TaxTMI 
TaxTMI 
2011 (11) TMI 312
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.... wrongly and illegally adjusted/appropriated by invoking Section 245 of the Income Tax Act, 1961 (Act, for short), vide order dated 2nd February, 2011 towards the demand for the Assessment Year 2006- 2007. 2. Factually, it is not in dispute that the petitioner was entitled to refund of Rs.122.57 crores and Rs.107.42 crores for the assessment years 2003-04 and 2005-06 respectively. In normal course, the said refunds should have to be paid by the respondents to the petitioner but for the adjustment against the demand for the Assessment Year 2006-07. 3. For the assessment year 2006-07, an assessment order under Section 143(3) read with Section 144C was passed on 20th October, 2010. This created an additional demand of Rs.266.61 crores, the breakup being; income tax of Rs.169 crores and interest under Sections 234 B and 234C of Rs.95,49,06,432/- and Rs.1,91,31,933/- respectively. Against the said assessment order, the petitioner on 19th November, 2010 filed an appeal before the ITAT. Subsequently, on 30th November, 2010, an application for stay of demand was filed. This stay application came up for hearing before the ITAT on 9th December, 2010 and an interim order was passed directin....
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.... ITAT instead of examining the said questions while considering the stay application on 20th January, 2011, recorded the statement made by the DR that he had received a letter dated 19th January, 2010 accepting that the earlier action under Section 245 of the Act was bad and proper proceedings under Section 245 would be initiated. Accordingly, the matter was adjourned to 4th February, 2011 "on the request of both the parties". 6. The petitioner appeared before the respondent No. 1 and filed written submissions dated 27th January, 2011, along with the chart indicating how and in what manner, as per the assessee, several issues which had resulted in the additional demand for the assessment year 2006-07, were covered in their favour by the orders of the appellate authorities in earlier years. 7. It may be also noted here that the petitioner had filed an application under Section 220(6) of the Act before the Assessing Officer on 8th November, 2010, that the petitioner should not be treated as an assessee in default and the demand should be kept in abeyance till disposal of the appeal before the ITAT. It is also apparent that the ITAT while dealing with the applications was of the opi....
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...... Instruction No.1914 is not applicable. In the matter of issues covered by decisions of Hon'ble High Court in other cases, the Assessing Officer has distinguished the facts of the case of the assessee from the relied cases in the body of assessment order itself. Therefore, in the matter of disallowance of 'Royalty on sales' amounting to Rs.95.98 crores and 'Sales tax subsidy' amounting to Rs. 32.26 crores, the submission made by you is not acceptable. 4. The department is not making recovery of the outstanding demand but simply adjusting the refund arising out in the earlier years wherein the effect has been given to the order of Ld. CIT(A). The issues on which, Ld. CIT(A) has given relief have not become final so far and the department is contesting the same before Hon'ble ITAT in A.Y. 2003-04. It might be the case that the additions are confirmed by Hon'ble ITAT, then the assessee may be required to make the payment . 5. The submission of the assessee that some of the issues are covered by the decisions of Hon'ble ITAT in earlier years, may be given importance, if forceful recovery is made. But in case of adjustment of refund of the amount which was already lying with the dep....
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....te to discuss aspects raised and our decision under separate headings: A. Whether writ petition should be dismissed as the petitioner has not filed order dated 2nd February, 2011, under Section 245 of the Act and, therefore, is guilty of concealment and which disentitles them to obtain discretionary relief? 11. This contention has been examined first as the learned counsel for the Revenue has raised this issue vehemently. This contention of the Revenue is without merit and has to be rejected. In the writ petition itself, it is mentioned that vide order dated 2nd February, 2011, there was adjustment of refund of Rs.122.57 crores and Rs.107.42 crores for the assessment year 2003-04 and 2005-06 respectively. This factum is also mentioned in the order under Section 220(6) of the Act which has been enclosed with the writ petition. The assessee has nothing to gain and has not tried to seek any advantage/benefit by not filing the order dated 2nd February, 2011, under Section 245 of the Act. It is obvious that the writ petition of this nature could not have been decided without notice to the respondents who would have referred to this order. We are not satisfied that there is concealment....
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....wer vested in the appellate authority as well as under Section 254 and the Rules. C. Whether adjustment under Section 245 can be regarded as recovery and the orders passed by the authorities/tribunal. 14. ITAT by its order dated 11th February, 2011, has held that recovery cannot be equated with adjustment or refund under Section 245. ITAT in this regard has stated that Section 245 does not occur under the Chapter "refund" and, therefore, cannot be equated with recovery. It also appears that the Revenue was of the view that the status quo order passed on 9th December, 2010 or filing of the applications for stay did not prevent them or bar them from making adjustment of refund under Section 245 of the Act. 15. It is not possible to agree with the contention of the Revenue that the word "recovery" cannot and would not include adjustment under Section 245. Recovery can be made by various modes including adjustments. Each Assessment Year is treated as separate and independent under the Act. Section 245 of the Act permits the Revenue to recover demand of one year which is pending by adjusting the refund due for another year. The term 'refund' has not been defined in the Act and, there....
