Government cannot deny tax refund due to their own failure to verify records, petitioner entitled to relief with interest

Delhi HC ruled in favor of petitioner seeking tax refund. Government authorities withheld refund claiming inability to verify their own records and determine if amount was previously paid. Court held that relief granted by competent forum cannot be denied due to authorities' failure to verify their records. Since no fault attributed to assessee and petitioner promptly applied for refund following appeal effect order, respondents were estopped from claiming delay. Court directed refund with applicable interest within eight weeks.

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Issues:
Refund of excess tax paid for Assessment Year 1997-98 under Article 226 and 227 of the Constitution of India.

Analysis:
The petitioner, a Non-Banking Financial Company, filed a writ petition seeking a refund of Rs. 1,25,77,290 along with interest, paid in response to a demand raised for Assessment Year 1997-98. The petitioner revised its income tax return for AY 1997-98, but the Assessing Officer determined a higher total income, leading to a demand of Rs. 1,76,15,415. An appeal was filed, resulting in a partial refund determination of Rs. 1,25,77,290. Despite multiple reminders and letters, the refund was not released by the tax authorities, citing lack of records for verification. The petitioner argued that the delay in seeking the refund was due to the change in jurisdiction and the respondents' inaction, causing financial hardship. The respondents contended that the delay in seeking the refund precluded the petitioner's entitlement, and they were unable to verify the records due to system changes. The court noted that the petitioner's rights were crystallized with the appeal effect order in 2002 and that the lack of verification by respondents could not deny the refund.

The court held that the State cannot withhold a refund on the pretext of inability to verify records, especially when no fault is attributed to the assessee. Referring to Article 265 of the Constitution, the court emphasized the State's duty to refund any amount collected as tax. The court also highlighted the fiduciary relationship between the State and citizens, stating that withholding the refund amount would be akin to imposing tax without legal authority. The court directed the respondents to refund the amount of Rs. 1,25,77,290 along with applicable interest within eight weeks, rejecting the respondents' argument of delay in seeking the refund and distinguishing the cited case of Harbux Singh Sidhu.

In conclusion, the court allowed the petition, emphasizing the State's obligation to refund excess taxes paid by citizens and rejecting the respondents' grounds for withholding the refund. The court's decision was based on constitutional principles and legal precedents, ensuring the petitioner's right to the refund amount along with interest.

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