Delhi High Court Questions Income Tax Dept's Withholding Of ₹71.71 Lakh Refund Against ₹1.25 Lakh Demand

The Delhi High Court on 21 August questioned the Income Tax Department's decision to withhold the entire refund of Rs.71.71 lakh payable to Civitech Housing India against an outstanding demand of only Rs.1.25 lakh.

A Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta observed that it failed to comprehend why such a “meagre” demand warranted withholding the entire refund. It observed:

“We fail to comprehend that while would the respondents withheld the entire refund of Rs.71,71,049/- for a meagre demand of Rs.1,25,389/- which has been calculated way back on 21.07.2026.”

An order dated 21 July 2026 had determined that a refund of Rs.71,71,049 was payable to Civitech Housing India. However, the amount was not credited to the petitioner on account of the pending demand.

The Department submitted that an intimation proposing adjustment under Section 245 of the Income Tax Act, 1961, which permits adjustment of a refund against an outstanding demand, had been issued to Civitech Housing India on 6 August 2026.

The Court examined an email dated 10 August 2026 sent by the Centralized Processing Centre to the Assessing Officer. It noted that as per the email, two demands for Assessment Year 2010-11 were pending against Civitech Housing India, comprising Rs.49,439 under Section 250 and Rs.75,950 under Section 154, totalling Rs.1,25,389.

Further, the Bench emphasised that where the Centralized Processing Centre finds that a refund is due but an outstanding demand exists and proposes to withhold or adjust the refund under Section 245, it should retain only an amount equal to the proposed withholding or adjustment and immediately remit the remaining amount to the taxpayer.

Accordingly, the Court directed the Department to act in accordance with the above position.

For Petitioner: Mr.Manish Gupta, Mr. Prateek Gupta, Mr. Sowmya China, Ms. Riya, Mr. Rravi and Mr. Vaishnavi Mishra, Advs.

For Respondents: Mr. Indruj Singh Rai, SSC with Mr. Sanjeev Menon, Mr. Rahul Singh, Ms. Priya Sarkar, JSCs, Mr.Gaurav Kumar, Mr. Prateek Bhati, Advs. Mr.Nirdesh Gangwar, Assessing Officer, ACIT, Circle 4(2).