeded arbitrarily and illegally, but since more than 18
months have passed, the officer who had passed the order must have by now
changed. We, however, direct the Principal Chief Commissioner of Income
Tax, Delhi to send a copy of this order to the officer who had effected the
impugned recovery for information. He may also consider to keep a copy of
this order to be placed in the service book of said officer for consideration of
his Reporting Authority.
20. Needless to observe that direction of this Court given on 22.11.2024
and subsequently on 07.08.2026 to decide the appeal expeditiously shall
continue to bind the Commissioner of Income Tax(Appeals)/National
Faceless Appeal Centre. We request that the appeal be preferably decided
within six months from the date of placing the certified copy of this order.
21. Interlocutory applications also stand disposed of.


DINESH MEHTA
(JUDGE)


ADITI CHOUDHARY
(JUDGE)
OCTOBER 13, 2026/Arya
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Signature Not Verified
Signed By:PRATIMA
Signing Date:28.10.2026
11:47:27