2015 (10) TMI 1770 - HC - Income Tax

Refund of entire amount coercively recovered along with 15% interest per annum as per sections 240 and 244(1) seeked - Held that - In the circumstances of the case, we are inclined to accept the request, namely, that a decision will be taken by the authority regarding the refund in accordance with law, which would include the right to consider whether, under Section 245 of the Act, a case is made out for adjustment of the refund against the demand for the year 2015-2016. We have adverted to the various principles and situations, in which Section 245 can operate. It may not be exhaustive. The officer is duty bound not to invoke Section 245 without application of mind. It is, undoubtedly, true that the amount due for the Assessment Year 2015-2016 is one, which is remaining payable as it still remains unsatisfied. As far as the right to refund is concerned, it is also not questioned by the appellants. The only question is, whether, in the circumstances obtaining as a whole, set off should be ordered. We have given sufficient indications, which should guide the authority. It is for the authority concerned to look into all these aspects and, firstly, decide whether it should invoke the power under Section 245 of the Act. If it is of the view that the power should be invoked; then alone, in view of the requirement of giving prior intimation, which we have held entails compliance with natural justice, appellants must issue a notice indicating the proposal to invoke Section 245. A decision should be taken within a period of 10 days from today and, if the competent authority, actually, decides to invoke Section 245, then, notice should be issued to the writ petitioner and, after giving an opportunity of being heard to the assessee, a decision shall be taken in accordance with law. If the authority finds, in the facts of this case, that no case is made out for invoking Section 245 on the basis of the assessment completed in 2015-2016 within a period of 10 days from today, then, the amount due by way of refund, along with due interest, shall be paid to the writ petitioner at the earliest. If, on the other hand, it decides to invoke Section 245, then the proceedings must be completed within a period of two weeks from the date of affording an opportunity to the writ petitioner.

Summary

Issues Involved:
1. Refund of coercively recovered amount.
2. Quashing of letter granting illusory refund.
3. Applicability of Section 194A of the Income Tax Act.
4. Adjustment of refund against outstanding demand under Section 245.
5. Compliance with the principles of natural justice.

Detailed Analysis:

1. Refund of Coercively Recovered Amount:
The writ petitioner sought a mandamus directing the respondents to refund the entire amount coercively recovered on 29-03-2014 along with 15% interest per annum as per Sections 240 and 244(1) of the Income Tax Act. The Income Tax Appellate Tribunal had ruled in favor of the petitioner, declaring that Section 194A(1) was not applicable to the SRF deposit made. Consequently, the petitioner applied for a refund of Rs. 44,36,57,686/- with interest.

2. Quashing of Letter Granting Illusory Refund:
The petitioner also sought to quash the letter dated 04-12-2014, which granted an illusory refund and instead direct the respondents to make an actual refund under Sections 240 and 244(1) along with interest. The letter indicated that the refund for AY 2013-14 was being adjusted against the outstanding demand for AY 2014-15 under Section 245.

3. Applicability of Section 194A of the Income Tax Act:
The Tribunal had previously ruled that Section 194A(1) was not applicable to the SRF deposit made by ONGC with the petitioner bank. This ruling was pivotal as it affected subsequent assessment years, establishing that the petitioner was not liable to deduct tax under Section 194A on the said deposit.

4. Adjustment of Refund Against Outstanding Demand Under Section 245:
The respondents contended that the refund for AY 2013-14 was adjusted against the demand for AY 2014-15 under Section 245. The court noted that Section 245 allows for such an adjustment only after giving prior intimation to the assessee. The petitioner argued that no such prior intimation was given, making the adjustment invalid.

5. Compliance with the Principles of Natural Justice:
The court emphasized the necessity of complying with the principles of natural justice, especially the requirement of prior intimation under Section 245. The court held that the authority must give the assessee an opportunity to be heard before making any adjustment of the refund against the outstanding demand.

Conclusion:
The court directed that an appropriate decision on the refund application should be taken within two weeks. If it is found that the amount of Rs. 97,85,37,937/- has been deleted against the assessee, then the amount of Rs. 44,36,57,686/- should be refunded to the petitioner along with interest as provided under Sections 240 and 244 of the Income Tax Act. The judgment of the learned Single Judge was modified to ensure compliance with Section 245 and the principles of natural justice. The appeal was allowed with these directions.