Kerala HC: Refund Adjustment Cannot Proceed While Rectification Application and Appeal Remain Pending
Case Overview
Attakkalari Public Charitable Trust of Contemporary Performing Arts Vs ITO (Exemption) (Kerala High Court)
The Kerala High Court recently adjudicated upon a writ petition preferred by a public charitable trust engaged in contemporary performing arts, which had approached the Court to contest proceedings initiated against it through a notice proposing adjustment of its income tax refund for Assessment Year (AY) 2025-26. The proposed adjustment was sought towards recovery of outstanding demands pertaining to AY 2014-15 and AY 2018-19. The Court's directions in this matter have significant implications for assessees who have pending rectification applications or appeals against disputed demands.
Background and Facts of the Case
The assessee, a Public Charitable Trust registered and assessed under the Income Tax Act, 1961, challenged a notice issued by the Revenue proposing to adjust the refund due for AY 2025-26 against arrear demands for two earlier assessment years, namely AY 2014-15 and AY 2018-19.
Grievances Raised by the Assessee
The assessee advanced two distinct sets of contentions before the Court, each corresponding to one of the disputed assessment years:
With Respect to AY 2014-15:
- The assessee had already preferred an appeal before the First Appellate Authority, which had been pending disposal since 2016.
- In compliance with the requirement for stay of recovery during pendency of appeal, the assessee had remitted 15% of the disputed demand amount.
- Since 15% of the demand had already been paid and an appeal was pending, the assessee contended that no coercive recovery action — including adjustment of refund — could lawfully be initiated.
With Respect to AY 2018-19:
- The assessee had filed a rectification application against the assessment order and the consequent demand notice for AY 2018-19.
- The assessee alleged that both the assessment order and the demand notice for AY 2018-19 contained serious mistakes and discrepancies that warranted rectification.
- Since the rectification application was still pending consideration, the assessee argued that proceeding with the refund adjustment was premature and legally untenable.
Legal Issues Before the Court
The Kerala High Court was called upon to examine the following questions arising from the facts:
- Whether refund adjustment for recovery of a demand for AY 2018-19 can be proceeded with while a rectification application against the very assessment order giving rise to that demand is pending.
- Whether recovery proceedings — including adjustment of refund — can be initiated against the assessee in respect of AY 2014-15, when an appeal has been pending since 2016 and 15% of the disputed demand has already been deposited.