Order Restraining Revenue From Taking Coercive Steps For Recovery Of Demand Can Interdict Adjustment Of Refunds: Delhi HC
The Delhi High Court has held that when an appellate authority has asked the Income Tax Department to not take any coercive steps against an assessee for recovery of outstanding demands, the same can in some cases interdict the Department from adjusting the outstanding amount from refunds due to the assessee.A division bench of Justices Vibhu Bakhru and Tejas Karia took note of a Punjab...
The Delhi High Court has held that when an appellate authority has asked the Income Tax Department to not take any coercive steps against an assessee for recovery of outstanding demands, the same can in some cases interdict the Department from adjusting the outstanding amount from refunds due to the assessee.
A division bench of Justices Vibhu Bakhru and Tejas Karia took note of a Punjab and Haryana High Court judgment which held that an adjustment would amount to 'coercive proceedings'.
Significant to note that the Delhi High Court had, in Maruti Suzuki India Limited v. Deputy Commissioner of Income Tax (2012), drawn a distinction between blanket stay against recovery of demand and a stay of coercive measures.
It was held that an appellate authority may either stay recovery in absolute terms or stay recovery by coercive methods but not interdict adjustment of refund.
It is in this backdrop that the Court in this case held,
“...adjustment of refund against outstanding demand may in some cases amount to a coercive measure. However, it is open for the appellate authority to further specify that the stay order is limited to interdicting other coercive measures for recovery and would not extend to adjustment of refunds.”
The Court further clarified that in case of ambiguity, the apposite course for the parties would be to apply to the appellate authority for a clarification.
In the case at hand, the Court was dealing with a petition filed by Huawei India, aggrieved by the Revenue adjusting the refund of ₹19,37,43,880/- payable to it for AY 2020-21 against the outstanding demands in respect of AY 2016-19.
Huawei argued that ITAT had granted an absolute stay of recovery of demand for the said assessment years and therefore, the refunds due it could not be adjusted against the demands.
Revenue on the other hand argued that ITAT had not passed any blanket order proscribing adjustment of refunds. It sought to draw a distinction between an order granting complete stay of recovery and an order restraining the Revenue from taking “coercive action”.
It was submitted that an order interdicting coercive action for recovery of dues would not impede the Revenue from adjusting the refunds against the outstanding demands, as the same does not amount to coercive action.
As mentioned above, Court held that stay of coercive action may preclude recovery in some cases and any clarification in this regard can be given by the appellate authority that granted the stay.
“In the present case, none of the parties have chosen to take the said action,” Court remarked.
It further noted that the Revenue had not issued any prior notice to the assessee before making any such adjustment. “Thus, the mandatory provisions for effecting an adjustment under Section 245 of the Act have not been followed,” the Court said and allowed the petition.
Appearance: Mr Kamal Sawhney, Mr Nikhil Agarwal and Mr Puru Medhira, Advocates for Petitioner; Mr Indruj Singh Rai, senior standing counsel with Mr Sanjeev Menon, Mr Gaurav Kumar and Mr Rahul Singh, Advocates for Respondent
Case title: Huawei Telecommunications India Company Private Limited v. Assistant Commissioner Of Income Tax Central Circle 2 & Anr.
Citation: 2025 LiveLaw (Del) 382
Case no.: W.P.(C) 10867/2024
