Delhi HC Calls Further Tax Recovery “Colourable,” Orders ₹1.93-Crore Refund With Stay Plea Pending And Over 80% Of Demand Already Recovered

The petitioner challenged the adjustment of income-tax refunds against a tax demand for AY 2020–21 while its appeal against the assessment remained pending.

The Assessing Officer adjusted a refund of ₹6,20,97,280 on 17 January 2023; the petitioner had not sought a stay before the first adjustment.

Later, after the petitioner’s stay application was pending, the Assessing Officer adjusted a further refund of ₹1,93,15,522 on 18 February 2025, despite the petitioner’s objection that more than 80% of the demand had already been recovered.

The petitioner sought repayment of the amounts recovered beyond 20% and expeditious disposal of its appeal.

Section 220(4) of the Income Tax Act, 1961 concerns an assessee being treated as in default; the Court held that such status does not, by itself, disentitle an assessee from the benefit of applicable CBDT recovery instructions.

Section 245 governs adjustment of refunds against outstanding tax demands, and the Court held that an intimation under that provision was necessary before the later adjustment.

The Court also applied CBDT Memoranda dated 29 February 2016 and 31 July 2017, observing that CBDT circulars bind Assessing Officers; in the circumstances of the later recovery, the instructions supported keeping recovery above the prescribed 20% threshold in abeyance while the appeal and stay application were pending.

The Court declined to order repayment of the first adjustment because the petitioner had not sought a stay before that recovery, and the CBDT memoranda therefore did not assist it in those circumstances.

Although the Court considered the adjustment to have been made without an opportunity to be heard, it found repayment unwarranted given the passage of more than three years.

The later recovery stood differently: the petitioner’s stay application was pending, it had objected that more than 80% of the demand had already been recovered, and the Assessing Officer proceeded without heeding that objection.

The Court held that the recovery was a colourable exercise of power and noted the absence of the Section 245 intimation required before adjustment.

The Assessing Officer was directed to refund ₹1,93,15,522, with applicable interest, within 30 days; no refund was ordered for the earlier ₹6,20,97,280 adjustment.

The direction to decide the appeal expeditiously was continued, with a request that it be decided preferably within six months of submission of the certified order.

The Principal Chief Commissioner of Income Tax, Delhi, was directed to send the order to the officer who effected the impugned recovery and could consider placing it in that officer’s service book.