The Delhi High Court has held that once an assessment has been completed under Section 201 of the Income-tax Act, 1961, or a refund becomes due pursuant to an order of an appellate authority, the Assessing Officer or the Centralized Processing Cell cannot compel the assessee to furnish Form 26B as a condition for releasing the refund. The Court directed the Income Tax Department to pay Vodafone Idea Limited a refund of Rs. 53,09,56,470 along with applicable statutory interest.
The petitions concerned Assessment Years 2003-04 and 2008-09 to 2013-14. The Income Tax Appellate Tribunal had allowed the assessee’s appeals through various orders passed during 2024 and 2025. Consequent appeal-effect orders were thereafter passed by the Assessing Officer, resulting in an aggregate amount of Rs. 53,09,56,470 being found refundable to the petitioner. Despite this quantification, the refund remained unpaid.
The Department insisted on filing Form 26B and relied upon outstanding demands reflected against the petitioner’s PAN and associated TANs. According to the Department’s own counter affidavit, out of demands aggregating approximately Rs. 924.57 crore, around Rs. 913.66 crore stood stayed by various authorities or courts. The parties disputed the actual balance enforceable demand, but the High Court considered it unnecessary to decide that factual controversy.
Form 26B Operates in a Different Field
The central issue before the Court was whether Form 26B, read with Section 200A and Rule 31A, could be insisted upon where a refund had arisen after assessment under Section 201 or pursuant to an appellate order.
The High Court distinguished the statutory fields occupied by Sections 200A and 201. It observed that Section 201 concerns assessment relating to TDS, whereas Section 200A deals with processing and adjustment of TDS statements at the CPC stage prior to such assessment. Rule 31A and Form 26B operate within the latter framework and facilitate such adjustment.
Accordingly, once a competent Assessing Officer has completed an assessment under Section 201, or an appellate authority has passed an order from which a refund arises, the refund becomes a vested and crystallised right of the assessee, subject to the Department’s right to challenge the underlying order in accordance with law. The Court held that such a refund is not made subordinate to Section 200A, Rule 31A or Form 26B.
Refund Cannot Be Withheld Without a Valid Section 245 Order
The Court further clarified that an amount found refundable after giving effect to an appellate order must be paid together with applicable interest. Any withholding or adjustment of such refund must be supported by a legally valid order under Section 245 of the Income-tax Act.
In the present case, the Department was unable to demonstrate that any competent authority had passed an order under Section 245 withholding or adjusting the refund. Therefore, the mere existence of alleged outstanding demands against the petitioner’s PAN or associated TANs could not justify continued withholding of the refund.
The High Court characterised the Department’s action as arbitrary and violative of Articles 14, 19(1)(g) and 300A of the Constitution of India, and allowed the writ petitions.
Direction to Release Rs. 53.09 Crore with Interest
The respondents were directed to pay Rs. 53,09,56,470 to Vodafone Idea Limited along with applicable interest under Sections 244A and 244A(1A) on or before 30 September 2026.
Significantly, the Court further directed that if the amount was not credited to the petitioner’s account by that date, the entire amount would carry additional interest at 1% per month over and above the statutory interest. The Court also observed that the matter was fit for imposition of exemplary costs, though it ultimately refrained from imposing them.
Key Takeaway
The judgment establishes that Form 26B cannot be imposed as a procedural precondition for obtaining a refund that has already crystallised pursuant to a Section 201 assessment or an appellate order. Once the amount becomes refundable, it must be released with applicable interest unless its withholding or adjustment is supported by a legally sustainable order under Section 245 of the Income-tax Act.
The ruling is particularly relevant for deductors and taxpayers facing delays in receiving TDS-related refunds despite favourable assessment or appellate orders.