TMI Blog2013 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... he records that there is no intimation in writing to the petitioner before making such adjustment of refund. As the respondent has not followed the procedures prescribed under the provisions of the Act while adjusting the refund amount with the outstanding amount, the impugned order is vitiated in law and is liable to be set aside. The impugned order is set aside - Writ Petition is allowed and the matter is remanded back to the respondent for compliance of Section 245. - W.P.No.8571 of 2013 - - - Dated:- 30-4-2013 - V Dhanapalan, J For the Appellant : Mr. Arvind P Datar, Senior Counsel assisted by Mr. Sandeep Bagmar R For the Respondent : Mr. T Pramod Kumar Chopda, Senior Standing Counsel Order:- By consent of the learned counsel appearing for the parties, the Writ Petition is taken up for disposal. 2. This Court heard the learned counsel appearing for the parties exhaustively on 29.4.2013 and the Writ Petition was posted "for orders" today (30.4.2013) and accordingly, it is disposed of by this order. 3. Heard Mr.Arvind P.Datar, learned Senior Counsel assisted by Mr.Sandeep Bagmar.R, learned counsel for the petitioner and Mr.T.Pramod Kumar Chopda, learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under Section 10-A/10-AA of the Act; (ii) Disallowance of Exchange Fluctuation Gain on EEFC Account for the purpose of computation of deduction under Section 10-A/10-AA of the Act; (iii) Exclusion of Expenditure in Foreign Currency from export turnover, but not from total turnover for computation of deduction under Section 10-A/10-AA of the Act; (iv) Exclusion of telecommunication expenditure from export turnover, but not from total turnover for computation of deduction under Section 10-A/10-AA of the Act; (v) Disallowance of provisions made on contingent liabilities; (vi) Disallowance of loss pertaining to the 10-A/10-AA units for computation of total income of the assessment year 2008-09; (vii) Disallowance under Section 14-A of the Act; (viii) Disallowance of expenditure incurred for selecting employees and (ix) Disallowance under Section 40(a)(i) towards payments made to non-residents on account of non-deduction of taxes at sources. After making disallowances and adjustments on the above grounds, the respondent assessed the income of the petitioner at Rs.716,33,79,150/- as against the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. As against the refund of Rs.103,09,77,260/-, the respondent set-off the said refund to the demand of Rs.362,38,85,090/-. (i) The respondent instead of issuing the refund to the petitioner, adjusted the said refund of Rs.103,09,77,260/- against the demand made for the assessment year 2009-10 without intimating the petitioner and the said adjustment was made by the impugned order, dated 22.3.2013, even before the expiry of 30 days from the date of demand notice for the assessment year 2009-10. Under Section 245 of the Act, the respondent can set-off the amount of refund against any sum payable by an assessee which is due, only after giving intimation in writing to such assessee of the action proposed to be taken. (j) The issues involved in the assessment order for the assessment year 2009-10 including the significant disallowance of tax holiday benefit on certain income and with the exception of three very minor issues (i.e. disallowance for MAT computation purpose of market-do-market foreign exchange loss and Section 14-A adjustment and disallowance for normal computation purpose of an amount under Section 40(a)(i) with respect to non-with-holding of taxes for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent, the legal remedy available to the petitioner has been taken away, resulting in recovery of tax demand even without waiting for completion of 30 days' period as provided for in the notice of demand issued to the petitioner under Section 156 of the Act. According to the petitioner, the impugned action of the respondent amounts to violation of fundamental right available to the petitioner under Article 19(1)(g) of the Constitution of India. It is further alleged that the action of the respondent is contrary to the law laid down by Courts holding that before an adjustment of refund due against the sum payable is made, a prior intimation to the assessee is mandatory and only thereafter, the Revenue has jurisdiction to make the set-off and such refund is to be set-off only against any amount found payable by such assessee. The impugned action of the respondent is also contrary to the instruction of the Central Board of Direct Taxes (CBDT) in Instruction No.1952, dated 14.8.1998, Instruction No.1969, dated 20.8.1999, Instruction No.1989, dated 20.10.2010 and Board's letter dated 28.4.2010, wherein, CBDT gave instructions to the Revenue Officers that the provisions of Section 245 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived in the office of the respondent on 22.3.2013, effect was immediately given to the said order on the same day and a refund of Rs.103,09,77,260/- was determined. The said refund of Rs.103,09,77,260/- determined in the assessee's case in assessment year 2008-09, was adjusted against the demand pending in the assessee's case in the assessment year 2009-10, which was intimated to the assessee in the order giving effect to the appellate order. (d) While the order dated 22.3.2013 containing refund details and intimation regarding adjustment of refund against demand, was sent to the assessee by post, the adjustment of refund was simultaneously carried out on 26.3.2013 in 'Online Tax Accounting System'. Section 245 of the Act requires that the assessee need to be intimated about the adjustment of refund. Though the adjustment of refund against the demand made on 26.3.2013 was intimated to the assessee along with the order dated 22.3.2013 to give effect to the appellate order, it is verified from records that the said intimation was sent by post on 30.3.2013. In the month of March, the assessing officer was under tremendous pressure of completing time barring scrutiny assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellate order for assessment year 2008-09, the CIT(A) relied on the recent circular issued by the CBDT in Circular No.1/2013 in F.No.178/84/2012-ITA.1, dated 17.1.2013 and held that software maintenance activity is also eligible for tax holiday under Section 10-A/10-AA of the Act. However, in the