2013 (4) TMI 393 - HC - Income Tax

Stay of recovery of demand declined - adjustment of refund due and payable to the assessee - Held that - The demand cannot be adjusted by the department in this manner merely because it is in possession of the funds belonging to the assessee to which the assessee is legitimately entitled to and has been granted a refund for Assessment Years 2008-09 and 2009-10. The making of an adjustment in these facts is totally arbitrary and contrary to law. As a matter of fact, the assessee has contended that it was also governed by the order of the Tribunal on both the issues. Even this aspect has not been considered by the assessing officer. Disallowance of the exemption on dividend income - Held that - Assessee under cover of its letters dated 15 and 18 March 2013 has produced certificates of confirmation from the mutual funds to the effect that dividend distribution tax has been paid. The assessing officer was apprised of the fact that in a similar situation for Assessment Year 2011-12, the claim of the assessee was allowed upon the production of confirmations from the mutual funds. Prima facie there was sufficient material before the assessing officer to indicate that the mutual funds which are registered with SEBI fall within the purview of Section 10(23D) and the assessee was entitled to an exemption under Section 10(35A). Thus the assessee has made out a strong prima facie case for a stay of the recovery of the demand in respect of the aforesaid three items Disallowance of broken period interest, Disallowance of amortization of premium, and Disallowance of exemption on dividend income from the mutual fund units. The balance due and payable by the assessee would work out to Rs.159.49 crores. The assessee has under cover of its letter dated 28 March 2013 paid an amount of Rs.100 crores under protest. On these facts and for the reasons the action of the department in adjusting the refunds due to the assessee in the amount of Rs.49.56 crores for Assessment Year 2008-09 and Rs.518.30 crores for Assessment Year 2009-10 was contrary to law. To recapitulate, the impugned order accepts the position that the assessee is covered by the decision of the Commissioner of Income-tax (Appeals) and hence directs that the assessee shall not be treated as assessee in default while at the same time making an adjustment of the refund. In the circumstances,the interests of justice would be served if the department is permitted to make an adjustment to an extent of Rs.60 crores. The balance which is refundable, for Assessment Years 2008-09 and 2009-10 shall be refunded together with interest as admissible in accordance with law within a period of three weeks from the date on which an authenticated copy of this order is produced on the record.

Summary

Issues:
Challenge to order of Assistant Commissioner of Income Tax for Assessment Year 2010-11 regarding a stay of demand, disallowances made in assessment order, adjustment of refunds, exemption on dividend income, interest disallowance, and disallowance under Section 14A.

Analysis:
1. The petitioner challenged an order by the Assistant Commissioner of Income Tax for Assessment Year 2010-11, demanding a deposit of Rs.377.65 crores apart from adjustments made for refunds of previous years. The assessment order included disallowances like broken period interest, amortisation of premium, exemption on dividend income, interest disallowance, and disallowance under Section 14A.

2. The disallowances made in the assessment order were challenged by the assessee, citing favorable decisions in previous years and submissions on each disallowance item. The total disallowance amount was Rs.3875.82 crores with tax and interest payable at Rs.1719.65 crores.

3. The Assistant Commissioner's order acknowledged the favorable decisions by CIT (Appeals) for Assessment Year 2009-10 on broken period interest and amortisation of premium. However, adjustments were made against refunds due to pending appeals, leading to the petitioner not being treated as a defaulter.

4. The disallowance on exemption for dividend income was contested by the assessee with evidence of dividend distribution tax payment by mutual funds, leading to a prima facie case for a stay on recovery. The interest disallowance and disallowance under Section 14A were also challenged based on legal provisions and previous decisions.

5. The High Court found the department's adjustment of refunds contrary to law and arbitrary, especially when favorable decisions existed for the assessee. A stay on recovery was granted for specific disallowance items, and the department was directed to refund the balance amount with interest within a specified timeframe.

6. The judgment emphasized the importance of following legal procedures and ensuring fairness in tax assessments, directing the department to act in accordance with the law and refund any excess amounts to the assessee promptly.