2022 (5) TMI 1289 - HC - Income Tax

Court Orders Refund & Departmental Action for Tax Recovery Violations

The court allowed the writ petition, directing the respondents to refund the excess amount adjusted against the disputed tax demand, imposed costs of Rs. ... Adjustment of tax refund against outstanding demand without prior intimation under Section 245 - Treatment of assessee as not in default on filing appeal under Section 220(6) - Recovery of demand only through Tax Recovery Officer under Sections 222 and 223 - Requirement of statutory notice and principles of natural justice - Excess adjustment beyond 20% contrary to departmental circularsTreatment of assessee as not in default on filing appeal under Section 220(6) - Adjustment of tax refund against outstanding demand without prior intimation under Section 245 - Requirement of statutory notice and principles of natural justice - Validity of departmental adjustments of the assessee's refunds against the disputed demand for AY 2017-18 when an appeal had been filed and whether such adjustments complied with the statutory scheme and principles of natural justice - HELD THAT: - The Court found that the assessee had filed an appeal in the prescribed format on 26/12/2019 and therefore, by operation of the statutory principle in Section 220(6), was not to be treated as an assessee in default in respect of the amount in dispute while the appeal remained undecided. The respondents issued an intimation deemed under Section 245 only on 13/01/2020, and nonetheless effected two suo-motu adjustments of refunds determined for other years against the outstanding demand for AY 2017-18. The Court held that Section 245 mandates that, before setting off a refund, an intimation in writing of the proposed action must be given and opportunity afforded in accordance with principles of natural justice. The respondents' unilateral adjustment of the entire refundable amounts, bypassing the stay principle under Section 220(6) and the intimation/hearing requirement of Section 245, was held to be without authority, contrary to the statutory scheme and to established precedents that recovery pending disposal of an appeal where the delay is not due to the assessee is an act in terrorem. The Court concluded that recovery initiated in those circumstances was de hors the statutory provisions and constituted high-handed action by the Revenue. [Paras 6, 9, 10]The impugned adjustments/recovery were unlawful and in violation of Sections 220(6) and 245 and the recovery provisions; the respondents acted without jurisdiction and contrary to principles of natural justice.Excess adjustment beyond 20% contrary to departmental circulars - Requirement of statutory notice and principles of natural justice - Judicial discipline and remedies for illegal recovery - Relief to be granted for the unlawful adjustment: refund of amounts adjusted in excess of the permitted 20% of the disputed demand and imposition of costs/strictures - HELD THAT: - Relying on the factual finding that refunds were adjusted beyond what departmental circulars permit and without complying with the statutory safeguards, and having regard to the Apex Court's admonitions against oppressive recovery practices, the Court directed that the respondents must refund to the assessee, with interest as prescribed by law, the amounts adjusted in excess of 20% of the disputed demand for AY 2017-18 within thirty days. The Court further recorded that the respondents' conduct offended Article 265 and principles of judicial discipline, and therefore issued directions for departmental action against the officers concerned and imposed a cost to be paid to the Rajasthan State Legal Services Authority, Jaipur, quantifying it and specifying the mode of payment. [Paras 6, 7, 8, 11, 12]Respondents directed to refund amounts adjusted in excess of 20% of the disputed demand for AY 2017-18 with interest within thirty days; departmental action and costs ordered.Final Conclusion: Writ petition allowed: the Court held the departmental adjustments of refunds against the AY 2017-18 demand to be unlawful for non-compliance with Section 220(6) and Section 245 and principles of natural justice; respondents directed to refund amounts adjusted in excess of 20% of the disputed demand with interest within thirty days, strictures issued, departmental action recommended and costs imposed. Issues Involved:1. Excessive adjustment of refund against disputed tax demand.2. Initiation of recovery proceedings despite pending appeal.3. Violation of principles of natural justice and statutory provisions.4. Lack of judicial discipline and adherence to departmental circulars and legal precedents.5. Imposition of exemplary costs and departmental action against officers.Issue-Wise Detailed Analysis:1. Excessive Adjustment of Refund Against Disputed Tax Demand:The petitioner-assessee filed a writ petition under Article 226 of the Constitution of India, seeking a refund of the amount adjusted in excess of 20% of the disputed demand for AY 2017-18. The court observed that the respondents had adjusted the entire refund amount due for AY 2018-19 and 2019-20 against the disputed demand for AY 2017-18, which was against the provisions of Sections 220(6) and 245 of the Income Tax Act, 1961. The court held that the respondents' action of adjusting the entire refund amount without following the statutory provisions and departmental circulars was illegal and unjustified.2. Initiation of Recovery Proceedings Despite Pending Appeal:The petitioner contended that he had filed an appeal against the assessment order and a stay application, and as per Section 220(6) of the IT Act, he could not be treated as an assessee in default. The court noted that the petitioner had promptly filed an appeal within the statutory period, and as per the provisions of Section 220(6), the petitioner should not be deemed an assessee in default. The court criticized the respondents for initiating recovery proceedings and adjusting the refund despite the pending appeal and stay application.3. Violation of Principles of Natural Justice and Statutory Provisions:The court observed that the respondents had violated the principles of natural justice by not providing an opportunity of hearing before adjusting the refund against the outstanding demand, as required under Section 245 of the IT Act. The court held that the respondents' action was high-handed, autocratic, and without authority of law, and it violated the petitioner's fundamental rights under Article 265 of the Constitution of India.4. Lack of Judicial Discipline and Adherence to Departmental Circulars and Legal Precedents:The court noted that the respondents had ignored the statutory provisions, departmental circulars, and judicial pronouncements of higher forums. The court referred to various judgments, including the Apex Court's decision in Union of India Vs. Kamlakshi Finance Corporation Ltd., which emphasized the importance of judicial discipline and adherence to higher appellate authorities' orders. The court criticized the respondents for not considering the appeal in time and for their arbitrary and unjustified actions.5. Imposition of Exemplary Costs and Departmental Action Against Officers:The court allowed the writ petition and directed the respondents to refund the amount adjusted in excess of 20% of the disputed demand for AY 2017-18, along with interest, within thirty days. The court also imposed a cost of Rs. 50,000 on the respondents, to be deposited with the Rajasthan State Legal Services Authority and the petitioner. Additionally, the court issued strictures for appropriate departmental action against the officers involved in the non-consideration of the appeal and for not adhering to statutory provisions and judicial pronouncements. The court directed the Chief Commissioner of Income Tax to apprise the Rajasthan State Legal Services Authority about the pendency situation and statistics for further action in the larger public interest.Conclusion:The writ petition was allowed, and the court directed the respondents to issue a refund along with interest, imposed costs on the respondents, and called for departmental action against the concerned officers. The court emphasized the importance of adhering to statutory provisions, judicial pronouncements, and principles of natural justice in tax recovery proceedings.