Bombay HC ruling: I-T officers told to pay up for adjusting refund against dues

NEW DELHI: The Bombay High Court instructed the income tax department in a recent case to recover Rs 1.5 lakh from tax officers for adjusting refund of the amount due to a taxpayer against outstanding demands without first ensuring that a valid notice of demand was served on the taxpayer.

The HC also instructed the tax department to take disciplinary action against the officers.

The case could set a precedent for holding tax officials personally liable for any such overzealous action, say experts.


The court observed that it is the duty of the tax officer to determine whether the procedural requirement along with the serving of notice is complied with, and that a proof of service of demand will be necessary before adjusting the refund due to the taxpayer against such demand.

It said the court will not take lapses and serious errors of tax officers lightly as these lead to litigation and as a result the court’s judicial time is wasted in settling routine issues of governance and administration rather than adjudicating on questions of law.

The court also observed that with modern technology at their disposal and demands getting generated electronically, it should be possible for tax officers to provide a proof of service and also comply with other procedural requirements.

It directed the tax department to grant the refund due to the taxpayer with applicable interest and also imposed a cost of Rs 1.5 lakh to be paid to the taxpayer.

Based on the taxpayer’s records available with the tax office for assessment years 1995-96, 2003-2004, 2009-10 and 2012-13, the tax officer had observed that the demands for these years were outstanding. The tax officer then adjusted the refund due to the taxpayer for certain other assessment years against the outstanding demand.

The taxpayer said he had not received the order pertaining to the demands and argued that the adjustment against the refund by the tax officer was therefore invalid.

“This is one of the rare cases where the court has imposed a penalty on the tax officials, and asked tax administration to review its internal functioning and take necessary action,” said Vikas Vasal, national leader tax, Grant Thornton India LLP.

“Probably it’s also a reflection of the changing society that has its expectations from the government and its administrative machinery to deliver services in a fair and just manner,” he said.