2019 (9) TMI 447 - HC - Income Tax

Non releasing petitioner s refund arising out of an intimation u/s 143 (1) - power to provisionally attach any property u/s 281 of an assessee to protect the interest of the revenue under certain circumstances HELD THAT - Previously, the petitioner had filed a Writ Petition before this Court complaining about the department not showing sufficient urgency in processing the petitioner s return for AY 2016-2017 which the petitioner expected would give rise to sizeable refund. High Court directed the respondents to complete the process expeditiously. Consequently, the intimation under section 143(1) of the Act gave rise to refund of a sum of ₹ 180 crores. With interest, this refund came to approximately ₹ 207 crores. Immediately, the department raised the possibility of invoking section 245 of the Act in order not to release the refund. The petitioner pointed out that the tax demands referred to in the communications proposing to invoke section 245 of the Act have all been stayed by the Tribunal under different interim orders. Under sub-section (1) of section 281B thus, where during the pendency of any proceedings for assessment or reassessment, the assessing officer is of the opinion that for the purposes of protecting the interest of revenue, it is necessary so to do, he may with the previous approval of the higher authority pass an order in writing provisionally attaching the property belonging to the assessee. These are drastic powers permitting the assessing officer to attach any property of an assessee even before the completion of assessment or reassessment. These powers are thus in the nature of attachment before judgment. assessing officer is most likely to confirm the demands while carrying out the final assessment of the petitioner s return for the AY 2016-2017, we cannot lose sight of the fact that the demands for the previous assessments have been stayed by the Tribunal. The Tribunal has given reasons why it was persuaded to pass such interim orders. It is not possible for us to dissect the reasons of the Tribunal and come to the conclusion that in the final analysis, such demands would be confirmed. Permitting the department to provisionally attaching the petitioner s refund for the current year on the ground that in the final assessment, the demands are likely to be confirmed, would amount to ignoring the hard fact that for the earlier assessment years, the Tribunal has suspended the recoveries arising out of the demands made by the assessing officer on similar issues. Looked from any angle, the occasion for the competent authority to exercise the drastic power under section 281B of the Act has not arisen. We do not doubt his power, however, we do not find proper justification for exercise of such power. Under the circumstances, the impugned order dated 26.10.2018 is set aside. The respondents shall release the refund arising out of the intimation under section 143(1) of the Act for the AY 2016-2017 with further statutory interest, if any, to be paid within two weeks from the date of receipt of a copy of this order.

Summary

Issues Involved:
1. Non-release of refund by the Income Tax Department.
2. Invocation of Section 245 of the Income Tax Act for adjusting refunds against outstanding tax demands.
3. Provisional attachment of refund under Section 281B of the Income Tax Act.

Detailed Analysis:

Non-release of Refund by the Income Tax Department:
The petitioner, a company engaged in providing communication services, filed a return for AY 2016-2017 declaring a loss of ?2,561 crores. The petitioner approached the court due to the delay in processing the return, which was subsequently processed, resulting in a refund of ?207 crores. Despite this, the refund was not released by the department, leading to the current petition.

Invocation of Section 245 of the Income Tax Act:
The department initially proposed to adjust the refund against outstanding tax demands under Section 245 of the Act. The petitioner responded, pointing out that the demands were stayed by the Income Tax Appellate Tribunal (Tribunal). The court noted that Section 245 allows the set-off of refunds against tax payable, but in this case, the demands were stayed by the Tribunal. Therefore, adjusting the refund would overreach the Tribunal's interim orders. The department eventually abandoned this approach.

Provisional Attachment of Refund under Section 281B of the Income Tax Act:
The department then invoked Section 281B to provisionally attach the refund. Section 281B allows for provisional attachment to protect the revenue's interest during assessment or reassessment proceedings. The court emphasized that these powers are drastic and must be exercised with proper justification. The department argued that the issues likely to result in tax demands for AY 2016-2017 were similar to those in previous years, which were stayed by the Tribunal. The court found that the previous demands were stayed for valid reasons and that the provisional attachment lacked proper justification.

Conclusion:
The court set aside the provisional attachment order dated 26.10.2018 and directed the respondents to release the refund with statutory interest within two weeks. The petition was disposed of with these directions.