Revenue directed to refund excess recovery (beyond 20%) with interest, as stay application was pending

By | June 3, 2025
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Revenue directed to refund excess recovery (beyond 20%) with interest, as stay application was pending and 20% of demand was already deposited.

Issue:

Whether revenue authorities can adjust an additional sum from an assessee when the assessee has already deposited 20 percent of the total demand, has filed an appeal before the Commissioner (Appeals), and a stay application seeking recovery stay is still pending consideration before the Assessing Officer.

Facts:

  • For Assessment Year 2023-24, pursuant to an assessment order, the assessee filed an appeal before the Commissioner (Appeals) (CIT(A)), along with detailed submissions and documents.
  • In addition to filing the appeal, the assessee also filed an application before the Assessing Officer (AO) specifically seeking a stay of recovery pending the disposal of the appeal.
  • At the time of filing the appeal, the assessee had already deposited 20 percent of the total demand.
  • However, despite the 20% deposit and the pending stay application, the revenue authorities adjusted an additional sum of Rs. 2.59 crores from the assessee.

Decision:

The court held in favor of the assessee. It ruled that since the assessee had already deposited 20 percent of the total demand and the application for stay was still pending consideration before the Assessing Officer, the revenue authorities were to be directed to refund the entire amount of Rs. 2.59 crores (the sum recovered in excess of 20 percent) for Assessment Year 2023-24, together with applicable interest, back to the assessee after due verification.

Key Takeaways:

  • 20% Rule for Stay of Demand: This case reinforces the well-established administrative instruction (often referred to as the 20% rule, though exceptions exist) that if an assessee files an appeal and deposits 20% of the disputed demand, recovery of the balance demand should generally be stayed pending the disposal of the appeal.
  • Binding Nature of Circulars/Instructions: While the specific circular number is not mentioned, the courts consistently uphold the principle that the revenue authorities are bound by their own administrative instructions (like the 20% rule guidance).
  • Pendency of Stay Application: The fact that the stay application was still “pending consideration” before the AO means that the revenue should not have proceeded with further recovery. They should have first decided the stay application.
  • Unjustified Recovery: Adjusting an additional sum beyond the 20% deposit, especially when the assessee has fulfilled the initial condition for seeking a stay and the stay application is yet to be decided, is considered an unjustified and premature recovery action.
  • Section 245 – Setting off Refunds against Tax Due: While Section 245 allows the AO to set off refunds against existing tax demands, this power is not absolute and must be exercised judiciously, respecting principles of natural justice and departmental instructions regarding stay of demand.
  • Refund with Interest (Section 244A): The direction to refund the excess amount “together with interest, if applicable” is standard. If the excess amount was collected wrongfully or prematurely, the assessee is entitled to interest for the period of delayed refund under Section 244A.
  • Judicial Intervention: Courts frequently intervene in such situations to prevent coercive recovery by the department when the assessee has taken steps to appeal and seek a stay of demand.
  • “In favour of assessee”: This provides immediate relief to the assessee by restoring the excess funds wrongfully adjusted by the revenue.
HIGH COURT OF KARNATAKA
Mediakind India (P.) Ltd.
v.
Deputy Director of Income-tax, CPC
S.R.Krishna Kumar, J.
WRIT PETITION NO. 8863 OF 2025 (T-IT)
APRIL  17, 2025
Sandeep Huilgol, Adv. for the Petitioner. Aravind V. Chavan and E.I. Sanmathi, Advs. for the Respondent.
ORDER
1. In this petition, the petitioner seeks for the following reliefs:
(i)Quashing the impugned order dated 15.05.2024 bearing CPC/2324/G23/213796979 passed by the 1st Respondent under Section 245 of the Income-Tax Act, 1961 for the Assessment Year 2023-24 (Annexure-‘A’);
(ii)Directing the 1st Respondent to forthwith grant refund of Rs.2,59,55,300/-, being the amount illegally adjusted vide the impugned order dated 15.05.2024 bearing CPC/2324/G23/413796979 passed under Section 245 of the Income-Tax Act, 1961 for the Assessment year 2023-24 (Annexure-‘A’), to the Petitioner along with interest thereon;
(iii)In addition, directing the 2nd Respondent to dispose off the stay application filed by the Petitioner on 21.12.2023 (Annexure-‘B’) in accordance with law and the various instructions issued by the CBDT on the matter, and after granting a reasonable opportunity of hearing to the Petitioner;
(iv)Restraining the Respondents from initiating or pursuing any proceedings to recover the balance demand of tax and interests arising from the assessment order 31.10.2023 for the Assessment Year 2020-21 bearing No.ITBA/AST/S/143(3)/2023-24/1057556479(1) and bearing No.ITBA/AST/S/156/2023-24/1057556643(1) (Annexures-‘J’ and ‘J1’) during the pendency of the appeal filed before the CIT (A); and
(v)Pass such other or further orders as this Hon’ble Court may deem fit in the facts and circumstances of the case, and in the interest of justice and equity.
2. A perusal of the material on record would indicate that pursuant to the proceedings initiated by the respondents against the petitioner, by issuance of showcause notice dated 18.09.2023 under Section 143B of the Income-tax Act, 1961 (for short “Act”) to which the petitioner submitted reply dated 25.09.2023, respondent No.3 passed an assessment order dated 31.10.2023 resulting in total demand of Rs.10,36,84,140/- for the Assessment Year 2020-21. Aggrieved by the said order, the petitioner has preferred an appeal before the Commissioner of Income-tax (Appeals) under Section 243-A of the Act along with detailed submissions and documents. In addition to thereto, on 21.12.2023, the petitioner has also filed an application before the 2nd respondent-Jurisdictional Assessing Officer seeking stay of recovery, pending disposal of the appeal.
3. The material on record also indicates that, at the time of filing the appeal, out of the total demand of Rs.10,36,80,858/-, the petitioner deposited 20% on 21.12.2023. It is the grievance of the petitioner that despite the petitioner having filed an appeal within the prescribed period and depositing 20% on 21.12.2023 for the purpose of prosecuting the appeal as well as the stay application, the respondents have recovered an additional sum of Rs.2,59,55,300/- which is impermissible in law and the same deserves to be refunded back to the petitioner in the light of the judgments of this Court in Price Waterhouse v. NFAC [W.P.No.23784 of 2024, dated 25-09-2024] and in Careworks Foundation v. Centralized Procession Centre [W.P. No.1204 of 2025,dated 26-03-2025]
4. Per contra, learned counsel for the respondents submits that there is no merit in the petition and the same is liable to be dismissed.
5. As rightly contended by the learned counsel for the petitioner, under identical circumstances in relation to the amount in excess of 20% being adjusted by the respondents despite pendency of an appeal and pendency of the application for Stay filed by the petitioner therein, this Court held as under:
“ORAL ORDER
In this petition, petitioner seeks for the following reliefs:
“i) Declaring that the adjustment of refund of Rs.2,24,18,499/-determined for the assessment year 2019-20 and the refund of Rs.4,53,93,633/-determined for the assessment year 2023-24 against the demand for assessment year 2021-22 is illegal and without jurisdiction;
(ii) Directing the Respondents to forthwith refund an amount of Rs. 2,24,18,499/- determined as refundable to the Petitioner vide order dated 03.03.2023 for the assessment year 2019-20 (adjusted with the demand for the assessment year 2021-22), along with applicable interest at Annexure-F.
(iii) Directing the Respondents to forthwith refund an amount of Rs. 4,53,93,633/- determined as refundable to the Petitioner vide intimation dated 21.10.2024 for the assessment year 2023-24 (adjusted with the demand for the assessment year 2021-22), along with applicable interest at Annexure-S.
(iv) Directing the Respondents not to recover any portion of the demand pertaining to the assessment year 2021-22 during the pendency of the appeal before the CIT(A) and for a period of three weeks thereafter; and
(v) pass such other or further orders as this Hon’ble Court may deem fit in the facts and circumstances of the case, in the interests of justice and equity.
2. Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record.
3. A perusal of the material on record will indicate that the issue in controversy involved in the present petition is directly and squarely covered by the decision of a Co-ordinate Bench of this Court in the case of M/s. Price Waterhouse, Bengaluru v. National Faceless Appeal Centre, Delhi and Ors passed in W.P.No.23784/2024 dated 25.09.2024 and as such, the present petition also deserves to be allowed in terms of the said decision of this Court.
4. This Court in the case of M/s.Price Waterhouse, (supra) has held as under:

In this petition, the petitioner seeks the following relief’s:

“(i) Directing the 3rd Respondent to forthwith refund Rs.21,08,91,940/-, being demand recovered in excess of 20% of the demand raised for the assessment year 2012-13, along with applicable interest;

(ii) Directing the 1st / 2nd Respondent to dispose of the appeal pending before it for the assessment year 2012-13 in Appeal No.CIT(A), Bengaluru-1/10224/2015-16 (old appeal No.9/10002/2017-18 (Manual Appeal Register No.:40/BU/2015-16)) (Annexure0B dated 29.04.2015 in a time bound manner, expeditiously;

(iii) Directing the Respondents not to enforce the balance demand raised vide demand notice dated 31.03.2015 (Annexure-A2) until disposal of the appeal by the 1st / 2nd Respondent and for a period of three weeks thereafter; and

(iv) Pass such other or further orders as this Hon’ble Court may deem fit in the facts and circumstances of the case, in the interests of justice and equity.”

