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2015 (7) TMI 366 - BOMBAY HIGH COURT

2015 (7) TMI 366 - BOMBAY HIGH COURT - [2015] 377 ITR 281 (Bom) - Adjustment of refund due with demands outstanding - Unconditional stay granted under Section 220(6) of the Act - Discretionary power of adjustment - Adjustment depend upon the facts and circumstances of each case - Sanctity of order passed by an superior officer - Held that:- It is an admitted position that there is no demand outstanding/payable for Assessment year 2004-05. Thus no occasion to adjust any part of the refund due to .....

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we set aside the impugned order dated 22 August 2013 being Exhibit P to the the petition demanding interest of ₹ 1.05 lakhs.

For Assessment Year 2007-08 is concerned, the demand of ₹ 18 crores had been stayed by the order of Commissioner dated 22 March 2011 under Section 220(6) till the disposal of the petitioner's appeal before the CIT (Appeals). The appeals are still pending. Further, stay was granted in respect of the demands attributable to transfer pricing adjustment .....

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to understand how an order passed by an officer superior to the Assessing Officer granting stay would not be binding upon the Assessing Officer. In fact the Commissioner of Income Tax is the administrative head and does exercise jurisdiction over the entire Commissionerate. Thus, even today, the order Commissioner of Income Tax staying the demand of ₹ 17.98 crores is in force.

For Assessment Year 2008-09 is concerned, the Assessing Officer by an order dated 9 March 2012 stayed .....

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tion 245 is discretionary. The orders of stay have to be honoured before adjustment of the demand out of refund is done by the Revenue. If the Assessing Officer did not accept the assessee's contention at the time of making the adjustment, the petitioner should have been informed as to why the objections of the assessee to the adjustment is not sustainable. Unless the Assessing Officer exercising power under Section 245 of the Act subjects himself to this discipline, he would be exercising his p .....

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ently, Revenue is directed to hand over the balance amount of ₹ 52 crores out of ₹ 129 crores of refund due for A.Y.2006-07 to the petitioners. The petitioner is not an assessee in default under Section 220 of the Act, till such time as its appeals are decided. Consequently no occasion to charge interest at this stage under Section 220(2) of the Act can arise. Consequently, the orders dated 22 August 2013 for the Assessment Year 2004-05, 2007-08 and 2008-09 being Exhibit N, O and P a .....

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rvices. Taken up for final disposal. 2. The challenge in this petition under Article 226 of the Constitution of India is to the manner in which the Assessing Officer has under Section 245 of the Income Tax Act, 1961 (the 'Act') adjusted the demands aggregating to ₹ 43 crores for the Assessment Years 2004-05, 2007-08 and 2008-09 out of the refund of ₹ 129 crores admittedly due to the petitioner for the Assessment Year 2006-07. Besides the challenge is also to the consequential .....

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2010 under Section 143(3) r/w Section 144C of the Act enhancing the taxable income from ₹ 366.94 crores to ₹ 937.86 crores. A part of the enhancement was attributable to transfer pricing adjustment of ₹ 369 crores. This further addition on account of transfer pricing led to a tax demand of ₹ 124 crores. 4. Being aggrieved, the petitioner carried the above order in appeal to the Income Tax Appellate Tribunal (Tribunal). By an order dated 10 December 2012 the Tribunal partl .....

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uary 2012 passed assessment orders resulting in demand of ₹ 83crores for the Assessment Year 2007-08 and ₹ 135crores for the Assessment Year 2008-09. Being aggrieved by the two assessment orders, the petitioner filed appeals for the Assessment Year 2007-08 and 2008-09 to the Commissioner of Income Tax (Appeals) (the 'CIT (Appeals)'). Pending the disposal of the appeals by the CIT (Appeals), the petitioner filed application for stay of demand on 10 February 2011 for Assessment .....

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7; 83.25 crores. So far as Assessment Year 2008-09 is concerned, the Assessing Officer by an order dated 9 March 2013 granted a partial stay to the extent of ₹ 25 crores out demand of ₹ 135 crores. This partial stay for assessment years 2007-08 and 2008-09 was in respect of amount of demand attributable to transfer pricing adjustment identical/ similar to the issues now decided in favour of the petitioner by the Tribunal for the Assessment year 2006-07. It is pertinent to note that n .....

