Calcutta High Court Restricts Tax Recovery to 20% of Disputed Demand During Pendency of CIT(A) Appeal

Case Reference

Gaurav Enterprises Vs Union of India And Ors (Calcutta High Court)
WPO/700/2025

Background and Context

A significant ruling has emerged from the Calcutta High Court addressing a recurring grievance faced by assessees — the coercive recovery of tax demands far exceeding 20% of the disputed amount, even when a first appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] remains pending. The judgment reinforces a principled stance that revenue authorities cannot bypass the protection afforded by CBDT's own administrative instructions simply by adjusting refunds due to an assessee for other assessment years.

The dispute in this matter arose from an assessment completed for Assessment Year (AY) 2018-19, pursuant to which the Income Tax Department issued a notice of demand under Section 156 of the Income Tax Act, 1961, requiring the assessee to pay a substantial sum. While an appeal against that assessment order was actively pending before the appellate authority, the Department proceeded to recover amounts from refunds owed to the assessee for entirely different assessment years — and did so well beyond the permissible 20% threshold.

The Court, relying on its own precedents, directed the Department to refund the excess amount recovered and requested the appellate authority to expedite disposal of the long-pending appeal.

Facts of the Case

Assessment and Demand

On April 17, 2021, an assessment order was passed in respect of the assessee under Section 143(3) read with Section 144B of the Income Tax Act, 1961 for AY 2018-19. Consequent to this order, a notice of demand under Section 156 was issued, raising a tax demand of Rs. 9,19,33,664/–.

Appeal Filed Before CIT(A)

Aggrieved by the assessment, the assessee preferred an appeal before the Commissioner (Appeals) on August 3, 2021 under Section 246A of the Income Tax Act, 1961, thereby triggering the appellate process against the disputed demand.

Stay Application Submitted

On September 29, 2021, the assessee filed an application before the concerned Assessing Officer seeking a stay of the disputed demand, as is the standard practice under Section 220(6) of the Act during the pendency of a first appeal.

Recovery Made Despite Pending Stay Application

While the stay application was still awaiting a decision, the Income Tax authorities proceeded to adjust and recover the outstanding demand from refunds due to the assessee for AY 2020-21 to AY 2023-24. The total amount so recovered amounted to Rs. 5,01,16,180/–, which substantially exceeded 20% of the total disputed demand of Rs. 9,19,33,664/–.

Note: 20% of Rs. 9,19,33,664/– works out to approximately Rs. 1,83,86,733/–. The recovery of Rs. 5,01,16,180/– was therefore nearly 2.7 times the permissible threshold.

Aggrieved by this excessive recovery, the assessee filed a writ petition before the Calcutta High Court challenging the action of the Revenue authorities.

Arguments Raised by the Parties

Submissions on Behalf of the Assessee

Counsel for the assessee argued that the Calcutta High Court had already settled this legal issue in two earlier decisions: