In a recent decision, the Delhi High Court observed that the proceeding to adjust demand against available refunds without considering application under Section 220(6) of the Income Tax Act, 1961 is arbitrary.

The writ petitioner has approached this Court aggrieved by the adjustment of a disputed tax demand pertaining to Assessment Year 2018-2019 against refunds which were due to it for AYs’ 2010-11, 2011- 12 and 2020-21. The challenge is principally raised in the backdrop of the aforesaid adjustment having been made despite the petitioner having moved a rectification application pertaining to the final assessment which was framed for AY 2018-19 and an admitted failure on the part of the respondents to consider and dispose of the stay application which was moved and was referable to Section 220(6) of the Income Tax Act.

The counsel who appeared in support of the writ petition, the action so initiated and the adjustments effected are wholly arbitrary and illegal in as much as there existed no justification for the adjustments being made without its application referable to Section 220(6) being either considered or examined. According to the counsel, the very purpose of Section 220(6) has been nullified by the action of the respondents who have proceeded to make the impugned adjustments without even examining the application of the petitioner for not being treated as an “assessee in default”.

The counsel for the respondents submitted that they were clearly justified in effecting the adjustments in the absence of a declaration having been rendered in favour of the petitioner that it was not an “assessee in default” and that although an application under Section 154 of the Income Tax Act had been moved, the issues which were sought to be canvassed thereon clearly did not qualify as an error apparent and thus the same rightly came to be rejected. A Division Bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav observed that “Undisputedly, and on the date when the impugned adjustments came to be made, the application moved by the petitioner referable to Section 220(6) of the Act had neither been considered nor disposed of.

The respondents have thus in our considered opinion clearly acted arbitrarily in proceeding to adjust the demand for AY 2018-19 against available refunds without attending to that application. This action of the respondents is wholly arbitrary and unfair.” “In our considered opinion, the respondents have clearly erred in proceeding on the assumption that the application for consideration of outstanding demands being placed in abeyance could not have even been entertained without a 20% pre-deposit. The aforesaid stand as taken is thoroughly misconceived and wholly untenable in law” the Court noted. To Read the full text of the Order CLICK HERE