2018 (10) TMI 372 - HC - Income Tax

Validity of demand raised u/s 156 - adjustment of past demand with the refund - no proof in the official records of service of such demand on the Petitioner/Assessee - Held that - It is conceded before us that a proof of service would be necessary before the impugned action and particularly seeking to adjust the refund due to the Petitioner/Assessee against such demand is taken. It is the Revenue Officials who go on boasting that 30% to 40% of the Revenue collection in this Country is from the city of Mumbai. If that is the position and the status of city of Mumbai styled as a commercial capital of India, then, it is but natural that the judiciary and the public expects highest degree of efficiency and expediency on the part of the officials. If demands are generated electronically as is now stated, then, equally that technology should enable them to generate proof and evidence of service and other procedural requirements being complied with. If these are the state of affairs, we do not think anybody will be able to help the Revenue Officials. Our order passed on the earlier occasion is clear. Though we have extensively heard both sides on that date and even today, Mr. Suresh Kumar would urge that this officer now is posted elsewhere in the Department but at Mumbai itself. He relied on the position as brought to his notice by other officials in the Department. Therefore, if at all there is any lapse or omission on his part, that is not intentional or deliberate. We do not see how the step which was initiated by some other official but taken to its logical end and conclusion by this officer should not be visited with such consequences as the law permits. All the more because on account of his fault, lapse and error, it is the Department or the Respondents who have been severely embarrassed and seriously handicapped in justifying their acts which are challenged in this Petition. We have not been shown anything in law which disables the Petitioner from claiming such refund. If that amount is yet not released but is sought to be adjusted against demands which are also not taken to their logical conclusion, then, the Revenue must suffer the consequences in law. It cannot then say that the Petitioner was not prompt or vigilant in obtaining the refund or the benefits due to it in accordance with law. By allowing the Writ Petition and without visiting the concerned officials with any consequences would send a wrong message. We must as a part of our duty send strong signal and message that we do not tolerate any inefficiency and lapse in the working and functioning of this Department. Hence, while we allow the Writ Petition, we impose costs on the Respondents which are quantified in the sum of ₹ 1.5 Lakhs. The costs to be paid to the Petitioner within a period of four weeks from today. The costs be apportioned between the officer who is present in Court and the officer who was his predecessor. Refund allowed with cost of ₹ 1.5 Lakhs to be paid to the petitioner - Writ Petition allowed.

Summary

Issues Involved:
1. Adjustment of refund against outstanding demands.
2. Proof of service of demand notices.
3. Accountability and efficiency of tax officials.
4. Legal entitlement to refunds and applicable interest.
5. Imposition of costs and disciplinary action against officials.

Detailed Analysis:

1. Adjustment of Refund Against Outstanding Demands:
The court examined the impugned communication wherein the Income Tax Department indicated that any refund arising from the Income Tax Appellate Tribunal's order for Assessment Years 1993-1994, 1995-1996, and 2002-2003 would be adjusted against outstanding demands for other assessment years. The petitioner consistently denied the outstanding demands and requested the relevant documents or records, which were not provided by the department.

2. Proof of Service of Demand Notices:
The court noted that the department claimed outstanding demands for Assessment Years 2003-2004 and 2009-2010, but there was no proof of service of these demands on the petitioner. The department conceded that while the demands were raised, there was no communication of the said demands to the petitioner. The court emphasized the necessity of proof of service before taking any action to adjust refunds against such demands.

3. Accountability and Efficiency of Tax Officials:
The court criticized the inefficiency and lack of discipline among tax officials, highlighting that the department's failure to provide proof of service and proper records management led to the current litigation. The court stressed the importance of maintaining proper records and ensuring procedural compliance before taking drastic measures like adjusting refunds.

4. Legal Entitlement to Refunds and Applicable Interest:
The court directed the department to grant the refund determined for Assessment Years 1993-1994 and 1995-1996, along with applicable interest, within three months. The court found no legal basis to deny the petitioner the refund and noted that the department must face the consequences for not concluding the demands logically.

5. Imposition of Costs and Disciplinary Action Against Officials:
The court imposed costs of ?1.5 Lakhs on the respondents, to be paid to the petitioner within four weeks. The costs were to be apportioned between the current and predecessor officers, to be recovered from their salaries. The court also directed that the lapses and errors be noted in the officers' Annual Confidential Reports and that appropriate disciplinary actions be initiated, including denial of promotional or monetary benefits.

Conclusion:
The court allowed the writ petition, quashing the impugned order dated 11th April 2018, and mandated the refund with interest. The court's decision underscored the need for accountability and efficiency within the Income Tax Department, highlighting the adverse impact of procedural lapses on public revenue and judicial resources.