TMI Blog2011 (11) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier years whether adjustment under Section 245 of the Act is permissible in respect of arrears pertaining to the same issue or subject matter – Held that:- 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. Assessee would not be able to get the refund at all Viability of application for stay of demand on ground that additions made are covered by earlier orders in favor of assessee by different appellate authorities - Held that:- Decisions of the CIT (Appeals) or the ITAT in favour of the assessee should not be ignored on the ground that current assessment order has been passed u/s 144C i.e. after reference to the Dispute Resolution Panel. Decisions of CIT & ITAT do not become inconsequential. It is held that:- Action of the Revenue in recovering the disputed tax in respect of additions made on issues which are already covered against them by the earlier orders of the ITAT or CIT (Appeals) is unjustified and contrary to law. Accordingly, directions to refund are issued. ITAT is direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an interim order was passed directing status quo in respect of recovery till 14th December, 2010. The Departmental Representative (DR, for short) undertook to convey these directions to the concerned authorities. The petitioner also filed a letter before the respondent No. 1 informing the said respondent about the status quo order with copy to the Commissioner of Income Tax. On 13th December, 2010, one day before the date of hearing, respondent No. 1 informed the petitioner that refund of Rs.122.57 crores for assessment year 2003-04, stands adjusted against the demand for assessment year 2006-07 vide order dated 7th December, 2010. It is not disputed that this communication was made on 13th December, 2010, after the status quo order was passed on 9th December, 2010. Similarly, the Revenue vide order dated 22nd November, 2010, had made adjustments under Section 245 of the Act for refund of Rs.69.94 crores for assessment year 2005-06 and Rs.37.47 crores for the assessment year 2003-04. Adjustment of Rs.37.47 crores for the assessment year 2003-04 was subsequently reversed vide order dated 3rd December, 2010, in view of the stay order passed by the High Court in a separate proceeding. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing with the applications was of the opinion that the respondent No. 1 should first dispose of the application under Section 220(6) of the Act. 8. Respondent No. 1, vide order dated 2nd February, 2011, disposed of the stay application and substantially dismissed the same stating inter alia, that refund of Rs.107.41 crores for the assessment year 2005-06 and Rs.122.57 crores for the assessment year 2003-04 stand adjusted and that there would be a stay of the balance amount of Rs.36.61 crores pending decision of the appeal before the ITAT, for the assessment year 2006-07. Another order dated 2nd February, 2011 was passed by the respondent No. 1 under Section 245 of the Act. The factum that adjustment under Section 245 of the Act was made by the order dated 2nd February, 2011, has been mentioned in the writ petition but this order under section 245 of the Act dated 2nd February, 2011, has not been filed with the writ petition and has been filed by the respondents along with the counter affidavit. The relevant portion of the said order under section 245 of the Act reads as under:- 3. You have relied on instruction No.1914 of Hon'ble CBDT and submitted that the demand of Rs.47.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount which was already lying with the department cannot be refunded back to the assessee since the issues have not attained finality so far in A Y 2006-07. 6. Huge demand is relating to the fresh issues like capital subsidy (disallowance of Rs.32.26 crores), royalty payment (disallowance of Rs.105.55 crores), disallowance on identical issues have been made in AY 2007-08, wherein the assessee has again filed appeal before Hon'ble DRP, i.e. the first appellate authority, which has confirmed the issues in AY 2006-07. Therefore, it is most likely that the assessee may be required to make payments in subsequent years on these issues. Therefore, refunding the amount is not a very viable proposition. 9. The stay application filed by the petitioner thereafter came up for hearing before the ITAT on 11th February, 2011 and the same was disposed of after recording the factual position noticed above with the following observation and reasoning:- 7.1 We find merit in the argument of learned DR that this section occurs under the chapter of 'refunds' and not 'recovery'. Section mandates that if some refund is found to be due to any person, the AO shall set off such amount before refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der. We are not satisfied that there is concealment, misstatement or suppression of a material fact or the petitioner had any motive or cause not to file the order dated 2nd February, 2011 with their writ petition. The relevant and material facts have been stated in the writ petition. We may reproduce the following observations of the Supreme Court in S.J.S. Business Enterprises (P) Ltd. v. State of Bihar, (2004) 7 SCC 166 : 13. As a general rule, suppression of a material fact by a litigant disqualifies such litigant from obtaining any relief. This rule has been evolved out of the need of the courts to deter a litigant from abusing the process of court by deceiving it. But the suppressed fact must be a material one in the sense that had it not been suppressed it would have had an effect on the merits of the case. It must be a matter which was material for the consideration of the court, whatever view the court may have taken. B. Whether the stay application under Section 220(6) was maintainable. 