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ent year 2007-08 and 2008-09 are still awaiting disposal. 8. On 31 July 2013( received by petitioner on 2 August 2013), the Assessing Officer in terms of Section 245 of the Act informed the petitioner of his proposal to adjust out of the refund of ₹ 129 crores due to the petitioner for the Assessment Year 2006-07 with the pending demands which were as under: A.Y. Amount of demand (exclusive of interest) 2004-05 Rs.3,76,985/- 2007-08 Rs.17,98,92,047/- 2008-09 Rs.24,98,64,327/- 9. The petiti .....

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the order of Commissioner dated 22 March 2011 and the order of the Assessing officer dated 9 March 2012 respectively till the disposal of its appeals by CIT (Appeals). It was pointed out that the appeals for Assessment years 2008-08 and 2008-09 are still awaiting disposal at the hands of the CIT(Appeals). Thus it was submitted that adjustment as proposed was not justified/warranted. 10. The Assessing Officer appears to have proceeded with the adjustment for Assessment year 2004-05, 2007-08 and .....

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n the delayed payment of the demands for Assessment Years 2004-05, 2007-08 and 2008-09 and also adjusted the same out of refund of ₹ 129crores for Assessment Year 2006-07. The interest demanded by the three impugned orders dated 22 August 2013 is ₹ 1.05 lakhs for Assessment year 2004-05, ₹ 5.03 crores for Assessment Year 2007-08 and ₹ 3.99 crores for Assessment year 2008-09 aggregating to ₹ 9.07crores. Thus the Revenue kept back/adjusted an amount in the aggregate o .....

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tanding for Assessment year 2004-05 and the demands for Assessment years 2007-08 and 2008-09 have been stayed. Thus on the date of the intimation i.e. 31 July 2013 as well as on 22 August 2013 no amounts were payable for the three assessment years. The issue it is submitted is concluded in favour of the petitioner by the decision of Delhi High Court in Maruti Suzuki India Ltd. Vs. DCIT, 347 ITR 43; (b) The procedure provided under Section 245 of the Act for adjustment of demands payable out of r .....

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e need to be quashed. 12. Per contra, Mr. Arvind Pinto, the learned Counsel for the Revenue submits as under: (a) It is accepted that there is no demand payable by the petitioner for Assessment year 2004-05. Thus there is no occasion to adjust the same from the refund due to the petitioner for A.Y.2006-07. Consequently, no occasion to demand interest for the amount adjusted for A.Y. 2004-05 as done by the order dated 22 August 2013 can arise; (b) So far as demands for the Assessment Year 2007-08 .....

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the stay has been granted by the Commissioner of Income Tax and not by the Assessing Officer. So also the stay granted for Assessment year 2008-09 is by the Assessing officer yet the same can be reviewed by him in his absolute discretion; and (d)As the adjustment of the demands for Assessment year 2007-08 and 2008-09 out of refunds due for Assessment year 2006-07 is in order, the demands for interest under Section 220(2) of the Act by orders dated 22 August 2013 for the above two years calls fo .....

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section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice." (2) to (5)........ "(6) Where an assessee has presented an appeal under Section 246 or Section 246A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for .....

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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." Consideration: 14. Section 245 of the Act, empowers the revenue to adjust refunds due to an assessee against any tax payable(of the same character as the refund due) by him. The exercise of this power is discretionary as is evident from the use of the word "may .....

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sions of higher forums etc. On consideration of the same, it is open to the officer of the revenue concerned to exercise its discretion, to adjust or not. This giving of prior intimation has been held by this Court in A.H. Shaikh and Ors v. Suresh B Jain 165 ITR 86 to be mandatory before any adjustment can be made. The exercise of powers under Section 245 of the Act being discretionary has also been so held by the Delhi High Court in Glaxo Smith Kline Asia (P) Ltd. Vs. CIT 290 ITR 35. We respect .....

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s, if any, for example a stay of the demand, Supreme Court decision covering the demand which is still a subject matter of a pending appeal etc which would warrant not adjusting the refund against the pending demand. Thus when a party does raise such issues in response to a prior intimation, the officer of the revenue exercising powers under Section 245 of the Act must apply his mind to it and must record reason why the objection is not sustainable and also communicate it to the party. This befo .....

