9911796707
TMI Blog2007 (1) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between GSKCH and the petitioner was that the petitioner would reimburse the costs incurred by GSKCH for providing the various services to the petitioner plus 5 per cent. (referred to as " cross charges" ). Since in the said agreement, there was no basis laid down for allocation of costs incurred towards the various services provided to the petitioner, it was decided to engage the services of M/s. Price Waterhouse and Coopers (" PWC" ), a leading firm of chartered accountants to carry out a study to determine the basis for allocation of costs reimbursable by the petitioner to GSKCH. A report was submitted by PWC during the month of September, 1997, and was made effective from January 1, 1997. 4. In the previous year pertaining relevant to the assessment year (" AY" ) 1998-99, the administrative expenses (" cross charges" ) were worked out on the basis of the report of PWC. However, the Assessing Officer (" the AO" ) held that the increase in payment of cross charges by the petitioner to GSKCH was not fully and exclusively for the purpose of business of the petitioner and therefore could not be justified in terms of legitimate business requirements of the petitioner. The Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005. It may be mentioned here that ultimately the Revenue withdrew this petition since the assessee' s appeals before the Tribunal for the assessment years 2000-01 and 2001-02 were allowed by the Tribunal by its common order dated August 19, 2005. The Tribunal negatived the case of the Revenue that the fact situation in the assessment years 2000-01 and 2001-02 was different from the earlier assessment years 1998-99 and 1999-2000 where the disallowance had been deleted by the Tribunal and confirmed by this court. By the said order dated August 19, 2005, the Tribunal held that the finding that the assessee and GSKCH were not working at arm' s length was not sustainable and in any event not a relevant consideration to disallow the cross charges/administrative expenses. The Tribunal concluded that : " . . . none of the reasons assigned by the Commissioner of Income- tax (Appeals) to conclude that the decision of the Income-tax Appel late Tribunal for the assessment years 1998-99 and 1999-00 is not applicable to the facts as it existed in the assessment year 2001-02 can be sustained and therefore the said decision of the Tribunal will apply to this assessment year, i.e., the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand related to disallowance of payment of cross-charges which was in any event covered in favour of the petitioner by the successive orders of the Tribunal for the assessment years 1998-99, 1999-2000, 2000-01 and 2001-02. It was pointed out that the Revenue' s appeal for the assessment years 1998-99 and 1999-2000 had already been dismissed by this court. The petitioner relied upon Circular No. 530, dated March 6, 1989 (see [1989] 176 ITR (St.) 240 ), read with Circular No. 589, dated January 16, 1991 (see [1991] 187 ITR (St.) 79 ) issued by the Central Board of Direct Taxes (" the CBDT" ) and contended that it could not be treated to be an assessee in default in respect of a sum of Rs. 8.53 crores out of the total outstanding demand of Rs. 10.70 crores relatable to the issue covered in the petitioner' s favour by this court as well as the Tribunal. It was, accordingly, submitted as under : " It will be appreciated that no part of the aggregate sum of nearly Rs. 20 crores, refundable to the petitioner, for the assessment years 2000-01 and 2001-02, is required to be set off against the outstanding demand, except at the highest, to the extent of Rs. 2.17 crores in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the team overlooked the fact that a sum of Rs. 7.05 crores had already been recovered by attaching the bank account of the petitioner. It is only when the petitioner brought this to the notice of the Revenue that an order dated May 1, 2006, was issued under section 154 of the Act increasing the amount of refund for the assessment year 2001-02 by Rs. 7,35,90,159. The petitioner further pointed out that the appeal for the assessment year 2002-03 was pending before the Commissioner of Income-tax (Appeals) since March 2005. The appeal had been heard on several occasions but no order had been passed. It was then averred as under : " It may be pertinent to point out that when the refund became due on passing of the order by the Tribunal in August, 2005, there was no outstanding demand against the petitioner. The respondent deliberately delayed the issue of refund in order to adjust the same against the demand likely to be raised against the petitioner in the assessment for the succeeding year by repeating the disallowance(s) in ear lier years, despite the fact the disallowance did not merit acceptance at the hand of the Tribunal and this hon'ble court." 15. By order dated July 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner for the assessment year 2003-04. He submitted a chart showing the break up of the proportionate amount of tax payable on the issue of cross charges and other issues for the assessment years 2002-03 and 2003-04 as on August 8, 2006 (This chart, copy of which has been handed over during the course of arguments, will form part of the record of this case). He further submitted that for the assessment year 2002-03, the total demand raised on account of cross charges was Rs. 9.98 crores whereas the outstanding demand was only Rs. 3.55 crores which proved that there was no outstanding demand on other issues. Even as regards the demand on account of cross charges, the petitioner had paid Rs. 6.43 crores. 18. As regards the assessment year 2003-04, the demand raised on account of cross charges was Rs. 4.97 crores and on account of other issues it was Rs. 2.17 crores. Therefore, collectively for both the years, i.e., 2002-03 and 2003-04, the total demand on account of cross charges was Rs. 14.95 crores whereas the total outstanding demand was only Rs. 10.69 crores. According to Mr. Vohra, this proved that the petitioner had not only paid the entire demands raised on other is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 (see [1989] 176 ITR (St.) 240 ), and Circular No. 589, dated January 16, 1991 (see [1991] 187 ITR (St.) 79 ), issued by the Central Board of Direct Taxes, on which the petitioner placed reliance, did not pertain to section 245 of the Act but section 220 of the Act. She states that since the refund voucher for the assessment year 2000-01 in the sum of Rs.7,39,43,000 had already been issued to the petitioner on July 26, 2006, the only surviving issue is the refund due to the petitioner for the assessment year 2001-02. The outstanding demand for the assessment years 2002-03 and 2003-04, consequent upon the assessments framed for these years was Rs. 10.69 crores. In these circumstances, the Revenue had filed the aforementioned application seeking permission of this court to adjust the refund due to the petitioner against the outstanding demand. Consideration of the issue 21. As noticed hereinabove, the issue arising for determination is whether the petitioner is entitled to refund for the assessment year 2001-02 of the amount already computed by the Revenue by its orders dated December 28, 2005 and May 1, 2006. The argument of the Revenue, to justify its request to this court for p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the refund was going to adversely affect the Revenue. On a plain reading of the two provisions, it is clear that section 241 gave the Revenue a much wider power than section 245. 