Delhi High Court Upholds ₹3.65 Crore Advance Tax Credit Against Capital Gains Liability

The Delhi High Court on 21 August upheld an Income Tax Appellate Tribunal (ITAT) order directing the Income Tax Department to allow Marguerite Lasusa Chawla, a taxpayer, credit of Rs. 3.65 crore advance tax paid in an earlier assessment year against her capital gains tax liability arising in a subsequent assessment year.

A Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta observed:

"Technically and legally, the advance tax…deposited and the return furnished by the respondent pertains to the very same transaction and very same gain,"

The dispute concerned advance tax of Rs. 3.65 crore deposited on 15 September 2015, which was reflected as tax paid for Assessment Year (AY) 2016-17. Chawla sought credit for the amount against her tax liability for AY 2018-19.

Although the advance tax had been paid in FY 2015-16, the transaction involving the capital asset could not be finalised at that stage due to civil disputes between the parties. The dispute was eventually settled in FY 2017-18.

The ITAT allowed Chawla's claim, holding that since the transaction could not be finalised in AY 2016-17, the advance tax paid earlier had to be adjusted in the year in which the transaction was ultimately settled, namely AY 2018-19.

The Department challenged the ITAT order before the High Court, arguing that the ITAT had no power to grant adjustment of tax paid in FY 2015-16 against income offered for AY 2018-19. It argued that Chawla ought to have filed a return for AY 2016-17, claimed a refund, and separately paid tax for AY 2018-19.

The High Court, however, held that although the Revenue's contention might be technically correct, the ITAT's order deserved to be affirmed "in the interest of justice", particularly considering that Chawla was a 92-year-old foreign national.

It observed that the advance tax deposited by Chawla's late husband pertained to AY 2016-17, whereas the return filed by her could only have been filed for AY 2018-19, creating a natural procedural gap.

Accordingly, the High Court upheld the ITAT's order and directed that if the Department's electronic system did not permit seamless processing of the adjustment, the authority would carry out the exercise manually.

For Appellant: Mr. Puneet Rai, SSC along with Mr. Ashvini Kumar, Mr. Rishabh Nangaia, JSCs and Mr. Nikhil Jain and Ms. Nancy Jain, Advocates.

For Respondent: Ms. Deepti Gupta, Advocate.