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TMI Blog2007 (1) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... to come to this court assailing the delay in processing this application for refund. The application moved by the Revenue in this court appears to be a device to pass the responsibility of taking a decision u/s 245 on to the court only because the petitioner had come to this court. To us, this does not appear to be a sufficient justification for by-passing the procedural requirement u/s 245. We do not wish to comment on the merits of the orders passed by the Tribunal, for the assessment years 2000-01 and 2001-02 since that is to be examined in the separate appeals filed by the Revenue in this court. As and when those appeals are decided, the necessary consequential orders will be passed. However, the fact that neither of the orders of the Tribunal in those cases has been stayed by this court while admitting the appeal is a relevant factor to be taken note of by the Revenue while deciding to invoke the power u/s 245. Administrative expenses/cross charges - Assessee has succeeded up to this court for the earlier assessment years 1998-99 and 1999-00. For the assessment year 2001-02, the assessee has succeeded before the Tribunal. Therefore, to the extent of the demand on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to interest on such amount of refund as well as interest on delayed refund as per the provisions of the Act. The respondents are directed to make the refund to the petitioner of the sum as aforesaid together with interest thereon and interest on delayed refund as per the provisions of the Act within a period of four weeks and in any event not later than February 15, 2007. The respondents will also pay to the petitioner the costs of this petition which are quantified at Rs. 20,000. The writ petition and all pending applications stand disposed of accordingly. - Vikramajit Sen And Dr. S. Muralidhar JJ. For the Petitioner : Ajay Vohra with Vinay Vaish and Ms. Kavita Jha For the Respondents : Ms. Prem Lata Bansal JUDGMENT DR. S. MURALIDHAR J. 1. This writ petition under article 226 of the Constitution of India seeks a mandamus to the respondents to give appeal effect to the order of the Tribunal and grant refund to the petitioner along with interest thereon till the date of grant of refund . Background facts 2. The facts leading to the filing of this petition are that the petitioner is a company engaged in the business of manufacture and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Department that the provisions of section 40A(2) are attracted in the present case. There is no material on record to show that such provisions could be attracted . Accordingly, the Tribunal deleted the disallowance made in the assessment years 1998-99 and 1999-2000. The consequential appeal filed by the Revenue to this court was dismissed on July 20, 2005. It was held that in view of the clear findings of fact recorded by the Tribunal, there was no substantial question of law involved. 6. For the subsequent assessment year 2001-02, the Assessing Officer continued to disallow the cross-charges/administrative expenses claimed by the petitioner on the basis of the formula worked by the PWC. By an order dated February 16, 2005, the Assessing Officer raised a demand of Rs. 7,05,04,101. This amount was recovered by attaching the bank accounts of the petitioner on the very next day, i.e., February 17, 2005. Against this order dated February 17, 2005, the petitioner filed an application before the Tribunal seeking refund of the amount recovered and for a stay of the demand of Rs. 7.05 crores, pending disposal of appeal by the Tribunal. By an order dated March 3, 2005, the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent writ petition on February 10, 2006. According to the petitioner, the refund due to it for the assessment years 2000-01 and 2001-02 was Rs. 19,53,13,686 along with interest thereon under section 244A of the Income-tax Act, 1961 ( the Act ). 10. On February 15, 2006, while directing the notice to issue to the respondents, this court directed that till the next date of hearing, the respondents shall not adjust the amount of refund, if any, due to the petitioner-company without the leave of this court . Pleadings 11. On April 5, 2006, the Revenue filed an application being CM No. 6790 of 2006 seeking permission of this court to set off the refund against the demand raised/to be raised against the assessee . The Revenue placed reliance on section 245 of the Act. It was stated in the application that after giving appeal effect to the order passed by the Income-tax Appellate Tribunal for the assessment years 2000-01 and 2001-02, an amount of Rs. 7.39 crores and Rs. 4.44 crores respectively is due to the assessee. At the same time, an amount of Rs. 3.55 crores is outstanding against the assessee for the assessment year 2002-03 and Rs. 7.14 crores for the assessment y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was assured by the Revenue that any proposed adjustment would be made only upon directions that may be given by this court. It was further averred as under : This deponent is advised to say that the limitation for framing an assessment for the assessment year 2003-04 was going to be expired on March 31, 2006, and therefore, it was not a case that the respond ents were making undue haste for passing an assessment order. Moreover, demand for the assessment year 2002-03 was already out standing against the assessee much before the order passed by the respondent giving appeal effect. Thus the apprehension made by the petitioner was unnecessary and was contrary to law. Finally it was urged : From the facts stated above, it is evident that it is not the intention of the Department to delay the process of refund so as to wait for the outcome of the assessment for the assessment year 2003-04 as alleged by the petitioner. There is no question of depriving the petitioner of the refund due to it. The refunds had already been worked out and will be released to the petitioner as per the instructions by this hon'ble court. 14. The petitioner in its rejoinder pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Rs. 2,17,70,275. It was further pointed out that for the assessment year 2000-01, the refund voucher was issued on July 26, 2006. It was reiterated that this court should allow the respondent to adjust the refund for the assessment year 2001-02 against the outstanding demand for the assessment years 2002-03 and 2003-04. 16. In its order dated August 17, 2006, this court noticed that for the assessment year 2001-02, the petitioner was entitled to a refund of Rs. 11.79 crores whereas according to the Revenue, it is entitled to recover tax of Rs.10.69 crores for the subsequent assessment years, i.e., 2002-03 and 2003-04. This meant that the Revenue was retaining an excess of Rs. 1.10 crores with it without any justification. Accordingly, this court directed the Revenue to refund/return to the petitioner a sum of Rs. 1.10 crores along with interest accrued thereon, within ten days from the said order. This amount of Rs. 1.10 crores, as noticed in the subsequent order dated September 5, 2006, has been paid by the Revenue to the petitioner by way of a cheque. Therefore, the only issue that remains to be decided is whether the petitioner is entitled to the refund of the sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of this court in Vijay Kumar Bhati v. CIT [1994] 205 ITR 110, Sandvik Asia Ltd. v. CIT [2006] 280 ITR 643 (SC), Shreyans Industries Ltd. v. CIT [2001] 252 ITR 544 (P H), Naurata Ram v. CIT [1998] 100 Taxman 266 (P H), Sabeta Detergents Ltd. v. CIT [2001] 248 ITR 385 (Mad). 