2021 (3) TMI 1014 - HC - Income Tax

Unjust adjustment of excess refunds - intimation ought to be given to the assessee before making an adjustment of refund towards pending tax dues under Section 245 - Petitioner filed Annexure with the 1st respondent online contesting the said adjustment and informing the latter that the demand for Assessment Year 2017-18 had already been stayed post the deposit of the requisite 20% as required by the 2nd respondent - HELD THAT - We are of the opinion that the adjustment made on 15.04.2020 by the 1st respondent of the entire refund due to the petitioner for the assessment year 2018-19 towards the outstanding tax demands for the Assessment Years 2017-18 and 2008-09 is per se illegal as it was done without issuing a prior intimation under Sec.245 of the Act; more so when the demand for tax for the Assessment Year 2017-18 vide the Assessment Order dt.23.12.2019 is under challenge before the C.I.T. (Appeals) and the 1st respondent through an order dt.29.01.2020 granted stay subject to deposit of 20% of the outstanding demand and the petitioner deposited on 31.01.2020 80, 00, 000/- and requested the 1st respondent to adjust the remainder of 80, 31, 593/- against the determined refund for Assessment Year 2018-19 vide letter dt.10.02.2020 (Annexure A.5). As per Office memorandum F.No.404/72/93-ITCC dt.29.2.2016 issued by the CBDT clarifying it s Instruction No.1914 dt.21.3.1996 the Assessing Officer can while granting stay of the demand reserve the right to adjust refunds arising if any against the demand to the extent of amount required for granting stay subject to provisions of Sec.245. There is no dispute that the Office Memorandum is binding on both the respondents. We reject the plea of the respondents that demands for Assessment Year 2017-18 were collectible on 23.01.2020 and for Assessment Year 2008-09 was collectible on 29.01.2020 that the stay of collection of the demand for Assessment Year 2017 - 18 was granted only on 23.07.2020 and therefore the adjustment made against the demands for Assessment Year 2008-09 and Assessment Year 2017-18 on 18.03.2020 and 22.07.2020 was prior to the order of grant of stay and so the adjustment was valid. The dates of adjustments mentioned above i.e. 18.03.2020 and 22.07.2020 are factually incorrect and no documentary evidence in support thereof has been filed by the respondents. Admittedly the respondents have adjusted an amount of 55.92 lakhs towards demand for Assessment Year 2008-09 out of the refund determined for Assessment Year 2018-19 without issuing any Section 245 Intimation. They also admit that they have realized the error and have issued a refund of only 54.78 lakhs which is short by 1.13 lakhs of the actual adjustment amount of 55.92 lakhs. The respondents have to therefore release the balance refund of 1.13 lakhs also because there is no valid reason why a short refund was granted. The respondents defence for not issuing Section 245 Intimation before making adjustment was that subsequently on 13.05.2020 such intimation was issued under Section 143(1) of the Act but the said Intimation is not valid in law as held in Japson Estates Private Limited (1 supra). Letter dt.29.01.2020 issued by the 1st respondent stated that in respect of Assessment Year 2017-18 petitioner was required to deposit 20% of the disputed demand in terms of CBDT instructions. In para-6 of the counter the respondents state that this is only a communication and the actual stay was granted on 23.07.2020. We do not agree with the said plea because the said communication specifically states that the stay will be granted on payment of 20% and on 30.01.2020 itself part payment was made of 80.00 lakhs with a request letter dt.10.2.2020 to adjust the balance of 80.31 lakhs from the determined refunds of Assessment Year 2018-19. 1st respondent ought to have held that the petitioner complied with the 20% deposit as directed in the order dt.29.01.2020 on 10.02.2020 itself and ought to have refrained from proceeding with the adjustment on 22.07.2020 for the demand for Assessment Year 2017-18. Also admittedly there was no tax payable for Assessment Year 2008-09. No occasion for making any such adjustment of the refund determined for Assessment Year 2018-19 and consequently we are of the opinion that out of the sum of 1, 86, 38, 333/- which is the refund determined for that Assessment Year after deducting 80, 31, 593/- (the 20% of 8, 01, 57, 967 1, 60, 31, 593/- less 80, 00, 000/-) a sum of 1, 06, 06, 740/- is refundable to the petitioner with interest at 15% per annum from the date on which it was determined i.e. 02.10.2019 till the date of payment of the same to the petitioner.