24. A Division Bench of the Punjab and Haryana High Court has in Naurata Ram [1998] 100 Taxman 266 held that the power under section 241 cannot be used arbitrarily and refund cannot be denied merely because the Revenue had filed certain proceedings by way of appeal, and that such appeal was pending. It was explained (page 269) : " On a careful reading of the plain language used in the statute, it becomes clear that the power to withhold the refund cannot be exercised merely because some proceedings are pending before the authorities constituted under the Act or a court of law. In other words, mere pendency of the proceedings cannot by itself be a ground to deny the refund on the assumption that such refund would adversely affect the revenue. The competent authority has to form an opinion on the basis of relevant material for coming to the conclusion that the order of refund will necessarily cause prejudice to the revenue of the State. If the Legislature had intended to prohibit the refund of the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionary power has to be exercised after giving an opportunity to the assessee of being heard preceded by an intimation to the assessee in writing of the action proposed to be taken under section 245. A further implicit requirement is that the Revenue will have to be satisfied that the assessee will not be in a position to satisfy the demand of tax and that but for the set off, the outstanding tax amount cannot be recovered at all. 29. The High Courts have emphasized the importance of hedging the power of the Revenue under section 245 with certain safeguards in order to prevent its misuse. The decisions in State Bank of Patiala v. CIT [1999] 239 ITR 421 (P&H) and Sabeta Detergents Ltd. v. CIT [2001] 248 ITR 385 (Mad) are to the same effect. This apart, while proposing to invoke the power under section 245, the Revenue should, as far as possible, adopt a consistent approach. Of course, if the fact situation in the particular assessment year is so different so as to justify the changed stance of the Revenue, the Revenue should, while filing an appeal to the higher forum, seek a stay from that forum itself of the refund due to the assessee before straightaway invoking the power under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other hand, in N. C. Mukherjee and Co. v. Union of India [1968] 68 ITR 500 (SC) a Constitution Bench of the hon'ble Supreme Court emphasised that even before a demand is raised against the assessee, the amounts refundable to it should be ascertained by the Assessing Officer so that the demand may be executed only for the balance. The recent decision of the hon'ble Supreme Court in Sandvik Asia [2006] 280 ITR 643 also emphasises the importance of timely action by the Revenue and the need for compensatory costs in the event of an unjustified retention by the Revenue of amounts due to be refunded to an assessee. The court said (page 671) : " The Act recognizes the principle that a person should only be taxed in accordance with law and hence where excess amounts of tax are collected from an assessee or any amounts are wrongfully withheld from an assessee without authority of law the Revenue must compensate the assessee." It appears from a news item appearing in the Economic Times, Delhi dated August 16, 2006, page 9 that concern has been expressed by the Public Accounts Committee of Parliament over the unusual delay in Income-tax refunds. The Committee noted that " the delay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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. 36. The petitioner has referred to Circular No. 530 dated March 6, 1989 (see [1989] 176 ITR (St.) 240 ), which suggests that while exercising discretion under section 220(6), the Assessing Officer should treat the assessee as not being in default where " the demand and dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or court in the assessee' s own case." While the Revenue may be justified in its submission that this circular does not strictly apply to an invocation of the power under section 245 of the Act, the underlying principle recognised therein, should in our considered view apply even to section 245. That principle requires the Revenue to respect the orders of the Tribunal and this court for the previous assessment years on the same issue, concerning the same assessee, which hold the field and are operative at the relevant time. We may point out, at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly be invoked. All of the above factors weigh against the Revenue invoking the power under section 245 in the present case. 39. On a conspectus of the facts and circumstances of the case, it appears to us that there is no justification for apprehending that the assessee is likely not to pay the demand pertaining to the administrative expenses/cross charges if and when it is ultimately held to be payable. From the submissions made on behalf of the assessee and the chart presented showing the status of demands as on August 8, 2006 (which has not been disputed by learned counsel for the Revenue) it appears that the petitioner has not only paid the entire demands raised on all other issues but has also paid Rs. 4.26 crores towards the demand on cross charges. In our considered view, there is no warrant for the Revenue to seek to set off the refund due to the petitioner on account of cross charges against the outstanding demand of tax on such account for the subsequent years. The delay in the processing of the refund claim and issuing the initial order dated December 28, 2005, and the subsequent order dated May 1, 2006, has not, in our view, been satisfactorily explained. The Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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