The Delhi High Court has criticised the Income Tax Department’s handling of tax refunds as presenting a ‘grim picture’ of the state of affairs in the department, while directing the Revenue to release Rs 53.09 crore to Vodafone Idea along with applicable interest.
A Division Bench of Justice Dinesh Mehta and Justice Rajneesh Kumar Gupta in an order dated August 18, directed the department to pay Rs 53.09 crore to Vodafone Idea by September 30, 2026. If the amount is not credited by then, the entire refund will carry additional interest of 1 percent per month over and above the statutory interest.
The case relates to tax refunds for assessment years 2003-04 and 2008-09 to 2013-14. Vodafone Idea had succeeded before the Income Tax Appellate Tribunal through a series of orders passed between April 2024 and February 2025. Following the appellate orders, the Assessing Officer passed orders giving effect to the decisions and quantified a total refund of Rs 53.09 crore.
However, the amount remained unpaid. The High Court noted that the company had been involved in litigation for nearly a decade and that, even after the AO determined the refund in October 2024 and May 2026, the amount had not been remitted.
Income Tax Department insisted that Vodafone Idea furnish Form 26B before processing the refund. Form 26B is a form used for claiming a refund of excess TDS deducted or deposited by a deductor.
The company eventually submitted the forms for two assessment years, but the applications were rejected citing outstanding demands against its PAN and the TANs of sister concerns.
The department cited total outstanding demands of around Rs 924.57 crore. However, it admitted before the court that Rs 913.66 crore of these demands had already been stayed by various authorities and courts. Vodafone Idea disputed the remaining demand as well.
The court held that once an assessment under Section 201 has been completed, or an appellate authority passes an order resulting in a refund, the amount becomes a ‘vested and crystallised right’ of the taxpayer, along with applicable interest.
Court said, the AO or CPC cannot insist on Form 26B before releasing a refund that has arisen pursuant to an assessment or appellate order.
The bench further held that the department could withhold or adjust the refund only through a legally passed order under Section 245. In the absence of such an order, the mere existence of an outstanding demand against the assessee or a sister concern’s TAN could not justify withholding the refund.
An tax expert a tax and consulting firm said, “The Delhi High Court’s judgment in the Vodafone Idea matter is significant because it draws a clear distinction between a refund arising from the processing of a TDS statement under Section 200A read with Rule 31A and Form 26B, and a refund that crystallises pursuant to an assessment under Section 201 or an order of an appellate authority.
He said the ruling is particularly relevant for legacy TDS disputes and appellate refunds, where taxpayers could otherwise face a second round of litigation merely to obtain money that has already been determined to be refundable.
He further said, “The judgment does not mean that every tax refund can never be withheld because of an outstanding demand. The Court has recognised the statutory mechanism under Section 245 for withholding or adjustment, but there must be a legally passed order under the provision.”
He added that the mere an administrative practice, an SOP, or the mere existence of a demand against the assessee or a sister concern’s TAN cannot by itself justify withholding a crystallised refund.
The bench also observed that the case was a fit one for exemplary costs, but chose not to impose them. It ultimately allowed Vodafone Idea’s petitions and ordered the refund with statutory interest.
