Hon’ble Bombay High court in case of Vrinda Sharad Bal Vs. The Income Tax Officer, Ward 22(3)(5), Mumbai and others in WRIT PETITION (L) NO. 7231 OF 2020 vide order Dt. 25.03.2021 held that amount of income tax refund due to an assessee cannot be adjusted against outstanding demand beyond the limit prescribed by CBDT in various circulars and instructions.
Facts of the case:
Assessee was claiming a refund pertaining to Assessment Years ( for short ‘AY’ ) 2012-13, 2017-18, 2018-19 and 2019-20 and same was adjusted against the demand of income tax for the AY 2013-14.
Assessee case for AY 2013-14 was assessed u/s 143(3) creating a demand of Rs. 6,13,48,390/- and assessee has preferred an appeal against the said order however till then department had already adjusted refund to the tune of Rs. 1,38,34,925/- pertaining to AYs 2014-15, 2015-16 and 2016-17.
Petitioner had applied for stay to recovery of demanded tax for the AY 2013-14. On 26.06.2018, the Assessing Officer had passed an order of stay to recovery of balance of tax due for the AY 2013-14, albeit, purporting to have reserved right to adjust refund arising against the demand.
Refund amounts Rs. 58,56,090/- and Rs. 71,92,970/- for assessment year 2018-19 and AY 2019-20 respectively as well are purportedly adjusted toward demand for AY 2013-14.
Petitioner had made various representations to different authorities online and offline to release the refund amount claimed by assessee in her return of income. However authorities would respond with remark that under the stay order, right to adjust refunds towards recovery of demand for the AY 2013-14 has been reserved.
Later, due to COVID-19 pandemic and lock down, business has been badly affected leading to financial crunch making it difficult for petitioner to arrange for day to day administrative and operative expenses.
Assessee’s contention:
Assessee contended that office memorandum dated 31.07.2017 modifies amount upwardly from 15% to 20% required for granting stay. He submits that having regard to the aforesaid, right to adjust refund is restricted to the extent of 20% of the demand amount. While in petitioner’s case, amount adjusted from refunds being more than 20% of demand of tax for AY 2013-14 which is pending in appeal, action by the respondents to adjust demand from refund over and above 20% of demand for AY 2013-14 is absolutely arbitrary and against guidelines and memoranda issued from time to time.
Assessee submits that amount adjusted from refund of Rs. 1,38,34,925/- is 22.55% of total demand i. e. in excess of 20% of the demanded amount. He submits that refunds cannot be adjusted over and above 20% against balance outstanding demand subjected to appeal.
Assessee refers and relies on a decision of the Punjab and Haryana High Court in the case of Jindal Steel And Power Ltd. Vs. Principal Commissioner of Income Tax And Another, reported in [2017] 391 ITR 42 (P&H). It has been observed in the same, power to adjust refund against the demand is limited and assessing officer is not supposed to act contrary to the instructions by the CBDT.
Assessee also refers and relies on decision of this court in the case of M/s. Andrew Telecommunications India Pvt. Ltd. Vs. Principal Commissioner of Income Tax, reported in 295 CTR 557 (Bom), wherein it appears to have been considered that refund could be adjusted only to the extent of 15% and order adjusting refund over and above said amount was liable to be quashed.
Learned counsel for petitioner cites and relies on the decision of the Supreme Court in the case of Commissioner of Customs Vs. Indian Oil Corporation Ltd., reported in 267 ITR 272 to impress upon binding nature of the circulars issued by CBDT and that revenue is bound by the same and cannot be allowed to plead those being not valid or are contrary to the terms of the statute.
Learned counsel for petitioner submits that technical difficulty in processing refund is not a ground to deny refund to petitioner, when the petitioner is entitled in fact and in law to have refund.
Revenue’s contention:
It is contended that instructions have been properly followed by the assessing officer which are issued for internal circulation as guidelines to recover demands.
Mr. Walve, learned counsel for the respondents submits that the Central Government had introduced Centralised Processing of Return of Income Scheme, 2011 ( the Scheme ) under Notification dated 04.01.2012 in exercise of the powers under sub-section (1A) of section 143 of the Income Tax Act.
He refers to clauses 7 & 10 of the Centralised Processing of Return of Income Scheme, 2011 which read thus :-
“ 7. Centralised Processing Centers. ( ‘CPC’ for short )
(1) The Board may set up as many Centralised Processing Centers as it may deem necessary and specify their respective jurisdictions.
(2) The processing of the returns shall be undertaken at the Centralised Processing Centre.
10. Adjustment against outstanding tax demand.
The set-off of refund, if any, arising from the processing of a return, against tax remaining payable will be done by using the details of outstanding tax demand lying against the person as uploaded onto the system of the Centre by the Assessing Officer. ”
He, therefore, submits that having regard to the provisions above, the action of the assessing officer in adjusting refunds would not be un-natural.
Clause 10 of the Scheme, refers to set off of refund arising from the processing of return against tax remaining payable will be done by using details of outstanding demand as uploaded on to the system by assessing officer.
Set off of refund under the clause is to be done by using details of income tax demand lying against the person uploaded on to the system. The exercise of power to have set off / adjustment of refund is regulated by legislative provisions and instructions.
Observation and Ruling by High Court:
Having regard to the context of sections 143(1A), 143(1B), it does not appear Clause 10 under the scheme is intended to be read out of the context isolatedly.
It would, thus, emerge that the scheme pursuant to 143(1A) will have to be taken into account alongwith other provisions of Act and would take within its fold instructions issued by CBDT from time to time.
Clause 10, as it would be seen will have to be read in the context of the provisions in the Act governing refund and also orders, circulars, instructions issued from time to time.
The tax demand for AY 2013-14 is in dispute and is pending before appellate authority. Having regard to instructions, circulars and memoranda issued from time to time, as referred to o behalf of petitioner, which are not disputed by the respondents, it appears to be expedient that the assessing officer refrains from recovering tax dues demanded for AY 2013-14. In the circumstances, a restraint is called for from recovering amount over and above, as per instructions, circulars and guidelines issued by CBDT, from time to
time.
The amount recovered from petitioner if is over and above as per instructions, circulars, the excess collection over and above the amount required for stay may have to be returned to petitioner and the refunds would not be adjusted till disposal of the appeal.
The amount recovered from petitioner over and above the amount as per instructions, memoranda, circular towards demand of tax for the AY 2013-14 pending in appeal would be returned to the Petitioner with interest.
To download the order CLICK HERE.
