CPC keeps adjusting my refunds against a demand that is under appeal, and says the Centralised Processing Scheme requires it. Does that scheme override the CBDT's stay instructions?
No. Clause 10 of the Centralised Processing of Return of Income Scheme, 2011 cannot be read in isolation; the power to set off a refund against an outstanding demand is circumscribed by the provisions of the Act and by the CBDT's subsisting instructions, circulars and office memoranda. The Court restrained recovery beyond what those instructions permit and directed that the excess already recovered be returned with interest, and that refunds not be adjusted until the appeal is decided.
Decided by the High Court (Sunil P. Deshmukh J and Abhay Ahuja J) on 2021-03-25, reported as Writ Petition (L) No. 7231 of 2020 (High Court of Judicature at Bombay). It bears on section 245, section 220(6), section 143(1A), section 143(1B), section 143(3), section 142(1), section 143(2) of the Income Tax Act 1961, in Demand, Recovery & Stay and Refunds, Interest & Condonation matters.
The department's standard answer to a refund-adjustment grievance is that CPC does it automatically under the Scheme framed under s.143(1A). This decision closes that answer off: uploading a demand does not mean every refund is liable to be adjusted irrespective of subsisting orders and instructions. The practical yield is the direction that recovery over and above the amount required for stay is to be returned with interest and that further refunds are not to be adjusted pending appeal. Note the shape of the relief: the Court framed it by reference to 'instructions, circulars and guidelines issued by CBDT from time to time' rather than fixing a percentage itself, so the figure you argue for comes from the OM, not from this order.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner, an individual and proprietor of two development firms, was assessed for AY 2013-14 under s.143(3) on 31.03.2016 at Rs.21,48,06,900 with tax dues of Rs.6,13,48,390, and appealed. During the appeal Rs.1,38,34,925 was collected by adjusting refunds for AYs 2014-15, 2015-16 and 2016-17. On 26.06.2018 the Assessing Officer passed a stay order for the balance but purported to reserve the right to adjust refunds against the demand. Refunds of Rs.58,56,090 for AY 2018-19 and Rs.71,92,970 for AY 2019-20 were then also adjusted. Representations to the Assessing Officer, on the online grievance portal and to the Principal Chief Commissioner produced nothing. The petitioner's case was that the amount adjusted came to 22.55% of the demand, exceeding the 20% ceiling in the OM of 29.02.2016 as modified on 31.07.2017, and that COVID-19 had caused financial hardship. The Revenue relied on clause 10 of the Centralised Processing of Return of Income Scheme, 2011 notified on 04.01.2012 under s.143(1A), which provides for set-off of refunds against outstanding demand uploaded onto the system by the Assessing Officer.
Rule was made absolute and the petition disposed of (para 21). The Assessing Officer was to refrain from recovering the demand for AY 2013-14 over and above what the CBDT instructions, circulars and memoranda permit; the amount recovered over and above that is to be returned to the petitioner with interest according to law; and refunds over and above that amount are not to be adjusted towards the AY 2013-14 demand till the appeal is disposed of (paras 19 and 20). Clause 10 of the Centralised Processing Scheme is not in derogation of, and does not efface, the provisions of the Act or the subsisting instructions; the power of set-off under it is circumscribed by them (paras 17 and 18).
The Court set s.143(1A) and s.143(1B) side by side and observed that no notification under s.143(1B) excluding or modifying any provision relating to processing of returns had been placed before it, so clause 10 of the Scheme cannot be read out of context in isolation (paras 13 to 16). Reading the Scheme with the rest of the Act, the Court held that it takes within its fold the instructions issued by the CBDT from time to time, and that it would be incongruous to treat the uploading of a demand as meaning that all refunds arising are liable to be adjusted irrespective of orders and subsisting instructions (paras 17 and 18). The demand for AY 2013-14 being in dispute and pending in appeal, and the instructions and memoranda relied on by the petitioner not being disputed by the Revenue, restraint on recovery beyond what those instructions permit was called for, with return of the excess and no further adjustment pending appeal (paras 19 and 20).
The exercise of power to have set off / adjustment of refund is regulated by legislative provisions and instructions.