12. It may be noted here that the petitioner and Revenue have proceeded on the assumption that the said Section was applicable to the present case though the petitioner had filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The term refund has not been defined in the Act and, therefore, it has to be understood and interpreted in the manner in which it is understood in day to day life. The term recovery in common parlance includes adjustments. The word Recovery has been defined as Black s Law Dictionary: In its most extensive sense, the restoration or vindication of a right existing in a person, by the formal judgment or decree of a competent court, at his instance and suit, or the obtaining, by such judgment, of some right or property which has been taken or withhold from him. St. Paul Fire Marine Ins. Co. v. Wood, 242 Ark.879, 416 S.W.2d 322, 327. This is also called a true recovery, to distinguish it from a feigned or common recovery. The obtaining of thing by the judgment of a court, as the result of an action brought for that purpose. The amount finally collected, or the amount of judgment. In re Lahm, 1979 App.Div. 757 167 N.Y.S. 217, 219. To be successful in a suit to obtain a judgment. Garza v. Chicago Health Clubs, Inc.,D.C.Ill., 347 F.Supp. 955, 962. P. Ramanatha Aiyar Law Lexicon: The actual possession of anything, or its value, by judgment of a legal tribunal ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coercive methods but may not grant stay of adjustment of refund. However, when an order of stay of recovery in simplistic and absolute terms is passed, it would be improper and inappropriate on the part of the Revenue to recover the demand by way of adjustment. In case of doubt or ambiguity, an application for clarification or vacation/modification of stay to allow adjustment can be, and should be filed. But no attempt should be made and it should not appear that the Revenue has tried to over-reach and circumvent the stay order. Obedience and compliance with the stay order in letter and spirit is mandatory. A stay order passed by an appellate/higher authority must be respected. No deviancy or breach should be made. 18. We do not, in the present case, intend to lay down propositions or broad principles when and in what case there should be total stay of demand, or stay of recovery through coercive steps but no stay of adjustment under Section 245 of the Act. We would like to restrict ourselves to the facts of the present case and the contentions raised by the petitioner that when an issue or contention has been decided in favour of the assessee in earlier years whether adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-Tax and Ors., [2007] 290 ITR 37. In the said case, the Division Bench noticed the difference between Sections 241 and 245 in respect of procedure as well as the width and scope of the power but has observed as under:- 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1914 dated 2nd December, 1993, reported in [2010] 236 CTR 137 (St.). This to our mind does not affect the observations made in the above paragraphs in Glaxo Smith Kline (supra) and the principles enunciated. 23. Learned counsel for the Revenue had drawn our attention to the Circular dated 2nd December, 1993, heading (C) - guidelines for stay of demand which under sub-clause (e) states that the Assessing Officer may reserve a right to adjust refund arising, if any, against the demand and clause (iv) stating inter-alia that the expression stay of demand does not occur in Section 220(6) and the expression used is that the assessing officer would not to treat the assessee as in default. The second contention drawing distinction between stay of demand and the language in Section 220(6) which uses the expression assessee being in default does not help the Revenue. Circular No. 1914 dated 2nd December, 1993 has been issued by Central Board of Direct Taxes with reference to Section 220(6) of the Act. These are guidelines, when and in what circumstances the demand should not be recovered. This is a reason why in clause (iv), it is mentioned that the words stay of demand does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the ITAT on 9th December, 2010. Order/direction of the ITAT must be obeyed and not violated. 25. In the light of the aforesaid discussions, the following conclusions emerge:- (i) Order dated 2nd February, 2011 under Section 220(6) of the Act is null and void as the said provision is not applicable as the petitioner has filed an appeal before the ITAT and no appeal has been preferred under Section 246 or 246A of the Act. (ii) ITAT should have decided and disposed of the stay application filed by the petitioner and should not have called upon the Assessing Officer to dispose of the application under Section 220(6) of the Act or left it to the Assessing Officer to decide whether or not to make recovery. (iii) Word Recovery is comprehensive and includes both coercive steps to recover the demand and adjustment of refund to recover the demand. Adjustment under Section 245 of the Act is a form/method of recovery. (iv) ITAT is competent to stay recovery of the impugned demand and if an order for stay of recovery is passed, the Assessing Officer would be well advised and should not pass an order of adjustment under Section 245 to recover the demand. In such cases, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in other years. 27. Revenue in the affidavit filed on 19th October, 2011, has admitted that additions/disallowances to the tune of Rs.96 crores are already covered against them by orders of the ITAT or CIT (Appeals). The petitioner has submitted that the aforesaid affidavit in fact conceals and does not specifically deal with some of additions like sales tax subsidy, disallowance of claim for withdrawl of amount added back etc. The petitioner has submitted that attempt of the Revenue is to deliberately make additions so that refunds due in the earlier year do not become payable but can be adjusted. The allegation is that attempt by the respondents is that statistics and collection figures can be maintained. We are not examining the said aspects but in a case and if it is found that the contention of the assessee is correct then appropriate orders can certainly be passed. However, no assumptions should be drawn. The respondents are officers of the State and the Law requires that they perform their duties with utmost objectivity and fairness, while keeping in mind the sanctity of the role and function assigned to them which at times requires tough steps. Final Directions 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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