19. On behalf of the Revenue, Ms. Prem Lata Bansal, learned senior standing counsel submitted that there is no averment in the writ petition pertaining to the demand for the assessment years 2002-03 and 2003-04. The assessment order for the assessment year 2002-03 was passed on May 22, 2005. On the date of the order dated August 17, 2005, of the Tribunal, pursuant to which the refund for that assessment year became due to the petitioner, there was an outstanding demand remaining payable within the meaning of section 245 of the Act. Therefore, according to her, the Revenue was justified in seeking to adjust this refund against the outstanding demand as on that date. As regards the assessment year 2003-04, the assessment order was framed on March 10, 2006, since the limitation was to expire on March 31, 2006. Since the demand for this assessment year was outstanding on the date of issuing the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue the power to withhold a refund and this power was not contingent upon any outstanding demand of tax against the assessee as on the date of the refund. Section 241, as it then stood, read as under : 241. Power to withhold refund in certain cases. Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of sub-section (1) of section 143, after a return has been made under section 139 or in response to a notice under sub-section (1) of section 142 and the Assessing Officer is of the opinion, having regard to the fact that (i) a notice has been issued, or is likely to be issued, under sub- section (2) of section 143 in respect of the said return ; or (ii) the order is the subject matter of an appeal or further proceedings ; or (iii) any other proceeding under this Act is pending ; and (iv) that the grant of the refund is likely to adversely affect the revenue, the Assessing Officer may, with the previous order of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determine. 23. The difference between the two provisions is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the importance of the prior compliance with the procedural requirements under section 245 before the power thereunder can be invoked. 26. In our view, the power under section 245 of the Act, is a discretionary power given to each of the tax officers in the higher echelons to set off the amount to be refunded or any part of that amount against the same, if any, remaining payable under this Act by the person to whom the refund is due. That this power is discretionary and not mandatory is indicated by the word may . Secondly, the set off is in lieu of payment of refund. Thirdly, before invoking the power, the officer is expected to give an intimation in writing to the assessee to whom the refund is due informing him of the action proposed to be taken under this section. 27. We reiterate that the restrictions on the power under section 241, as explained judicially, would apply with equal, if not greater, force to section 245. A mechanical invocation of the power under section 245 irrespective of the fact situation, can lead to misuse of the power by the Revenue in order to delay the refund till such time a fresh demand for the subsequent assessment years is finalized. If re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), upon which reliance was placed by the Revenue, was in a different context. The relevant provision considered in the said case was section 49E, which read as under : Section 49E : Where under any of the provisions of this Act, a refund is found to be due to any person, the Income-tax officer, . . . may, in lieu of payment of the refund, set off the amount to be refunded, or any part of that amount against the tax, interest or penalty, if any, remaining payable by the person to whom the refund is due. 31. It may be straightaway noticed that section 49E of the Indian Income- tax, 1922 is not in pari materia with the power under section 245. The latter power can be exercised only after prior intimation has been sent to the assessee of the action proposed to be taken by the Revenue. Therefore, the mere liability to pay tax, which was never in issue in the above case, is not sufficient to attract the provision of section 245. 32. We may also notice another decision of the hon'ble Supreme Court in Third ITO v. M. Damodar Bhat [1969] 71 ITR 806. The question there was whether the Assessing Officer had arbitrarily invoked the power under section 220 to raise a demand on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding demand for the assessment year 2000-01. The petitioner was, therefore, compelled to come to this court assailing the delay in processing this application for refund. The application moved by the Revenue in this court appears to be a device to pass the responsibility of taking a decision under section 245 on to the court only because the petitioner had come to this court. To us, this does not appear to be a sufficient justification for by-passing the procedural requirement under section 245. 35. If the Department has decided to issue a refund voucher for the assessment year 2000-01, by the same yardstick it should also be willing to make the refund for the subsequent the assessment year 2001-02. The mere fact that appeals in respect of the two assessment years are pending in this court is not by itself a sufficient ground for denying the refund. The fact remains that the procedure contemplated under section 245 of the Act has not been invoked. It is not without significance that the order dated February 15, 2006, by this court only restrained the Revenue from making any adjustment of the amount of refund without the leave of this court. This did not mean that the procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate appeals filed by the Revenue in this court. As and when those appeals are decided, the necessary consequential orders will be passed. However, the fact that neither of the orders of the Tribunal in those cases has been stayed by this court while admitting the appeal is a relevant factor to be taken note of by the Revenue while deciding to invoke the power under section 245. 38. Another important factor which cannot be lost sight of is that the major component of the outstanding dues for the assessment year 2001-02 pertains to administrative expenses/cross charges on which issue, the assessee has succeeded up to this court for the earlier assessment years 1998-99 and 1999-00. For the assessment year 2001-02, the assessee has succeeded before the Tribunal. Therefore, to the extent of the demand on account of administrative expenses/cross charges, there is no justification for withholding the refund. In the event of the Revenue succeeding before this court, the amounts would become payable by the assessee and there are sufficient provisions of the Act to take care of such a contingency. The Revenue, by delaying the refund, is actually incurring an additional expenditure sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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