PIONEER SPORTS WORKS VS COMMISSIONER OF INCOME-TAX
1999 P T D 1846
[227 I T R 89]
[Punjab and Haryana High Court (India)]
Before Ashok Bhan and Iqbal Singh, JJ
PIONEER SPORTS WORKS ,
Versus
COMMISSIONER OF INCOME-TAX anti another
Civil Writ Petition No.2313 of 1997, decided on 22/04/1997.
Income-tax---
----Refund---Interest on refund---Power to withhold refund cannot be exercised merely because proceedings pending ---I.T.O. to form opinion that grant of refund would adversely affect Revenue---Assessment annulled by Tribunal and tax refunded---Interest on amount refunded withheld as proceedings pending against order of Tribunal annulling assessment---Appeal of Department also pending before Tribunal against order of C.I.T. (Appeals) granting interest on refund---Filing of appeal before Tribunal would not entitle Revenue to withhold interest ---Assessee, a running concern with good turnover and earning profits---Interests of Revenue would not be adversely affected if interest on refund is paid---Department directed to pay interest on amount already refunded---Indian Income Tax Act, 1961, Ss.214, 240, 241 & 244(1-A).
Under section 241 of the Income Tax Act, 1961, power to withhold the refund cannot be exercised merely because some proceedings under the Act are pending. The Income-tax Officer has also to form an opinion that the grant of refund is likely to affect the Revenue adversely. It does not mean that whenever proceedings are pending, the Revenue can withhold the refund. Whether the grant of refund during the pendency of the proceedings would adversely affect the interest of the Revenue, would depend upon the facts and circumstances of each case.
The Department charges interest on late deposit of tax and has a right to levy penalty as well. In fairness to the assessee, the Legislature has enacted sections 214 and 244(1-A) to pay interest on the amount of tax deposited in case levy of tax is set aside in appeal or in further proceedings.
The assessment of the petitioner for the assessment year 1981-82 was annulled by the Tribunal and a sum of Rs.10,30,171 was determined as the refundable amount. After adjusting an outstanding amount of Rs.35,370 against the petitioner, a sum of Rs.9,94,801 was refunded to the petitioner on February 15, 1995. A further refund of Rs.38,200 was issued on June 28, 1995. No interest was paid to the petitioner on the amounts refunded. The petitioner claimed that the respondents were bound to refund the sum of Rs.10,30,171 plus Rs.38,200 with interest under section 214(2) and section 244(1-A) of the Income Tax Act, 1961, and filed an appeal before the Commissioner (Appeals) against the order of the Assistant Commissioner. The Commissioner of Income-tax (Appeals) against the order of the Assistant Commissioner to allow interest under section 214/244(1-A) of the Act to the petitioner. The petitioner did not receive the refund issued to it as a result of the order of the Commissioner of Income-tax (Appeals) within the specified period even after sending a letter as also a reminder to the Assistant Commissioner. The Assistant Commissioner informed the petitioner that the refund of interest on the principal amount which had already been refunded had been withheld by him with the approval of the Commissioner for the following reasons: (i) that the income-tax reference at the instance of the Department against the order of the Tribunal, annulling the assessment of The petitioner was pending final decision before the High Court; (ii) that the appeal of the Department against the order of the Commissioner (Appeals) whereby interest on the refund had been ordered to be paid to the petitioner was pending final decision before the Tribunal; (iii) that the petitioner was not doing well in business and had filed a loss return of Rs.1,55,273 for the assessment year 1994-95 and had returned nil income for the assessment year 1995-96. On a writ petition challenging the order of the respondents:
Held, allowing the petitions, (i) that the mere filing of an appeal before the Tribunal against the order of the Commissioner (Appeals) would not entitle the Revenue to withhold the amount of interest;
(ii) that after wiping out the loss for the previous year and deductions made in computing the total income as provided under Chapter VI-A of the Act, a nil return was filed for the assessment year 1995-96. The petitioner had a reasonably good turnover for the assessment year 1995-96 on which profits had been earned. The facts on the basis of which the Commissioner of Income-tax had formed the opinion that it would adversely affect the interests of the Revenue if payment of interest on refund interest was made, did not stand scrutiny judged from reasonableness or fairness;
(iii) that if the refund of the amount of tax deposited did not adversely affect the Revenue, it could not be understood as to how the payment of interest on the said amount adversely affected the interests of the Revenue, especially when the petitioner was a running concern with reasonably good turnover and earning profits;
??????????? (iv) that, therefore, the respondents were liable to pay interest on the amount already refunded to the petitioner.
