Income Tax Refund cannot be adjusted in excess of 20% of Disputed Demand: Delhi HC

Last updated: 14 August 2021

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Quick Summary

The Delhi High Court has ruled that income tax authorities cannot adjust an available refund against a disputed demand by more than 20% of that demand. In this case, Eko India Financial Services (P) Limited had a refund for AY 2019-20 adjusted against a disputed demand for AY 2017-18. The court found this adjustment exceeded the 20% limit set by CBDT guidelines and ordered the excess amount to be refunded.

Court :
Delhi High Court

Brief :
In Eko India Financial Services (P) Limited vs Assistant Commissioner of Income Tax in W.P.(C) 5819/2021 dated August 03, 2021 the Hon'ble Delhi High Court directed the Revenue ('the Respondents') to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year ('AY').

Citation :
W.P.(C) 5819/2021 dated August 03, 2021

In Eko India Financial Services (P) Limited vs Assistant Commissioner of Income Tax in W.P.(C) 5819/2021 dated August 03, 2021 the Hon’ble Delhi High Court directed the Revenue ('the Respondents') to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year ('AY').

Fact

Eko India Financial Services (P) Limited ('the Petitioner') is aggrieved as, the refund available to them in respect of the AY 2019 -20, was adjusted against the disputed demand AY 2017-18 in excess of 20%, which is contrary to the guidelines issued by Central Board of Direct Taxes ('CBDT') vide Office Memorandum dated August 25, 2017.

In reply, the Respondents refers to para 4(B) of the Office Memorandum dated February 29, 2016 which states that pre-deposit of 20% is not a rule of the thumb and the Respondent has the discretion to direct a set off of a higher sum.

Held

The Hon’ble Delhi High Court in W.P.(C) 5819/2021 dated August 03, 2021 held as under:

If the Respondent is of the view that the payment of a lump sum amount higher than 20% is warranted, then the Respondent will have to give reasons for same in terms of para 4(B) of the Office Memorandum dated February 29, 2016.
The Respondents have not given any special/particular reason as to why any amount in excess of 20% of the outstanding demand should be recovered from the Petitioner.
Hence, the respondent is entitled to seek pre-deposit of only 20% of the disputed demand.
The Respondent is directed to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year 2017-18.

FAQ :

The Delhi High Court has ruled that income tax authorities can only adjust up to 20% of a disputed tax demand against an available refund.

No, unless they provide specific reasons for doing so, as per the court's ruling. The standard is 20%.

If an adjustment is made in excess of 20% of the disputed demand without proper justification, the excess amount must be refunded to the taxpayer.

The ruling was made by the Hon'ble Delhi High Court.

The case involved Eko India Financial Services (P) Limited whose refund was adjusted against a disputed demand exceeding the 20% limit, contrary to CBDT guidelines.