2011 (11) TMI 312 - HC - Income Tax

Application for stay of demand - adjustment of refund of earlier A.Y.s towards demand payable of current year u/s 245 - Whether the stay application under Section 220(6) was maintainable when the petitioner had filed an appeal before the ITAT against the order passed u/s 143(3) read with Section 144C Held that - In such case, an assessee is required to file an appeal before the ITAT. Appeal under Section 246 or 246A is not maintainable. ITAT has power to grant stay as an inherent power vested in the appellate authority as well as under Section 254 and the Rules. Whether adjustment under Section 245 can be regarded as recovery and the orders passed by the authorities/tribunal Held that - The term recovery is comprehensive and includes adjustment thereby reducing the demand. However, when an order of stay of recovery in simplistic and absolute terms is passed, it would be improper and inappropriate on the part of the Revenue to recover the demand by way of adjustment. When an issue or contention has been decided in favour of the assessee in earlier years whether adjustment under Section 245 of the Act is permissible in respect of arrears pertaining to the same issue or subject matter Held that - A mechanical invocation of the power under section 245 irrespective of the fact situation, can lead to misuse of the power by the Revenue in order to delay the refund till such time a fresh demand for the subsequent assessment years is finalized. Assessee would not be able to get the refund at all Viability of application for stay of demand on ground that additions made are covered by earlier orders in favor of assessee by different appellate authorities - Held that - Decisions of the CIT (Appeals) or the ITAT in favour of the assessee should not be ignored on the ground that current assessment order has been passed u/s 144C i.e. after reference to the Dispute Resolution Panel. Decisions of CIT & ITAT do not become inconsequential. It is held that - Action of the Revenue in recovering the disputed tax in respect of additions made on issues which are already covered against them by the earlier orders of the ITAT or CIT (Appeals) is unjustified and contrary to law. Accordingly, directions to refund are issued. ITAT is directed to quantify and calculate the exact amount of refund related to several other disputed additions covered by the earlier orders of the ITAT/CIT (Appeals). Writ petition answered against the Revenue.

Issues Involved:
1. Maintainability of the writ petition due to alleged concealment of facts.
2. Applicability of Section 220(6) of the Income Tax Act.
3. Whether adjustment under Section 245 can be regarded as recovery.
4. Validity of the orders passed by the authorities/tribunal regarding stay applications and adjustments.
5. Whether the ITAT should have decided the stay application.

Detailed Analysis:

A. Maintainability of the Writ Petition
The Revenue argued that the petitioner concealed the order dated 2nd February 2011 under Section 245 of the Income Tax Act, which should disqualify them from obtaining relief. However, the court found this contention without merit. The writ petition mentioned the adjustment of refunds and included relevant material facts. The court cited the Supreme Court's observations in S.J.S. Business Enterprises (P) Ltd. v. State of Bihar, emphasizing that suppression of a material fact must affect the case's merits. Since the petitioner did not gain any advantage by not filing the order, the writ petition was deemed maintainable.

B. Applicability of Section 220(6)
The court noted that the petitioner and Revenue assumed Section 220(6) was applicable, though the petitioner had filed an appeal before the ITAT, not under Section 246A. The court clarified that Section 220(6) applies only when an appeal is filed under Section 246 or 246A, not when an appeal is before the ITAT. Thus, the stay application under Section 220(6) was not maintainable.

C. Adjustment under Section 245 as Recovery
The ITAT held that recovery does not include adjustment under Section 245. However, the court disagreed, stating that recovery includes various modes, including adjustments. The term "recovery" in common parlance includes adjustments, and Section 245 permits the Revenue to recover demand by adjusting refunds due for another year. The court emphasized that the appellate authority can stay recovery, including adjustments under Section 245, and any ambiguity should be clarified through appropriate applications.

D. Orders by Authorities/Tribunal on Stay Applications and Adjustments
The court found that the ITAT should have decided the stay application instead of directing the Assessing Officer to dispose of the application under Section 220(6). The court also held that the term "recovery" includes adjustment under Section 245 and that the ITAT can stay such adjustments. The court noted that different parameters apply when staying coercive recovery methods versus adjustments under Section 245.

E. ITAT's Role in Deciding the Stay Application
The court criticized the ITAT for not deciding the stay application and leaving it to the Assessing Officer. The court directed the ITAT to hear the appeal expeditiously and preferably within four months. The court also directed the Revenue to refund Rs.30 crores to the petitioner, as the conduct of recovering disputed tax on issues already decided against them by earlier orders was unjustified.

Final Directions:
The court concluded that:
1. The order dated 2nd February 2011 under Section 220(6) is null and void.
2. The ITAT should have decided the stay application.
3. Recovery includes adjustment under Section 245.
4. The ITAT can stay recovery, including adjustments under Section 245.
5. The Revenue's action in recovering disputed tax on issues already decided against them was unjustified.

The court directed the Revenue to refund Rs.30 crores to the petitioner within one month and instructed the ITAT to hear the appeal expeditiously. The writ petition was disposed of without costs.

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