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Handle my notice → Ask a CA on WhatsAppNo. Clause 10 of the Centralised Processing of Return of Income Scheme, 2011 cannot be read in isolation; the power to set off a refund against an outstanding demand is circumscribed by the provisions of the Act and by the CBDT's subsisting instructions, circulars and office memoranda. The Court restrained recovery beyond what those instructions permit and directed that the excess already recovered be returned with interest, and that refunds not be adjusted until the appeal is decided. This was decided by the High Court (Sunil P. Deshmukh J and Abhay Ahuja J) and bears on section 245, section 220(6), section 143(1A), section 143(1B), section 143(3), section 142(1), section 143(2) of the Income Tax Act 1961. It is reported as Writ Petition (L) No. 7231 of 2020 (High Court of Judicature at Bombay). The department's standard answer to a refund-adjustment grievance is that CPC does it automatically under the Scheme framed under s.143(1A). This decision closes that answer off: uploading a demand does not mean every refund is liable to be adjusted irrespective of subsisting orders and instructions. The practical yield is the direction that recovery over and above the amount required for stay is to be returned with interest and that further refunds are not to be adjusted pending appeal. Note the shape of the relief: the Court framed it by reference to 'instructions, circulars and guidelines issued by CBDT from time to time' rather than fixing a percentage itself, so the figure you argue for comes from the OM, not from this order. If it applies to you, the first step is this: Compute the total already recovered by adjustment as a percentage of the disputed demand and show that it exceeds the amount required for stay under the OM; that arithmetic is what the relief turns on.
The petitioner, an individual and proprietor of two development firms, was assessed for AY 2013-14 under s.143(3) on 31.03.2016 at Rs.21,48,06,900 with tax dues of Rs.6,13,48,390, and appealed. During the appeal Rs.1,38,34,925 was collected by adjusting refunds for AYs 2014-15, 2015-16 and 2016-17. On 26.06.2018 the Assessing Officer passed a stay order for the balance but purported to reserve the right to adjust refunds against the demand. Refunds of Rs.58,56,090 for AY 2018-19 and Rs.71,92,970 for AY 2019-20 were then also adjusted. Representations to the Assessing Officer, on the online grievance portal and to the Principal Chief Commissioner produced nothing. The petitioner's case was that the amount adjusted came to 22.55% of the demand, exceeding the 20% ceiling in the OM of 29.02.2016 as modified on 31.07.2017, and that COVID-19 had caused financial hardship. The Revenue relied on clause 10 of the Centralised Processing of Return of Income Scheme, 2011 notified on 04.01.2012 under s.143(1A), which provides for set-off of refunds against outstanding demand uploaded onto the system by the Assessing Officer. The matter was decided on 2021-03-25 by the High Court (Sunil P. Deshmukh J and Abhay Ahuja J). On those facts the High Court held as follows. Rule was made absolute and the petition disposed of (para 21). The Assessing Officer was to refrain from recovering the demand for AY 2013-14 over and above what the CBDT instructions, circulars and memoranda permit; the amount recovered over and above that is to be returned to the petitioner with interest according to law; and refunds over and above that amount are not to be adjusted towards the AY 2013-14 demand till the appeal is disposed of (paras 19 and 20). Clause 10 of the Centralised Processing Scheme is not in derogation of, and does not efface, the provisions of the Act or the subsisting instructions; the power of set-off under it is circumscribed by them (paras 17 and 18).
The Court set s.143(1A) and s.143(1B) side by side and observed that no notification under s.143(1B) excluding or modifying any provision relating to processing of returns had been placed before it, so clause 10 of the Scheme cannot be read out of context in isolation (paras 13 to 16). Reading the Scheme with the rest of the Act, the Court held that it takes within its fold the instructions issued by the CBDT from time to time, and that it would be incongruous to treat the uploading of a demand as meaning that all refunds arising are liable to be adjusted irrespective of orders and subsisting instructions (paras 17 and 18). The demand for AY 2013-14 being in dispute and pending in appeal, and the instructions and memoranda relied on by the petitioner not being disputed by the Revenue, restraint on recovery beyond what those instructions permit was called for, with return of the excess and no further adjustment pending appeal (paras 19 and 20). In the words reproduced by the source cited on this page: "The exercise of power to have set off / adjustment of refund is regulated by legislative provisions and instructions." The decision followed or applied Jindal Steel and Power Ltd v. PCIT 2017 391 ITR 42 (P&H) - cited by the petitioner for the limited power to adjust refunds; Andrew Telecommunications India Pvt. Ltd. v. PCIT 295 CTR 557 (Bom) - cited by the petitioner; Commissioner of Customs v. Indian Oil Corporation Ltd. 267 ITR 272 - cited by the petitioner on the binding nature of CBDT circulars.