2. Heard the learned Senior Counsel appearing for the petitioner and the learned counsel appearing for the respondents and perused the material available on record.

3. In addition to reiterating the various contentions urged in the petition and referring to the material available on record, the learned Senior Counsel for the petitioner submitted that aggrieved by the demand notice dated 31.03.2015 issued by respondent No.3 in relation to the assessment year 2012-13, the petitioner filed an appeal before respondent No.1 on 29.04.2015. In addition thereto, the petitioner filed stay applications before respondent No.3 seeking stay of the demand raised for the assessment year 2012-13 and the said applications were filed on 05.05.2015, 18.05.2015, 12.06.2015, 30.11.2016. On 05.10.2017, the petitioner filed written submissions and application for additional evidence and the proceedings before respondent No.1 are still pending adjudication. It is submitted that though the petitioner would be liable to pay only 20% by way of pre-deposit for the purpose of stay before the Appellate Authority in terms of the Circular dated 31.07.2017 and the petitioner would be entitled to refund of all the amounts payable to him in excess of the aforesaid 20%, the respondents have proceeded to adjust the amounts in excess of 20%, which is the maximum of amount of pre-deposit to be made by the petitioner, who is before this Court seeking direction for refund of the amounts adjusted in excess of 20% and for direction to the Appellate Authority to dispose of the appeals as expeditiously as possible.

4. In support of his submissions, the learned Senior Counsel appearing for the petitioner placed reliance on the judgment of this Court in the case of Pan Synthetics Private Limited and Centralized Processing Centre and others -W.P.No.9835/2024 dated 23.07.2024 as well as the Office Memorandum dated 31.07.2017 issued under Section 220 of the Income Tax Act, 1961.

5. Per contra, learned counsel appearing for the respondents submits that respondent No.1 would take up the appeals and dispose of the same as expeditiously as possible.

6. A perusal of the material available on record will indicate that it is an undisputed fact that the petitioner filed an appeal on 29.04.2015 and multiple stay applications were also filed by him between 05.05.2015 and 30.11.2016 and the petitioner is making earnest efforts to get the appeals as well as the stay applications disposed of. In this context, perusal of the Circular/Office Memorandum dated 31.07.2017 will indicate that in the event, the petitioner deposits 20% by way of pre-deposit, there shall be stay of demand till disposal of the appeal by the Appellate Authority. However, in the instant case, despite the petitioner having filed the appeal as long back as in the year 2015 and multiple stay applications between 2015 to 2016, the Assessing Officer has neither passed any orders on the stay applications nor as the Appellate Authority disposed of the appeals. On the other hand, the respondents have proceeded to adjust the refunds payable to the petitioner in excess of maximum 20%, which is clearly impermissible in law, particularly, having regard to the office memorandum dated 31.07.2017 and the judgment of this Court in W.P.No.9835/2024 dated 23.07.2024 referred supra wherein it is held as under:

ORAL ORDER

The petitioner has sought for directions to the respondents to refund an amount of Rs.1,99,98,090/- being the demand raised for the assessment year 2015-16 and 2016-17 which is stated to have been adjusted as against the refund due for the assessment year 2023-24.

2. It is the case of the petitioner that for the assessment year 2016-17, the third respondent has passed an assessment order and raised a demand on 26.05.2023, and for the assessment year 2015-16, the third respondent has passed an assessment order and raised the demand on 30.05.2023.

3. Aggrieved by such orders, appeals were filed before the Commissioner of Income Tax and the petitioner had filed an application seeking for stay of the demand for the assessment year 2015-16 as per Annexure-M and similar application was filed seeking stay of demand for the Assessment Year 2016-17 at Annexure-N. Petitioner submits that in terms of Annexure-P as against outstanding demand noticing that refund was granted upon processing the return for the assessment year 2023-24 and determination of refund of Rs.1,99,98,090/-, the said refund was adjusted for the demand as regards the assessment year 2015-16 and 2016-17.

4. It is the contention of the petitioner that the entirety of refund was adjusted and in light of their application for stay, if the demand for 201516 and 2016-17 is stayed, the question of adjustment of entirety of refund would not arise.

5. It is noticed that the assessment order for the year 2015-16 was passed on 16.02.2024 and for the year 2016-17 was passed on 26.05.2023.

6. It is not in dispute that the application for stay was filed on 11.01.2024 as regards assessment year 2015-16 and on the same date i.e., on 11.01.2024 application for stay was filed as regards the assessment year 2016-17. As on the date of filing of the application for stay, the petitioner had the benefit of order of refund for the year 2023-24. If as on the date of filing the application for stay dated 11.01.2024, if the petitioner had made payment of 20% remaining 80% would have been stayed.

