TMI Blog2013 (4) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... firmations from the mutual funds. Prima facie there was sufficient material before the assessing officer to indicate that the mutual funds which are registered with SEBI fall within the purview of Section 10(23D) and the assessee was entitled to an exemption under Section 10(35A). Thus the assessee has made out a strong prima facie case for a stay of the recovery of the demand in respect of the aforesaid three items Disallowance of broken period interest, Disallowance of amortization of premium, and Disallowance of exemption on dividend income from the mutual fund units. The balance due and payable by the assessee would work out to Rs.159.49 crores. The assessee has under cover of its letter dated 28 March 2013 paid an amount of Rs.100 crores under protest. On these facts and for the reasons the action of the department in adjusting the refunds due to the assessee in the amount of Rs.49.56 crores for Assessment Year 2008-09 and Rs.518.30 crores for Assessment Year 2009-10 was contrary to law. To recapitulate, the impugned order accepts the position that the assessee is covered by the decision of the Commissioner of Income-tax (Appeals) and hence directs that the assessee shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 36(1)(viia); and (v) Disallowance under Section 14(A). 4. The quantum of the disallowance and the tax and interest thereon are reflected in the following table which is extracted from the writ petition. The last column of the table contains the submissions of the Petitioner in respect of each item of disallowance. Particulars Amount of Disallowance (Rs.) Tax and Interest thereon (Rs.) Remarks Disallowance of Broken period Interest 2649,26,00,000 1175,44,37,699 Covered by the Tribunal's judgement for A.Y. 2001-02 2002-03. Issue not even raised by the AO from A.Y. 2003-04 to 2008-09. In A.Y. 2009-10 CIT(A) has allowed the Petitioner's appeal. Disallowance of Amortisation of premium on Held-To-Maturity securities 440,76,00,000 195,55,97,397 Covered by the Tribunal's judgement for A.Y. 2001-02 to 2007-08. In A.Y. 2008-09 2009-10 CIT(A) has allowed the Petitioner's appeal. Disallowance of exemption on dividend income from mutual fund units 426,33,31,752 189,15,87,367 The Petitioner has now produced letters from all mutual funds that dividend distribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nst the demand arising out of these issues. 8. The impugned order declining to grant a stay of recovery proceeds on the basis that, both on the issue of broken period interest and amortization of premium, there is a decision of the CIT (Appeals) in favour of the assessee for Assessment Year 2009-10. Yet what the department has done is to make an adjustment of the demand on these two grounds against the refunds which have been allowed to the assessee (both existing and subsequent). The impugned order suggests that in view of the fact that the issue is covered in favour of the assessee, it shall not be treated as an assessee in default in respect of the demand arising out of the two issues. An adjustment has been made only on the ground that the department is in appeal before the Tribunal for Assessment Year 2009- 10. For Assessment Year 2008-2009, a refund of Rs.49.56 crores has been sanctioned to the assessee by an order dated 28 February 2013 under Section 156 (Exhibit - Q). Similarly for Assessment Year 2009-10, there is a refund of Rs.518.30 crores in favour of the assessee in pursuance of a notice under Section 156 dated 4 March 2013 (Exhibit R). These refunds have been ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.49.56 crores for Assessment Year 2008-09 and of Rs.518.30 crores for Assessment Year 2009-10 merely on the ground that the department has filed an appeal before the Tribunal against the decision of the CIT (Appeals). The adjustment of a refund is a mode of effecting recovery. Once an issue has been covered in favour of the assessee in respect of another assessment year on the same point, it was wholly arbitrary on the part of the department to proceed to make an adjustment of the refund. If the adjustment was not made, there can be no manner of doubt that the assessee would have been entitled to a stay on the recovery of the demand. The demand cannot be adjusted by the department in this manner merely because it is in possession of the funds belonging to the assessee to which the assessee is legitimately entitled to and has been granted a refund for Assessment Years 2008-09 and 2009-10. The making of an adjustment in these facts is totally arbitrary and contrary to law. As a matter of fact, the assessee has contended that it was also governed by the order of the Tribunal on both the issues. Even this aspect has not been considered by the assessing officer. 12 Similarly, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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