It was decided by the High Court on 2021-03-25 and is reported as Writ Petition (L) No. 7231 of 2020 (High Court of Judicature at Bombay). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 245, section 220(6), section 143(1A), section 143(1B), section 143(3), section 142(1), section 143(2), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Rule was made absolute and the petition disposed of (para 21). The Assessing Officer was to refrain from recovering the demand for AY 2013-14 over and above what the CBDT instructions, circulars and memoranda permit; the amount recovered over and above that is to be returned to the petitioner with interest according to law; and refunds over and above that amount are not to be adjusted towards the AY 2013-14 demand till the appeal is disposed of (paras 19 and 20). Clause 10 of the Centralised Processing Scheme is not in derogation of, and does not efface, the provisions of the Act or the subsisting instructions; the power of set-off under it is circumscribed by them (paras 17 and 18). It arises in Demand, Recovery & Stay and Refunds, Interest & Condonation matters, on section 245, section 220(6), section 143(1A), section 143(1B), section 143(3), section 142(1), section 143(2) of the Income Tax Act 1961, and was decided by Sunil P. Deshmukh J and Abhay Ahuja J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not accept a reply that the adjustment was automatic under the CPC Scheme - clause 10 is read subject to the Act and the instructions. Where a stay order 'reserves the right to adjust refunds', read it against para 4(E)(iii) of the OM of 29.02.2016: the right is only to the extent of the amount required for granting stay and subject to s.245. Ask expressly for return of the excess with interest and for a direction that no further refunds be adjusted till the appeal is disposed of - both were granted here.
Searched for later treatment; none was found. That is not the same as a source affirming it. Three probes and nothing. The citedby search returns no results. A name search returns only the same petitioner's own later proceedings before the Bombay High Court - two orders of 13 September 2021 and two of 29 March 2022, all in her continuing litigation against the Union - and no other decision mentions the judgment. So the holding that clause 10 of the Centralised Processing of Returns Scheme, 2011 does not displace the CBDT's own instructions on stay of demand, and that a section 245 adjustment made without regard to them cannot stand, has not been applied, doubted or overruled by any later decision on record. The point is nonetheless of daily use to a practitioner facing an automatic refund adjustment, and the wider Bombay line to the same effect is intact. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment runs to 21 numbered paragraphs. Para 6 records the petitioner as relying on 'Instruction No. 1914 of 02.02.1993' while para 10 records the Revenue as describing 'Instruction No. 1914 dated 21.03.1996'; the same instruction is dated differently within the same order. Paras 6 to 9 are counsel's submissions and paras 10 to 12 the Revenue's, so nothing in them is the Court's own view; the Court's reasoning begins at para 14. The relief is framed by reference to 'instructions, circulars and guidelines issued by CBDT, from time to time' rather than to a stated percentage, although the petitioner's case was that 22.55% had been recovered against a 20% ceiling. The order does not decide the correctness of the assessment. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Rule was made absolute and the petition disposed of (para 21). The Assessing Officer was to refrain from recovering the demand for AY 2013-14 over and above what the CBDT instructions, circulars and memoranda permit; the amount recovered over and above that is to be returned to the petitioner with interest according to law; and refunds over and above that amount are not to be adjusted towards the AY 2013-14 demand till the appeal is disposed of (paras 19 and 20). Clause 10 of the Centralised Processing Scheme is not in derogation of, and does not efface, the provisions of the Act or the subsisting instructions; the power of set-off under it is circumscribed by them (paras 17 and 18).
TaxSphere, “Vrinda Sharad Bal v ITO”, https://taxnotice.vittsphere.com/caselaw/case/vrinda-sharad-bal-cpc-scheme-clause-10-does-not-override-the-cbdt-instructions/ (validity last checked 2026-09-08)
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The department has attached my bank account under s.226(3) because I did not pay the 20%. I say I have already paid more than that. Will the High Court interfere?
My refund was simply taken against another year's demand and I was never told. Does the notice have to come first?
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