Delhi High Court Pulls Up Income Tax CPC For Tax Recovery Despite Stay, Issues Directions For Coordination

The Delhi High Court has pulled up the Income Tax Department's Centralised Processing Centre for recovering tax dues from a taxpayer even though a stay on recovery was already in place, saying such lapses are unacceptable in a fully digitized system.

A division bench of Justices Dinesh Mehta and Vinod Kumar said the department cannot plead ignorance once a stay order is passed.

“In the era of computerization, where even assessments are made online, Income Tax returns are filed online, appeals are heard online, the situation that the CPC does not know that stay order has been passed cannot be conceived let alone countenanced,” the court said.

It also called the attempt to shift blame on the taxpayer “highly unprofessional.”

The case was filed by Shree Krishna Steel Traders, a proprietary concern. For the assessment year 2021–22, the trader's return was reopened and an addition was made, leading to a tax demand. The trader challenged the assessment in appeal and, as required, paid 20 percent of the disputed amount, which worked out to Rs. 21.51 lakh. In January 2024, the Assessing Officer granted a stay on recovery of the remaining demand until the appeal was decided.

Even so, the Centralised Processing Centre later adjusted Rs. 6.45 lakh from the trader's refund. When the matter reached the High Court, the tax department argued that the CPC had issued a notice and that the trader had failed to inform it about the stay order within the stipulated time.

The court was not persuaded. It noted that the recovery had taken place despite a subsisting stay and said the amount had been recovered “maybe erroneously, if not illegally.” Referring to earlier rulings, the bench held that the trader was entitled to get the money back.

Allowing the petition, the High Court directed the department to refund Rs. 6.45 lakh along with applicable interest within four weeks. It also laid down clear safeguards for the future. The bench said every assessing officer who grants a stay must “peremptorily send a copy” of the order to the concerned CPC.

It made it clear that the CPC should neither issue recovery notices nor recover any amount once a demand has been stayed. The court also directed Assessing Officers to immediately update the department's online portal and mark such demand as “not recoverable.”

To ensure the directions are followed across the country, the High Court ordered that a copy of its judgment be circulated to all Principal Chief Commissioners of Income Tax

Case Title: Shree Krishna Steel Traders Through Proprietor Nikhil Sharma vs. Union of India

Citation: 2026 LLBiz HC (DEL) 28

Case Number: WP 8187/2025

For Petitioner: Advocate Prabhat Kumar