2024 (10) TMI 751 - HC - Income Tax

Withholding the refund amount on the pretext of lack of mechanism to verify the claim of the petitioner - inability to verify the record to determine whether the amount in question was paid to the petitioner or not - HELD THAT - The relief granted to a citizen by way of an order passed by a competent forum cannot be permitted to be taken away on the ground that government authorities cannot verify their own records for issuing a refund. In the absence of any fault being attributed to the assessee, the lack of verification by the respondents of their own records, cannot be a ground to deny the refund. As in the instant case, the refund sought for is in pursuance of the respondents own decision dated 30 May 2002 i.e., the appeal effect order. The petitioner immediately had made an application dated 11 September 2002, requesting for the refund of the determined amount in light of the appeal effect order. However, the respondents failed to deal with the said request. Therefore, the facts of the case cited by the respondents are clearly distinguishable. The respondents are estopped from contending that the petitioner sought enforcement of refund belatedly. In view of the aforesaid, the sum already determined by the respondents to be refundable to the petitioner cannot be retained and negated on the alleged grounds of laches. Therefore, the respondents are, hereby, directed to refund the amount along with the applicable interest in accordance with law, within a period of eight weeks from the date of passing of this order.

Summary

Issues:
Refund of excess tax paid for Assessment Year 1997-98 under Article 226 and 227 of the Constitution of India.

Analysis:
The petitioner, a Non-Banking Financial Company, filed a writ petition seeking a refund of Rs. 1,25,77,290 along with interest, paid in response to a demand raised for Assessment Year 1997-98. The petitioner revised its income tax return for AY 1997-98, but the Assessing Officer determined a higher total income, leading to a demand of Rs. 1,76,15,415. An appeal was filed, resulting in a partial refund determination of Rs. 1,25,77,290. Despite multiple reminders and letters, the refund was not released by the tax authorities, citing lack of records for verification. The petitioner argued that the delay in seeking the refund was due to the change in jurisdiction and the respondents' inaction, causing financial hardship. The respondents contended that the delay in seeking the refund precluded the petitioner's entitlement, and they were unable to verify the records due to system changes. The court noted that the petitioner's rights were crystallized with the appeal effect order in 2002 and that the lack of verification by respondents could not deny the refund.

The court held that the State cannot withhold a refund on the pretext of inability to verify records, especially when no fault is attributed to the assessee. Referring to Article 265 of the Constitution, the court emphasized the State's duty to refund any amount collected as tax. The court also highlighted the fiduciary relationship between the State and citizens, stating that withholding the refund amount would be akin to imposing tax without legal authority. The court directed the respondents to refund the amount of Rs. 1,25,77,290 along with applicable interest within eight weeks, rejecting the respondents' argument of delay in seeking the refund and distinguishing the cited case of Harbux Singh Sidhu.

In conclusion, the court allowed the petition, emphasizing the State's obligation to refund excess taxes paid by citizens and rejecting the respondents' grounds for withholding the refund. The court's decision was based on constitutional principles and legal precedents, ensuring the petitioner's right to the refund amount along with interest.