Deep Chand Jain v. 1T0 (1984) 145 ITR 676 (P & H); Hansa Agencies (Pvt.) Ltd. v. CIT (1988) 169 ITR 322 (P & H); Leader Valves (Pvt.) Ltd. v. CIT (1987) 167 ITR 542 (P & H); Saurashtra Cement and Chemical Industries Ltd. v. ITO (1992) 194 ITR 659 (Guj.) and Suri Sons v. CIT (1988) 169 ITR 320 (P & H) ref.
N.K. Sud for Petitioner
B.S. Gupta and Sanjay Bansal for Respondent.
JUDGMENT
ASHOK BRAN, J.---The petitioner has challenged the order, dated December 4, 1996, Annexure P-3, withholding the amount of refund due to it, arising out of the order of the Commissioner of Income-tax (Appeals), Jalandhar, dated May 2, 1996. Further, prayer made is for directing the respondents to refund the amount due to the petitioner alongwith interest under section 244(1-A) of the Income Tax Act, 1961 (hereinafter referred to as "the Act").
The petitioner is a company incorporated under the Companies Act, 1956, with its head office at Jalandhar and is assessed to income-tax under the jurisdiction of the Assistant Commissioner of Income-tax, Circle 1(2), Jalandhar, respondent No.2. It is engaged in the business of manufacture and sale of sports goods. The assessment of the petitioner for the assessment year 1981-82 was annulled by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, on October 28,1 994. Respondent No.2 gave effect to the order of the Tribunal and determined a sum of Rs.10,30,171 as the refundable amount. After adjusting an outstanding amount of Rs.35,370 against the petitioner, a sum of Rs.9,94,801 was refunded, vide refund voucher, dated February 15, 1995. Since credit for prepaid taxes had not been fully given, a further refund of Rs.38,200 was issued on June 28, 1995. Amount of interest on the refunded amount was not paid. Claiming that the respondents were bound to refund the sum of Rs.10,68,371 (Rs.10,30,171 + Rs.38,200) with interest under section 214(2) and section 244' (1-A) of the Act, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals), Jalandhar, against the order of respondent No.2. The Commissioner of Income-tax (Appeals), Jalandhar, vide his order, dated May 2, 1996, accepted the plea of the petitioner and directed respondent No.2 to allow interest under section 214/244 (1-A) of the Act to the petitioner. This direction was given by following the decision of this Court in Deep Chand Jain v. ITO (1984) 145 ITR 676.
Under section 240 of the Act, respondent No.2 was bound to issue the refund arising as a result of the order of the Commissioner of Income-tax without the petitioner having to make a claim in this behalf. Under section 214/244/(1-A), respondent No.2 ought to have issued the refund by August 31, 1996, i.e., within three months from the end of the month in which such order was passed, i.e., May 2, 1996. As the petitioner did not receive the refund issued to it as a result of the order of the Commissioner of Income-tax (Appeals) even after the expiry of four months, it sent a letter, dated September 17, 1996, Annexure P-1, to respondent No.2 requesting him to issue the refund. Respondent No. 2 did not respond to the letter, Annexure P-1. The petitioner sent a reminder on November 27, 1996, Annexure P-2.
Respondent No.2, vide order, Annexure P-3, dated December 4, 1996, informed the petitioner that the refund of interest on the principal amount which had already been refunded has been withheld by him with the approval of respondent No. l as the Department had filed a reference application in the High Court against the order of the Income-tax Appellate Tribunal. Refund of the amount of interest was ordered to be withheld till the decision of the High Court in the reference application.
The present petition has been filed challenging the impugned order, Anrexure P-3, on the ground that the respondents were not justified in withholding the refund due to the petitioner under section 241 of the Act merely on the ground that the Department had filed a reference application before the High Court against the order of the Tribunal annulling the assessment.