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cts, intimation dated 31 July 2013 under Section 245 of the Act was received by the petitioner on 2 August 2013. The Petitioner filed its objections on 5 August 2013 inter alia pointing out that no demand is outstanding for A.Y. 2004-05 and stay of the demand granted under Section 220(6) of the Act in appeals pending before the Commissioner of Income tax(Appeals) for A.Y. 2007-08 and 2008-09. Theses objections of the petitioner were not considered as is apparent from the fact that even though no .....

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Assessment year 2004-05. Thus no occasion to adjust any part of the refund due to the petitioner for Assessment year 2005-06 to meet a non existing demand for A.Y. 2004-05 can arise. Consequent demanding of interest under Section 220(2) of the Act as demanded by order dated 22 August 2013 for A.Y.2004-05 would not arise. Therefore in view of above agreed position the Revenue is directed to hand over the sum of ₹ 3.76 lakhs retained/adjusted out of the refund due for the alleged dues of A.Y .....

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r, stay was granted in respect of the demands attributable to transfer pricing adjustment which was an issue of dispute even for the Assessment Year 2006-07 and was finally resolved in favour of the petitioner. The contention of Mr.Pinto is that as the order of stay was granted by Commissioner of Income Tax and not by the Assessing Officer, therefor has no force in law. Therefore according to Mr. Pinto the above communication could be ignored while adjusting the demand out of refunds due to the .....

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upon the Assessing Officer. In fact the Commissioner of Income Tax is the administrative head and does exercise jurisdiction over the entire Commissionerate. Thus, even today, the order Commissioner of Income Tax staying the demand of ₹ 17.98 crores is in force. 19. So far as Assessment Year 2008-09 is concerned, the Assessing Officer by an order dated 9 March 2012 stayed the demand of ₹ 25 crores attributable to transfer pricing adjustment done in the assessment order till the dispo .....

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demand which is payable under the Act. It is submitted that the Revenue has jurisdiction to adjust the demands which are payable under the Act and as of today the demands for A.Y. 2007-08 and 2008-09 are payable. The grant of stay under Section 220(6) of the Act only prevent the Revenue from recovering the amounts which have been confirmed by the Assessing Officer. However the amount continues to be payable under the Act by the petitioners to the Revenue. Thus it is submitted that no interferen .....

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the Act. This notice under Section 156 of the Act specifies the period(normally 30 days) within which the payment is to be made failing which the person concerned is treated as an Assessee in default. It is only after the expiry of time limit to make the payment is the recovery provision triggered under Section 220 onwards of the Act. However where a stay is granted under Section 220(6) of the Act, in view of pending appeal before the CIT(Appeals) then such an assessee would not be treated in de .....

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ands extended till the disposal of the appeal by CIT (Appeals). 22. Thus as on 31 July 2013 the demand was "not remaining payable under the Act", because of the unconditional stay granted under Section 220(6) of the Act. Therefore Section 245 of the Act will not be invocable. The stay order could have excluded any setoff/ adjustment out of any refund due to an Assessee. Such is not the case in the present facts. An adjustment under section 245 of the Act is also a mode of recovery of t .....

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ies the order of stay granted to the petitioners. The orders of stay are undisturbed till this date. Consequently, it is not open to the Revenue to adjust the recovery of amount which has been stayed by orders of stay. 24. The Delhi High Court in the case of Maruti Suzuki India Ltd. (supra) had an occasion to deal with a similar contention as is being raised by the Revenue in the present case namely the recovery of tax cannot and would not include adjustment under Section 245 of the Act and the .....

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be extended to adjustment of refund. In cases where the stay order is in absolute terms, it would be inappropriate on the part of the Revenue to adjust the demand by way of adjustment. The Delhi High Court observed as under: ".... 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 .....

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d have approached the appellate authority before whom the appeals were pending to expedite the hearing or alternatively seek to vary the order of stay after giving a hearing to the party concerned before the adjustment under Section 245 of the Act is carried out. This has admittedly not been done. 26. The power under Section 245 is discretionary. The orders of stay have to be honoured before adjustment of the demand out of refund is done by the Revenue. If the Assessing Officer did not accept th .....

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