assessment order completed for the assessment year 2009-10, when this Circular of CBDT, dated 17.1.2013 was pointed out by the petitioner-assessee, it was specifically brought out by the assessing officer that the assessee-Company has not complied with the requirement specified in the Circular. (g) As per the Circular, it is necessary that there must exist a direct and intimate nexus or connection of development of software done abroad with the eligible units set up in India and such development of software should be pursuant to a contract between the client and the eligible unit. However, the petitioner-Company could produce only an MoU entered into between the principal holding company, viz., Cognizant Inc. USA and there is no agreement with the client or the final site of maintenance. Based on these and after elaborate analysis of the facts, the tax holiday claimed on overse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adjusted against the demand payable in assessment year 2009-10. The demand raised in assessment year 2009-10 to the tune of Rs.362 crores, was very much existing on record and no appellate order has been received against that order. In such case, the assessee cannot expect the Income Tax Department to issue refund arising in assessment year 2008-09 directly to the assessee without adjusting against the existing demand. (j) The contention of the assessee that the respondent has no jurisdiction to make adjustment of refund, is not correct. The respondent is the assessing officer of the petitioner for income tax purpose and has jurisdiction to make adjustment of refund against demand in the petitioner's case. Only for completing the assessment proceedings of assessment year 2009-10 under Section 143(3) of the Act, the Commissioner of Income Tax, Large Taxpayer Unit, Chennai, vide order in F.No.1/Notifications Orders/12-13, dated 22.8.2012, transferred the case of the petitioner to the Additional Commissioner of Income Tax, Large Taxpayer Unit, Chennai. In the said Notification, it is clearly stated that after completion of assessment proceedings under Section 143(3) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessment year 2009-10 is not on similar lines as raised in assessment year 2008-09 and hence, the appellate order of CIT (Appeals) in assessment year 2008-09 cannot equally be applied to the assessment year 2009-10 and the demand raised in assessment year 2009-10 is a tenable one and the assessee can file appeal before the CIT (Appeals) against the order of assessment in assessment year 2009-10. (o) If there is any relief given to the assessee, then any tax collected will be refunded along with interest under Section 244-A of the Act. Similar action was taken in assessment year 2008-09, wherein, pending disposal of appeal proceedings and pending stay order issued by the assessing officer, substantial demands were collected by way of refund adjustment. As soon as the receipt of appellate order, the entire tax collected in excess was determined as refundable to the assessee, which was eventually adjusted against the demand pending in assessment year 2009-10. (p) Since act of adjustment of refund of assessment year 2008-09 against the demand of assessment year 2009-10, has already been completed on 26.3.2013 and no further action is pending, the question of granting stay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funded in assessment year 2009-10, if the order of adjustment is cancelled, which will result in refunding of the amount pending subsisting demand. (vi) The delay in giving intimation under Section 245 of the Act may be condoned and the order of adjustment of refund against the demand, may be upheld in the interest of the Revenue. 9. The learned Senior Counsel appearing for the petitioner vehemently contended that under Section 245 of the Act, the assessing officer may, in lieu of payment of refund, set-off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under the Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under that Section. 10. The learned Senior Counsel appearing for the petitioner pointed out the Circular of the Central Board of Direct Taxes (for short, 'the CBDT'), issued in Instruction Nos.1952, dated 14.8.1998 and Instruction No.1969, dated 20.8.1999, stating that written intimation must invariably be sent to assessee before adjusting his refund with outstanding demand in compliance to provisions of Section 245 of the Act. As the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary verification under Section 92-CA of the Act, as the petitioner has international transactions with their group companies abroad. The Transfer Pricing Officer, vide letter dated 11.10.2011, accepted the arm's length price of the transactions of the petitioner-Company with that of their group companies abroad and consequently, no transfer pricing adjustments were made by the respondent. 15. While so, the respondent passed the assessment order under Section 143(3) read with Section 92-CA of the Act for the assessment year 2008-09 in the petitioner's case on 30.12.2011, by which, the respondent inter-alia disallowed various items, as quoted above. After making disallowances and adjustments, the respondent assessed the income of the petitioner at Rs.716,33,29,150/- as against the Returned income of Rs.93,54,87,072/- and consequently, demand of Rs.181,37,25,560/- was raised by demand notice, dated 31.12.2011 issued under Section 156 of the Act. The petitioner filed a stay petition before the respondent under Section 220(6) of the Act and the respondent, vide order dated 6.7.2012, stayed the demand to the extent of Rs.87,55,83,993/- (Rs.16,00,00,000/- + Rs.71,55,83,993/-) pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses for consideration is as to whether the respondent is empowered to adjust the refund amount automatically without complying with the provisions of Section 245 of the Act. 19. In this connection, it is worthwhile to extract Section 245 of the Act, as follows: Section 245: Set off of refunds against tax remaining payable: Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section." 20. From a reading of the above Section, it is crystal clear that the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set-off the amount to be refunded or any part of that amount, against the sum, if any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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