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....n and recovery" have been put in an earlier Chapter i.e. Chapter XVII, whereas "refunds" have been placed in a subsequent Chapter XIX. While dealing with the question of refund, the Legislature has provided that the refund can be adjusted or set off against a pending demand. We do not think that set off or adjustment cannot be regarded as a mode of recovery or is not a recovery mechanism. The term "recovery" is comprehensive and includes adjustment thereby reducing the demand. 17. At the same time, different parameters and requisites may apply when the appellate authority considers the request for stay against coercive measures to recover the demand and when stay of adjustment under Section 245 of the Act is prayed for. In the first case, coercive steps are taken with the idea to compel the assessee to pay up or by issue of garnishee notice to recover the amount. In the second case, money is with the Revenue and is refundable but adjusted towards the demand. Thus, while granting stay, the appellate authority or the ITAT (for that matter, even under Section 220(6)), the authority can direct stay of recovery by coercive methods but may not grant stay of adjustment of refund. However....
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....g contention of the Revenue that they have not accepted the earlier decision but it cannot be accepted as a principle that the Revenue can in ordinary course make adjustments towards a demand on an issue or contention which is already decided in favour of the assessee, though it may be a subject matter of appeal or challenge by the Revenue. Normally in such circumstances, the appellate forum should not permit the Revenue to adjust the demand, for it will be unjust, unequitable and unfair. However, while examining the issue of grant of stay including adjustment, the appellate authority for good grounds and justification made by the Revenue can refuse to grant stay of the adjustment of the refund. In such cases, adjustment can be permitted in exceptional situations pointed out by the Revenue but not as a matter of routine. It may not be possible or proper to postulate and elucidate all such situations but grounds mentioned under Section 241 of the Act are indicative. In this connection, we may reproduce the observations of a Division Bench of this Court in Glaxo Smith Kline Asia P. Ltd. vs. Commissioner of Income-Tax and Ors., [2007] 290 ITR 37. In the said case, the Division Bench n....
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....nder section 245 was to be dispensed with. It is, therefore, strange that by the application filed, the Revenue was seeking permission from this court to straightaway set off the refund against the outstanding demand without following the procedure under section 245. The Revenue seeks to justify invoking the power under section 245 only on the ground that its appeals for the two assessment years are pending in this court. However, having issued the refund voucher for the assessment year 2000-01 in respect of which also the appeal is pending in this court, there appears to be no justifiable reason for withholding the refund due in respect of the other assessment year 2001-02." Thus pendency of appellate proceedings by itself alone cannot be a ground to not to refund the amount due and payable and is not sufficient to pass an order of the adjustment for demand on issues which have been decided against the Revenue. 22. Learned counsel for the Revenue had submitted that in the said case, reference was made to Circular No. 530 dated 6th March, 1989, but the said circular has been superseded by Circular No. 1914 dated 2nd December, 1993, reported in [2010] 236 CTR 137 (St.). This to ou....
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....T on 9th December, 2010, is specious and incorrect. In fact during the course of hearing this point was not pressed. The respondents have placed on record letter dated 26/27th October, 2010, written by Income Tax Officer, Headquarter-II, to the Additional Commissioner of Income Tax, the respondent No. 2 herein, that the administrative approval had been granted by the Commissioner for issue of refund for assessment year 2003-04, but was subject to the condition that demand of Rs.266 crores for assessment year 2006-07 and other demand, if any, should be first adjusted. The date on which this letter was received in the office of the respondents 1 and 2 is not stated. Senior standing counsel for the respondent was specifically asked to state the said date but information has not been furnished. The said letter cannot be construed and is not an order under Section 245 of the Act. Commissioner has referred to the power to make adjustment but adjustment must be as per and in accordance with law. It was the duty of the respondents 1 and 2 to bring to the notice of the Commissioner, if required, the stay order passed by the ITAT on 9th December, 2010. Order/direction of the ITAT must be obe....
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....ssing Officer and has high-lighted that several additions or disallowances have already been decided or adjudicated in favour of the petitioner by the CIT (Appeals) or by the ITAT. As noticed above, this is a relevant factor, while deciding the stay application. We do not agree with the stand of the Revenue that in the present year, assessment order has been passed under Section 144C, i.e. after reference to the Dispute Resolution Panel, therefore the orders passed by the CIT(Appeals) and ITAT in favour of the petitioner have lost significance and do not justify stay of demand in matters covered in favour of the assessee. Decisions of the CIT (Appeals) or the ITAT in favour of the assessee should not be ignored and have not become inconsequential. This is not a valid or good ground to ignore the decisions of the appellate authorities and is also not a good ground to not to stay demand or to allow adjustment under Section 245 of the Act. Revenue has not made out a good cause or reason why adjustment should allowed to recover demand on issues that have been decided in favour of the petitioner in other years. 27. Revenue in the affidavit filed on 19th October, 2011, has admitted that....