Facts of the Case

The petitioner, Alim Ahmad, filed his return of income for Assessment Year 2020–21 on 14.01.2021 declaring income of ₹4,07,720/-. The return was selected for scrutiny and notices under Sections 143(2) and 142(1) of the Income-tax Act, 1961 were issued. The assessment culminated in an order dated 20.09.2022 making an addition of ₹28,72,109/- and raising a demand of ₹11,01,646/-.

Aggrieved, the petitioner preferred an appeal before the Commissioner of Income Tax (Appeals). During pendency of the appeal, the Revenue initiated recovery proceedings, including attachment of the petitioner’s bank account and withdrawal of ₹3,34,301/-. Refunds due for other assessment years were also adjusted against the outstanding demand.

The petitioner succeeded in appeal, and by order dated 29.10.2024, the CIT(A) set aside the assessment order. Consequently, an appeal effect order dated 27.11.2024 was passed revising the total income back to ₹4,07,720/- as originally declared. Despite this, the amounts recovered pursuant to the now-set-aside assessment were not refunded.

Issues Involved

Whether the Revenue is obliged to refund amounts recovered pursuant to an assessment order once the same is set aside in appeal, whether interest is payable on such refund, and whether bank attachment can continue in the absence of any subsisting demand.

Petitioner’s Arguments

The petitioner contended that once the assessment order was set aside and the demand ceased to exist, the Revenue was under a statutory obligation to refund all amounts recovered, including sums withdrawn from the bank account and amounts adjusted from other refunds, along with applicable interest. Continued non-refund and subsisting bank attachment were arbitrary and unlawful.

Respondent’s Arguments

The Revenue fairly submitted that the petition deserved to be allowed and sought reasonable time to process the refund due to the petitioner.

Court Order / Findings

The Delhi High Court noted that the assessment order forming the basis of the demand had been set aside by the CIT(A) and that the appeal effect order had already been passed restoring the returned income. In such circumstances, there was no justification for retention of amounts recovered pursuant to the quashed assessment.

Although a specific prayer regarding continuation of bank attachment was not expressly made, the Court held it appropriate to direct the authorities to vacate the attachment in the event no further amounts were required to be recovered from the petitioner.

Important Clarification

The Court clarified that once an assessment order is set aside and the consequential demand extinguished, the Revenue cannot retain amounts recovered on its basis. Refunds must be processed with applicable interest, and coercive recovery measures such as bank attachment cannot continue in the absence of a subsisting demand.

Final Outcome

The writ petition was allowed. The Delhi High Court directed the Revenue to process the petitioner’s claim for refund along with applicable interest as expeditiously as possible and in any event within eight weeks from the date of the order. The authorities were also directed to vacate the bank attachment if no further recovery was required. Pending applications were disposed of accordingly.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769755752_ALIMAHMADVsINCOMETAXOFFICERWARD581ANR.pdf 

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