7. In light of adjustment at Annexure-P, only manner of moulding the relief would be adjustment of refund to an extent of 20% of the demand for the year 2015-16 and 2016-17. Once adjusted, the remaining amount of 80% of refund adjusted towards demand requires to be reversed by crediting the same to the petitioner. Accordingly, the third respondent is directed to refund the amount of 80% of the demand for the assessment year 2015-16 and 2016-17 as already been adjusted. Such refund to be made within a period of eight weeks from today.

8. Accordingly the petition is disposed off.

7. In view of the aforesaid facts and circumstances, I am of the considered opinion that the respondents were clearly not justified in adjusting the refund amounts payable to the petitioner in excess of 20% and consequently, necessary directions have to be issued to the respondents to refund the entire amounts payable to the petitioner in excess of 20% of the demand for the assessment year 2012-13 within a stipulated time frame and by directing respondent No.1 to dispose of the appeals within a stipulated time frame.
8. In the result, I pass the following:
ORDER
(i)The petition is hereby allowed.
(ii)The concerned respondents are directed to refund the entire amount in excess of 20% of the demand raised for the assessment year 2012-13 together with the applicable interest back to the petitioner after due verification within a period of six weeks from the date of receipt of a copy of this order.
(iii)The concerned respondent / Appellate Authority is directed to dispose of the appeal within a period of three months from the date of receipt of a copy of this order.
(iv)Respondents are directed not to enforce the balance demand raised by any demand notice at Annexure-A2 dated 31.03.2015 till the expiry of period of three weeks after disposal of the appeal by the Appellate Authority.
5. It is also pertinent to note that on 25.02.2025, this Court has passed the following interim order:
Heard learned senior counsel Sri.T.Suryanarayana for petitioner, learned counsel Sri.Aravind V. Chavan for respondent Nos.1 and 2 and learned counsel Sri.M.Dilip for respondent Nos.3 and 4.
Learned counsel Sri.M.Dilip for respondent Nos.1 and 2 would submit that, pending disposal of the writ petition, the petitioner be directed to make representation to respondent Nos.3 and 4 for refund of the amount adjusted, which would be considered and order would be passed within four weeks.
Learned senior counsel Sri.T.Suryanarayana would submit that the present refund relates to assessment year 2019-20 and 2023-24. He submits that for the assessment year relating to assessment year 2021-22, the petitioner filed appeal on 23.01.2023 and the stay applications were filed which are pending consideration. In the meanwhile, he submits that when the petitioner filed appeal, the petitioner was required to predeposit 20% of the assessment and the respondents have adjusted the entire amount.
In the above circumstances, I deem it appropriate to direct the petitioner to request respondent Nos.3 and 4 for refund by making a representation within a week. Thereafter, respondent Nos.3 and 4 are directed to consider the request of the petitioner for refund within three weeks.
List on 26.03.2025.”
6. In pursuance of the aforesaid order, the petitioner submitted a representation/ application dated 03.03.2025, which was rejected vide communication dated 25.03.2025. However, having regard to the fact that the aforesaid communication was passed during the pendency of the present petition and finding recorded by him, the petitioner would be entitled to refund of entire amount in excess of 20% for the assessment year 2021-22, I deem it just and appropriate to quash communication also in the present petition.
7. In the result, I pass the following:
ORDER
(i)The petition is hereby allowed and disposed of in terms of Price Waterhouse (supra).
(ii)The communication/order dated 25.03.2025 is hereby quashed.
(iii)The concerned respondents are directed to refund the entire amount in excess of 20% for the assessment year 2021-2022 together with interest, if applicable, back to the petitioner after due verification within a period of six weeks from the date of receipt of copy of this order.
(iv)Respondents are also directed not to take precipitative/coercive steps against the petitioner in relation to the balance demand raised at Annexure-J dated 13.12.2023 till expiry of period of three weeks after disposal of the appeal by the appellate authority.”
6. In the instant case, it is an undisputed fact that the petitioner has already deposited 20% of the total demand and the application of stay is still pending consideration before the Assessing Officer. In these circumstances, I deem it appropriate to allow and dispose of the same in terms of the above said judgments. Hence, I pass the following:
ORDER
(i)The petition is hereby allowed and disposed of in terms of . Price Waterhouse, Bengaluru (supra).
(ii)The communication/order dated 25.03.2025 is hereby quashed.
(iii)The concerned respondents are directed to refund the entire amount of Rs.2,59,55,300/- in excess of 20% for the assessment year 2023-2024 together with interest, if applicable, back to the petitioner after due verification within a period of six weeks from the date of receipt of copy of this order.
(iv)Respondents are also directed not to take precipitative/coercive steps against the petitioner in relation to the balance demand raised at Annexure-J dated 31.10.2023 till expiry of period of three weeks after disposal of the appeal by the appellate authority.