Facts of the Case

Maruti Suzuki India Limited, the petitioner, sought a writ against the Deputy Commissioner of Income Tax to restrain recovery of disputed tax demand for AY 2006-07 pending their appeal before the ITAT. Petitioner claimed refunds of Rs.122.57 crores (AY 2003-04) and Rs.107.42 crores (AY 2005-06) were wrongfully adjusted under Section 245 of the Income Tax Act against the 2006-07 demand. The petitioner contended several issues in AY 2006-07 were already decided in their favor by appellate authorities in prior years.

Issues Involved

  1. Whether the adjustment under Section 245 of the Act constitutes “recovery” and if it can be challenged.
  2. Maintainability of stay application under Section 220(6) when appeal is before ITAT.
  3. Whether ITAT erred in dismissing the stay application without considering adjustments already in favor of the petitioner.
  4. Whether refunds already adjudicated in favor of the petitioner could be adjusted against subsequent years’ demands.

Petitioner’s Arguments

  • Refunds for AY 2003-04 and 2005-06 were due and should not have been adjusted against 2006-07 demand.
  • Several disallowances in AY 2006-07 were already settled in the petitioner’s favor by ITAT/CIT(Appeals).
  • Adjustment under Section 245 without prior notice violated statutory provisions.
  • ITAT should have granted stay for issues already decided in favor of the petitioner.

Respondent’s Arguments

  • Section 245 permits adjustment of refunds against pending demands; the adjustment does not constitute mala fide recovery.
  • Status quo order from ITAT or filing of stay applications does not bar Section 245 adjustments.
  • Stay under Section 220(6) not applicable as appeal was before ITAT, not CIT(Appeals).
  • Adjustments were in accordance with departmental instructions (CBDT Circular No. 1914).

Court Findings / Order

  1. Stay Application under Section 220(6): Not maintainable as appeal lies before ITAT; Section 220(6) applies only to appeals under Sections 246/246A.
  2. Adjustment under Section 245: Considered a form of recovery; ITAT cannot stay recovery but adjustments require statutory compliance.
  3. Merits: Petitioner made prima facie case; several disallowances already decided in petitioner’s favor.
  4. Directions:
    • Refund Rs.30 crores (approximate tax on Rs.96 crores already adjudicated in petitioner’s favor) within one month.
    • Interest under Sections 234B & 234C not refunded as full demand not recovered.
    • ITAT directed to hear petitioner’s appeal expeditiously, preferably within four months.
  • Conclusion: Respondent’s adjustment of refunds already decided in petitioner’s favor was unjustified and contrary to law. Writ petition disposed of accordingly.

Important Clarifications

  • Adjustment under Section 245 is part of recovery but requires statutory compliance and prior intimation.
  • Orders of appellate authorities (ITAT, CIT(Appeals)) in favor of assessee must be respected; adjustments on these issues are unjust.
  • Discretion under Section 245 is not absolute; mechanical invocation to delay refund is impermissible.
  • Circulars guide discretion but are not binding on ITAT.

Link to download the order https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:5996-DB/SKN25112011CW22522011.pdf

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