Summary

Issues Involved:
1. Legality of the adjustment of refunds without prior intimation under Section 245 of the Income Tax Act.
2. Compliance with CBDT Instructions regarding stay of demand and adjustment of refunds.
3. Legality of recovery actions on demands stayed by Revenue Authorities.
4. Entitlement to refund of excess amounts adjusted by the Income Tax Department.

Detailed Analysis:

1. Legality of the adjustment of refunds without prior intimation under Section 245 of the Income Tax Act:

The petitioner, a limited company engaged in developing IT Parks, contested the adjustment of its refunds by the Income Tax Department without prior intimation under Section 245 of the Income Tax Act. The court noted that Section 245 mandates giving prior intimation to the assessee before making any adjustment of refunds against pending tax dues. The respondents admitted that no prior intimation was given before adjusting the refund for Assessment Year 2018-19 against the demands for Assessment Years 2017-18 and 2008-09, which was done by oversight. The court referenced the Andhra Pradesh High Court's decision in Japson Estates (P) Ltd. and the Delhi High Court's decision in Glaxo Smith Kline Asia P. Ltd., which emphasized the necessity of prior intimation to allow the assessee to raise objections. Consequently, the court deemed the adjustment made on 15.04.2020 without prior intimation as illegal.

2. Compliance with CBDT Instructions regarding stay of demand and adjustment of refunds:

The petitioner argued that per CBDT Instruction No.1914, they were required to deposit only 20% of the outstanding demand for the grant of stay. The court observed that the petitioner had complied with this requirement by depositing ?80,00,000 and requesting the adjustment of the remaining 10% from the determined refunds. The court highlighted that the CBDT's Office Memorandum allows the adjustment of refunds only to the extent of the amount required for granting stay, subject to Section 245 provisions. Therefore, the adjustment of ?1,30,45,813 against the outstanding demand for Assessment Year 2017-18, instead of ?80,31,593, was deemed excessive and contrary to the CBDT instructions.

3. Legality of recovery actions on demands stayed by Revenue Authorities:

The petitioner contended that recovery of demands stayed by Revenue Authorities lacks legal sanction. The court referred to the Delhi High Court's ruling in Maruti Suzuki India Ltd., which held that once a stay of recovery is granted, it is improper for the Revenue to recover the money through adjustment of refunds. The court found that the adjustment of refunds for Assessment Year 2019-20 against the demands for Assessment Year 2017-18 was done after the stay was granted on 23.07.2020, making the adjustment on 24.07.2020 illegal. Additionally, the court noted that the respondents failed to provide a valid reason for adjusting the refunds before the expiry of the 30-day period granted to the petitioner to respond to the intimation under Section 245.

4. Entitlement to refund of excess amounts adjusted by the Income Tax Department:

The petitioner sought a refund of the excess amounts adjusted by the Income Tax Department. The court determined that the adjustment of ?1,30,45,813 for Assessment Year 2017-18 and ?55,92,520 for Assessment Year 2008-09, without prior intimation, was illegal. The court directed the respondents to refund ?1,06,06,740 for Assessment Year 2018-19 and ?6,25,70,390 for Assessment Year 2019-20, with interest at 15% per annum from the date of adjustment till the date of payment. The court also ordered the respondents to pay costs of ?5,000 each for both writ petitions.

Conclusion:

The court allowed both writ petitions, directing the Income Tax Department to refund the excess amounts adjusted, with interest, and emphasized the necessity of compliance with statutory provisions and CBDT instructions regarding the adjustment of refunds and stay of demands.