Karnataka High Court Orders Tax Department to Process Refund for Recovery Exceeding 20% of Disputed Demand

Case Reference

SJR Enterprises Limited Vs DCIT (Karnataka High Court)

Background and Context

A significant development has emerged from the Karnataka High Court concerning the recovery of disputed tax demands during the pendency of first appeals. The Court disposed of a writ petition filed by the assessee — SJR Enterprises Limited — which had approached the Court seeking a refund of the amount that had been adjusted in excess of 20% of the disputed tax demand, while the first appeal remained pending for disposal.

The matter revolves around a well-established principle in tax law that during the pendency of a first appeal, the Revenue authorities are not entitled to recover more than 20% of the disputed demand. Any recovery beyond this threshold is considered impermissible and must be returned to the assessee. The case highlights the continuing need for judicial intervention to ensure that tax recovery mechanisms are applied within the boundaries prescribed by law and judicial precedent.

Facts of the Case

The assessee, SJR Enterprises Limited, had filed a Representation dated 21.05.2026 (Annexure-G) before the concerned authorities, requesting a refund of the tax amount that had been set off in excess of the 20% cap on disputed demand recovery. The assessee contended that such excess recovery was contrary to the legal position settled by the Karnataka High Court in its earlier decision in W.P. No. 17212/2025 decided on 11.09.2025.

When the representation failed to elicit a timely or favorable response from the Department, the assessee was constrained to approach the High Court by way of a writ petition, seeking appropriate directions to compel the Revenue to process the refund claim along with applicable interest under Section 244A of the Income Tax Act, 1961.

Key Issue: Whether the Revenue was justified in recovering more than 20% of the disputed demand during the pendency of the first appeal, and whether the assessee was entitled to a refund of the excess amount recovered along with interest under Section 244A.

Submissions Made Before the Court

On Behalf of the Assessee

Sri Narendra Kumar J Jain, the learned counsel appearing on behalf of the petitioner — SJR Enterprises Limited — placed reliance on the Karnataka High Court's earlier order dated 11.09.2025 in W.P. No. 17212/2025. The counsel urged that: