2016 (2) TMI 755 - HC - Income Tax

Adjustment of refund of other firms as payment under section 140A in the case of the assessee for the purpose of charging interest - Held that - As is well known, the Income Tax Act provides detail provisions for granting interest on refund as well as charging interest on unpaid tax or tax paid after delay. Excess tax paid by one assessee cannot be offset against shortfall of tax of another assessee in order to curtail the interest liability of the debtor. The CIT(Appeals) was conscious that the statute would not permit this. He, however, taking into account peculiar facts of the case granted such relief. In our opinion, the same was wholly impermissible in law. In case of Commissioner of Income Tax vs. Anjum M.H.Ghaswala and ors. 2001 (10) TMI 4 - SUPREME Court held that charging of interest under Section 234A, 234B and 234C of the Act is mandatory. The Court opined that the word shall in the said section cannot be construed as may . Earlier, expression used may was substituted by the word shall giving clear indication of the intention of the legislature to make the collection of statutory interest mandatory by a peculiar device. CIT (Appeals) as well as the Tribunal, in the present case, made such mandatory requirement otios. The assessee had not paid the self assessed tax. To the extent of shortfall, it was liable to pay interest. Such interest liability could not have been waived by making adjustment of any possible refund in cases of assessments of other assesses. - Decided in favour of the Revenue.

Summary

Issues:
1. Whether refunds of other firms can be adjusted as payment under section 140A in the case of the assessee for charging interest?

Analysis:
The case involves a reference made by the Revenue regarding the adjustment of refunds of other firms against the shortfall of tax of the assessee for charging interest under Section 140A of the Income Tax Act, 1961. The background of the case reveals that during a search in the premises of three sister concerns, including the assessee-company, it was discovered that the assesses had not paid tax on self-assessment under Section 140A. The assessee requested the Assessing Officer to adjust the refund of the other two firms against the shortfall of tax of the assessee. The Commissioner of Income Tax (Appeals) directed that the refunds of other group cases should be treated as payment under Section 140A for charging interest. The Tribunal upheld this decision, emphasizing that it was a matter of three cases of the same group. However, the High Court opined that the CIT(Appeals) and the Tribunal erred in granting the request of the assessee. The Court highlighted that the Income Tax Act does not recognize inter-assessee adjustments for offsetting excess tax paid by one assessee against the shortfall of another. The Act provides detailed provisions for interest on refunds and unpaid tax. The Court referred to a Supreme Court decision emphasizing the mandatory nature of charging interest under specific sections of the Act. The High Court concluded that the adjustment made by the CIT(Appeals) and the Tribunal was impermissible in law, and the interest liability of the assessee could not be waived by adjusting refunds of other assesses. Therefore, the reference was answered in favor of the Revenue, and the case was disposed of accordingly.