ADJUSTMENT OF INCOME TAX DUES AGAINST THE REFUND

[Mr. M. GOVINDARAJAN]

In NOKIA SOLUTIONS AND NETWORKS INDIA PVT. LTD. VERSUS JOINT COMMISSIONER OF INCOME TAX, & ORS. - 2024 (12) TMI 651 - DELHI HIGH COURT, the petitioner is engaged in the manufacturing and trading of telecommunication network equipment, network design, installation and commissioning.  The petitioner filed its income tax return for the Assessment Year 2015 – 16.  In the said return the petitioner declared an income of Rs.994.63 crores.  The said return was revised later on the terms of Advance Price Agreement.  The revised income was Rs.1081.39 crores.  Again, the petitioner revised the income tax return which reduced the income of the petitioner to Rs.10.76 crore.

The return of the petitioner was picked up for scrutiny by the Department.  The Department, vide their order dated 29.12.2018, passed an assessment order in which the income of the petitioner was raised to Rs.1166.69 crores.  A demand of Rs.43.38 crores was issued to the petitioner with the directions to pay the said amount. The petitioner, being aggrieved against the assessment order, filed an appeal before the Commissioner of Income Tax (Appeals), which is pending.  In the meanwhile, the petitioner filed an application with the prayer to stay the recovery of the outstanding demand of the Department.

The Joint Commissioner, on the said application, passed an order on 05.02.2019 directing the petitioner to deposit 20% of the outstanding tax demand as a condition for granting stay of recovery of the balance 80% of the outstanding amount.  The petitioner filed a review application on the conditional stay order.  The said application was decided with the direction to pay Rs.7 crores by 28.02.2019.  The petitioner informed that it had deposited Rs.7.50 crores already. The recovery of the tax was stayed vide orders dated 21.02.2019.

Further, the petitioner filed an application under Section 154 of the Act for the rectification of certain errors in the assessment order which were apparent from the record.  The said application was disposed by the Department by reducing the outstanding amount to Rs.38.71 crores.

However, vide order dated 07.08.2019, by which the outstanding demand in respect of respect of Assessment Year 2015-16 has been adjusted against the refund eligible to the petitioner for the Assessment Year 2008 - 09.  The same has been challenged by the petitioner in the present writ petition.  The petitioner submitted the following before the High Court-

• The petitioner was granted stay of recovery of the demand for the Assessment Year 2015-16, subject to the payment of 20% of the outstanding tax demand.
• The petitioner has, in fact, paid more than that 20%.
• The outstanding amount for Assessment Year 2015-16 has been adjusted against the refunds eligible to the petitioner for the Assessment Year 2008 – 09.
• The said adjustment is in violation of the Office Memorandum dated 29.02.2016, issued by the Central Board of Direct Taxes.

The Department contended that the grant of stay was not unconditional. The adjustments against the demand necessarily had to be confined to the amount that the petitioner was required to pay for securing the stay of the balance demand – that is the sum of Rs. 7 crores.

The High Court considered the submissions of the petitioner and the Department. The question that falls for our consideration of the High Court  is as to  whether the Revenue is entitled to adjust the refunds granted to the petitioner against the demand of tax that was stayed, pursuant to the order dated 21.02.2019.

The High Court considered the contents of the office memorandum of issued by the Board of Direct taxes.  Para 5(E) of the said Memorandum provides that in granting stay, the Assessing Officer may impose such conditions as he may think fit.

The High Court observed that it is not disputed that in terms of the instructions issued by the Central Board of Direct Taxes, in the given case, the stay is required to be granted to the assessee in respect of the disputed demands on the condition that the assessee deposits an amount equal to 20% of the outstanding tax demand. The effect of the Revenue adjusting refunds against the stayed demand would essentially place the Assessee that is entitled to a refund in a disadvantageous position vis-a-vis those assesses to whom no refund is due.  There is no allegation that the petitioner is alienating its assets so as to frustrate the recovery of any demand or that it would be unable to pay the disputed demand in the event the same was confirmed in the appellate proceedings.

The High Court relied on its own judgment in EKO INDIA FINANCIAL SERVICES PRIVATE LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 7 (1) & ANR. - 2021 (8) TMI 261 - DELHI HIGH COURT.  In this case the High Court was of the view that that the office memorandum dated 29.02.2016 read with office memorandum dated 25.08.2017 stipulate that the Assessing Officer shall normally grant stay of demand till disposal of the first appeal on payment of 20% of the disputed demand. In the event, the Assessing Officer is of the view that the payment of a lump sum amount higher than 20% is warranted, then the Assessing Officer will have to give reasons to show that the case falls in para 4(B) of the office memorandum dated 29.02.2016.  The department is entitled to seek pre-deposit of only 20% of the disputed demand during the pendency of the appeal in accordance with paragraph 4(A) of the office memorandum dated 29.02.2016, as amended by the office memorandum dated 25.08.2017. The High Court directed the department to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year 2017-18. 

The High Court, in view of the above said judgment, directed the Department to refund the amount due to the petitioner with applicable interest, in respect of the Assessment Years 2008-09 and 2017-2018, as expeditiously as possible. Thus, the High Court allowed the appeal to this extent.