Delhi High Court Directs Refund of Over ₹53 Crore to Vodafone Idea

New Delhi: The Delhi High Court has directed the Income Tax Department to refund over Rs. 53 crore to Vodafone Idea Limited along with applicable interest, holding that the Department could not insist on Form 26B or withhold a refund arising from an appellate order on the ground of an outstanding demand pending against the assessee's sister TANs.

The Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta was hearing three writ petitions filed under Articles 226 and 227 of the Constitution, seeking directions to the Department to release refunds along with interest under Sections 244A(1) and 244A(1A) of the Income Tax Act, 1961, pertaining to Assessment Years 2003-04 and 2008-09 to 2013-14, which had remained pending for about two years despite orders of the Income Tax Appellate Tribunal directing refund.

Senior Advocate Mr. Sachit Jolly, appearing for the petitioner, submitted that the Tribunal had, vide orders dated 30.04.2024, 05.06.2024, 26.11.2024 and 03.02.2025, allowed the petitioner's appeals and directed the Assessing Officer to refund the amount, pursuant to which Appeal Effect Orders dated 14.10.2024, 30.10.2024 and 15.05.2026 had quantified a total sum of Rs. 53,09,56,470 as payable. It was submitted that despite this, when it came to disbursing the amount, the respondents insisted on the petitioner filing Form 26B, which the petitioner did, purely to expedite the process, even while maintaining that such a requirement did not apply to its case.

It was further submitted that the respondents rejected the Form 26B applications citing an outstanding demand of Rs. 924,57,20,992 against the petitioner's PAN and sister TANs. The Department's own counter affidavit, however, admitted that Rs. 913,66,12,715 of this demand already stood stayed by various authorities and courts, leaving only Rs. 10,91,08,277 without a stay, a figure the petitioner disputed in rejoinder, contending that only Rs. 27,63,141 was actually outstanding. The Court declined to go into this factual dispute, leaving it for the authorities to resolve.

Mr. Jolly argued that Section 200A of the Act, Rule 31A of the Income Tax Rules, 1962, and Form 26B were designed only for cases where a deductor sought refund of tax wrongly or inadvertently deducted in excess, and had no application once an assessment had been made and a refund arose in pursuance of an order of the Appellate Authorities. He contended that the Department's reliance on a Standard Operating Procedure dated 23.03.2023 was similarly misplaced, since its own opening paragraph confined its application to cases under Section 200A and not to assessments made under Section 201 of the Act.

Mr. Indruj Singh Rai, learned Senior Standing Counsel for the respondents, submitted that it had been the consistent practice of the Department across the country to require Form 26B whenever a TDS refund was given in furtherance of a court or appellate order, and that under the SOP, an outstanding demand against sister-associated TANs of the deductor barred approval of the refund request. He submitted that the Assessing Officer, being bound by the SOP, had rightly withheld the refund in view of the outstanding demand of about Rs. 10 crore.

Describing the state of affairs, the Court observed that "the case in hands portrays a grim picture of the state of affairs prevailing in the Department."

The Court noted that the amount relating to the petitioner for seven Assessment Years had remained with the Department for ten years despite the petitioner having won its legal battle before the Tribunal in June 2024, and that even after the Assessing Officer found over Rs. 53 crore refundable in October 2024 and May 2026, the Department had taken refuge in Form 26B to withhold payment.

Examining the statutory scheme, the Court held that Sections 200A and 201 of the Act operate in entirely different fields Section 201 dealing with the assessment of TDS, and Section 200A with adjustment of TDS prior to assessment at the level of the Centralized Processing Cell and that Rule 31A and Form 26B, being procedures meant to facilitate adjustment under Section 200A, had no bearing on refunds arising from an assessment or appellate order under Section 201.

The Court held that once an assessment under Section 201 had been made or an Appellate Authority passed an order giving rise to a refund, it became a vested and crystallised right of the assessee, subject only to the Department's right to challenge the order in accordance with law, and was neither subservient to Section 200A nor to Rule 31A.

The Court held categorically that "nor can the AO or the CPC compel any assessee to furnish Form 26B" once an assessment under Section 201 has been made, and that any amount found refundable in pursuance of an appellate order has to be paid along with applicable interest, subject only to withholding or adjustment by a legally passed order under Section 245 of the Act. Since the respondents had failed to show any such order under Section 245, the Court held that the plea of withholding the refund on account of an outstanding demand against the petitioner's PAN and sister TANs was untenable in law, arbitrary, and violative of Articles 14, 19(1)(g) and 300A of the Constitution.

Allowing the writ petitions, the Court directed the respondents to pay the petitioner Rs. 53,09,56,470 along with applicable interest under Sections 244A and 244A(1A) of the Act on or before 30.09.2026, failing which the entire amount would carry interest at 1% per month over and above the statutory interest. While observing that it was a fit case for imposition of exemplary costs, the Court refrained from doing so.

Appearances:

For the Petitioner: Mr. Sachit Jolly, Senior Advocate, with Ms. Soumya Singh, Mr. Abhyudaya Shankar Bajpai and Ms. Ananya Kapoor, Advocates.

For the Respondents: Mr. Indruj Singh Rai, Senior Standing Counsel, with Mr. Sanjeev Menon, Mr. Rahul Singh and Ms. Priya Sarkar, Junior Standing Counsels, and Mr. Gaurav Kumar and Mr. Prateek Bhati, Advocates.

Case Title: Vodafone Idea Limited vs. Assistant Commissioner of Income Tax Circle 78(1), New Delhi & Anr., W.P.(C) 2729/2026 & other connected matters