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2007 (1) TMI 113 - HC - Income TaxPowers Of the Revenue u/s 245 - Refund claim - Adjustment of amount against outstanding demand - disallowance on the cross-charges/administrative expenses - Whether the petitioner is entitled to refund for the assessment year 2001-02 of the amount already computed by the Revenue by its orders dated December 28, 2005 and May 1, 2006 - HELD THAT - We find that no notice u/s 245 was issued to the assessee proposing to set off the demand against the outstanding tax amount due from it. There is no explanation why such notice was not issued except saying that after the order of the Tribunal dated August 17, 2005, the Revenue was processing the refund application made by the writ petitioner. It could dispose of this application only on December 27, 2005. Even at this stage, there was no proposal to invoke section 245 although on this date there was an outstanding demand for the assessment year 2000-01. The petitioner was, therefore, compelled to come to this court assailing the delay in processing this application for refund. The application moved by the Revenue in this court appears to be a device to pass the responsibility of taking a decision u/s 245 on to the court only because the petitioner had come to this court. To us, this does not appear to be a sufficient justification for by-passing the procedural requirement u/s 245. We do not wish to comment on the merits of the orders passed by the Tribunal, for the assessment years 2000-01 and 2001-02 since that is to be examined in the separate appeals filed by the Revenue in this court. As and when those appeals are decided, the necessary consequential orders will be passed. However, the fact that neither of the orders of the Tribunal in those cases has been stayed by this court while admitting the appeal is a relevant factor to be taken note of by the Revenue while deciding to invoke the power u/s 245. Administrative expenses/cross charges - Assessee has succeeded up to this court for the earlier assessment years 1998-99 and 1999-00. For the assessment year 2001-02, the assessee has succeeded before the Tribunal. Therefore, to the extent of the demand on account of administrative expenses/cross charges, there is no justification for withholding the refund. In the event of the Revenue succeeding before this court, the amounts would become payable by the assessee and there are sufficient provisions of the Act to take care of such a contingency. The Revenue, by delaying the refund, is actually incurring an additional expenditure since it has to pay interest on the amount of refund as well as delayed refund as contemplated under sections 243 and 244A. This may not, in the larger context, be in the best of interests of the Revenue itself. Unless there are sound reasons justifying the formation of an opinion that the tax that has become payable cannot be recovered from the assessee as and when the issues are ultimately decided, the power u/s 245 should not lightly be invoked. All of the factors weigh against the Revenue invoking the power u/s 245 in the present case. From the submissions made on behalf of the assessee and the chart presented showing the status of demands as on August 8, 2006 (which has not been disputed by learned counsel for the Revenue) it appears that the petitioner has not only paid the entire demands raised on all other issues but has also paid Rs. 4.26 crores towards the demand on cross charges. In our considered view, there is no warrant for the Revenue to seek to set off the refund due to the petitioner on account of cross charges against the outstanding demand of tax on such account for the subsequent years. The delay in the processing of the refund claim and issuing the initial order dated December 28,2005, and the subsequent order dated May 1, 2006, has not, in our view, been satisfactorily explained. The Revenue must, in our view, suffer the statutory consequence of payment of interest on the delayed refund. We, accordingly, hold that the petitioner is entitled to refund for the assessment year 2001-02, as already computed by the Revenue while giving appeal effect vide orders dated December 28, 2005 and May 1, 2006, after adjusting the refund of Rs. 1.10 crores already made pursuant to the order dated August 17, 2006, passed by this court. Accordingly, a direction by way of a mandamus is issued to the respondents to refund to the petitioner the aforesaid amount due to it for the assessment year 2001-02 after making the adjustment as aforesaid. The petitioner would also be entitled to interest on such amount of refund as well as interest on delayed refund as per the provisions of the Act. The respondents are directed to make the refund to the petitioner of the sum as aforesaid together with interest thereon and interest on delayed refund as per the provisions of the Act within a period of four weeks and in any event not later than February 15, 2007. The respondents will also pay to the petitioner the costs of this petition which are quantified at Rs. 20,000. The writ petition and all pending applications stand disposed of accordingly.
Issues Involved:
1. Entitlement to a refund for the assessment year 2001-02. 2. Justification for the Revenue's request to adjust the refund against outstanding tax demands for subsequent assessment years. 3. Compliance with procedural requirements under Section 245 of the Income-tax Act, 1961. 4. Applicability of Circulars No. 530 and 589 issued by the Central Board of Direct Taxes (CBDT). 5. Entitlement to interest on the delayed refund. Detailed Analysis: 1. Entitlement to a Refund for the Assessment Year 2001-02: The petitioner sought a mandamus for a refund along with interest for the assessment year 2001-02, which had been delayed by the Revenue. The Tribunal had previously allowed the petitioner's appeal, and the Revenue was directed to issue a refund. Despite this, the refund was delayed, prompting the petitioner to file the present writ petition. The court concluded that the petitioner was entitled to the refund as computed by the Revenue in its orders dated December 28, 2005, and May 1, 2006, after adjusting the refund of Rs. 1.10 crores already made. 2. Justification for the Revenue's Request to Adjust the Refund Against Outstanding Tax Demands for Subsequent Assessment Years: The Revenue sought to adjust the refund due for the assessment year 2001-02 against outstanding tax demands for the assessment years 2002-03 and 2003-04 under Section 245 of the Income-tax Act. The court noted that the major component of the outstanding dues pertained to administrative expenses/cross charges, on which the petitioner had succeeded up to the Tribunal and this court for earlier assessment years. The court observed that the Revenue had issued a refund voucher for the assessment year 2000-01 despite pending appeals, indicating no justifiable reason to withhold the refund for the assessment year 2001-02. 3. Compliance with Procedural Requirements Under Section 245 of the Income-tax Act, 1961: Section 245 requires the Revenue to give prior intimation to the assessee before setting off the refund against any outstanding tax demand. The court found that no such notice was issued to the petitioner, and the procedural requirement was not followed. The court emphasized that the discretionary power under Section 245 should be exercised judiciously and not mechanically to delay refunds until fresh demands are finalized. 4. Applicability of Circulars No. 530 and 589 Issued by the Central Board of Direct Taxes (CBDT): The petitioner relied on Circulars No. 530 and 589, which suggest that an assessee should not be treated as in default if the demand relates to issues already decided in favor of the assessee in earlier appellate orders. Although the Revenue argued that these circulars pertain to Section 220 and not Section 245, the court held that the underlying principle of respecting appellate orders should apply to Section 245 as well. 5. Entitlement to Interest on the Delayed Refund: The court held that the Revenue must pay interest on the refund amount as well as interest on the delayed refund as per the provisions of the Income-tax Act. The delay in processing the refund claim and issuing the orders was not satisfactorily explained by the Revenue, and hence, the statutory consequence of paying interest on the delayed refund was applicable. Conclusion: The court directed the Revenue to refund the amount due to the petitioner for the assessment year 2001-02, along with interest on the refund and the delayed refund, within four weeks and not later than February 15, 2007. Additionally, the court awarded costs of Rs. 20,000 to the petitioner.
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