Facts of the Case

The petitioner, Nokia Solutions and Networks India Pvt. Ltd., filed a writ petition challenging the action of the Revenue in adjusting refunds due for Assessment Years 2008–09 and 2017–18 against an outstanding tax demand for Assessment Year 2015–16, despite the demand having been stayed.

For AY 2015–16, the petitioner’s assessment was completed on 29.12.2018, raising a demand of ₹43,38,30,384/-. The petitioner filed an appeal before the Commissioner of Income Tax (Appeals), which remained pending. During pendency of the appeal, the petitioner sought stay of recovery under Section 220(6) of the Income-tax Act, 1961.

By order dated 05.02.2019, the Assessing Officer granted stay of recovery subject to payment of 20% of the outstanding demand. Upon review, the petitioner was directed to deposit ₹7 crore by order dated 21.02.2019. The petitioner complied and deposited ₹7.50 crore. Pursuant to rectification under Section 154, the outstanding demand stood reduced to ₹38,70,73,134/-.

Notwithstanding the subsisting stay, the Revenue adjusted refunds due to the petitioner for AYs 2008–09 and 2017–18 against the stayed demand for AY 2015–16.

Issues Involved

Whether the Revenue was entitled to adjust refunds against a tax demand that was stayed under Section 220(6) after the assessee had complied with the condition of depositing 20% of the disputed demand, and whether such adjustment was contrary to CBDT instructions.

Petitioner’s Arguments

The petitioner contended that once stay of recovery was granted on payment of 20% of the disputed demand, the Revenue could not adjust refunds beyond the amount required for securing such stay. Reliance was placed on Clause (iii) of paragraph 4(E) of the CBDT Office Memorandum dated 29.02.2016, which permits adjustment of refunds only to the extent of the amount required for granting stay.

It was argued that adjusting refunds beyond the stipulated 20% placed the petitioner in a disadvantageous position compared to assessees who were not entitled to refunds and amounted to arbitrary recovery during pendency of appeal.

Respondent’s Arguments

The Revenue contended that the stay granted was conditional and expressly reserved the right of the Department to adjust refunds against the outstanding demand. It was argued that since the stay was not unconditional, adjustment of refunds was permissible.

Court Order / Findings

The Delhi High Court held that although the stay of demand was conditional, the conditions imposed were governed by CBDT instructions, which have binding force on the Department. The Court noted that the Office Memorandum dated 29.02.2016 clearly restricts adjustment of refunds to the extent of the amount required for granting stay, i.e., ordinarily 20% of the disputed demand.

The Court observed that permitting adjustment of refunds beyond this limit would defeat the purpose of granting stay and would unfairly prejudice assessees who are otherwise entitled to refunds. The Court found the Revenue’s action to be arbitrary and contrary to the binding CBDT instructions.

Reliance was placed on the earlier decision of the Delhi High Court in Eko India Financial Services (P.) Ltd. v. ACIT, wherein similar adjustment of refunds beyond 20% of the disputed demand was held to be impermissible.

Important Clarification

The Court clarified that while the Department may reserve the right to adjust refunds as a condition for grant of stay, such adjustment must strictly conform to CBDT instructions. Refunds cannot be adjusted beyond the amount required to secure the stay of demand, unless exceptional circumstances justifying higher recovery are recorded in accordance with law.

Final Outcome

The writ petition was allowed. The Delhi High Court directed the Revenue to refund the amounts adjusted against the stayed demand for Assessment Years 2008–09 and 2017–18 along with applicable interest, as expeditiously as possible and preferably within eight weeks from the date of the order. All pending applications were disposed of accordingly.

 

Link to download the order - https://www.mytaxexpert.co.in/uploads/1769841080_NOKIASOLUTIONSANDNETWORKSINDIAPVT.LTD.VsJOINTCOMMISSIONEROFINCOMETAXORS..pdf

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