The stand taken by the respondents in their written statement is that the Department has not accepted the decision of the Commissioner of Income-tax (Appeals), Jalandhar, and has filed an appeal before the Tribunal at Amritsar which is pending adjudication; that Deep Chand Jain' s case 11984) 145 ITR 676 (P & H), on the basis of which the Commissioner of Income-tax (Appeals) had accepted the plea of the petitioner thereby directing the respondents to allow interest under sections 214 and 244(1-A) of the Act, stands referred to a larger Bench in C.W.P. No.5809 of 1986, vide order, dated March 13,1 997, in view of the contrary decision rendered by the Full Bench of the Gujarat High Court in Saurashtra Cement and Chemical Industries Ltd. v. ITO (1992) 194 ITR 659. It has further been submitted that the Assistant Commissioner of Income-tax, respondent No.2, in his report, dated March 2, 1996, submitted to the Commissioner of Income-tax through the Additional Commissioner of Income-tax Range-1, Jalandhar, after detailing the circumstances under which interest could not be refunded to the petitioner, expressed his opinion that the refunding of interest would adversely affect the interests of the Revenue inasmuch as the
petitioner was not doing well in business and had filed a loss return of Rs.1,55,273 for the assessment year 1994-95 and a nil return of income for the assessment year 1995-96. The Additional Commissioner, vide letter, dated September 16, 1996, addressed to the Commissioner of Income-tax, endorsed the opinion expressed by respondent No.2 for withholding of the refund of interest. Thereafter, the Commissioner of Income-tax, after applying his mind to the opinion expressed by respondent No.2 and the Additional Commissioner, approved the proposal for withholding of the refund of interest under section 241 of the Act. The petitioner has not been refunded the interest because of the following reasons:
(i) Income-tax reference of the Department against the order of the Income-tax Appellate Tribunal, annulling the assessment of the petitioner is pending final decision before this Hon'ble Court.
(ii) The appeal of the Department directed against the order of the Income-tax Commissioner (Appeals) whereby interest on the refund had been ordered to be paid to the petitioner is pending final decision before the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar.
(iii) The petitioner is not doing well in business and has filed a loss return of Rs.1,55,273 for the assessment year 1994-95 and has returned nil income for the assessment year 1995-96.
A reply to the written statement by way of replication has been filed by the petitioner controverting the facts stated in the written statement. It has been stated that the pleas taken in the written statement are misleading. It has been denied that the petitioner is not doing well. For the assessment year 1995-96, there were substantial profits even after wiping out the loss for the assessment year 1994-95. If any of the respondents had cared to even look into the record,, it would have been absolutely clear that in the assessment year 1995-96, the petitioner had earned a net profit of Rs.3,05,170 on total sales of Rs.1,01,16,557. The nil income was the result of set off of the earlier years loss of Rs.1,55,273 and also the deduction available under section 80-HHC of the Act against export profits. A copy of the computation of income filed with the return for the assessment year 1995-96 has been attached as annexure PR-1. It has further been submitted that the reference made to a larger Bench in C.W.P. No.5809 of 1986, vide order, dated March 13, 1997, is of no consequence as the issue involved in the aforesaid writ petition was different from the point of law canvassed in this petition.
After annulment of the assessment of the petitioner by the Tribunal, respondent No-2 gave effect to the order of the Tribunal and refunded the principal amount of tax which had been deposited by the petitioner. Interest payable on that amount was withheld. Under sections 214(2) and 244(1-A) of the Act, respondent No.2 was bound to refund the amount alongwith interest which he failed to do. The Commissioner of Income-tax (Appeals) accepted the appeal of the petitioner and directed respondent No.2 to allow interest under section 214/244 (1-A) of the Act to the petitioner. The simple filing of an appeal before the Tribunal against the order of the Commissioner of Income-tax (Appeals) would not entitle the Revenue to withhold the amount of interest. Section 240 of the Act provides that where, as a result of any order passed in appeal gr other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.
Power to withhold the refund is governed by section 241 of the Act, which reads as under:
"241. Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of subsection (1) of section 143 after a return has been made under section 139 or in response to a notice under sub?section (1) of section 142 and the Assessing Officer is of the opinion, having regard to the fact that--- "
(i) a notice has been issued, or is likely to be issued, under sub? section (2) of, section 143 in respect of the said return; or
(ii) the order is the subject-matter of an appeal or further proceeding; or
(iii) any other proceeding under this Act is pending,
that the grant of the refund is likely to adversely affect the Revenue, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determine. "
Section 241 of the Act authorises the Assessing Officer to withhold the refund with the approval of the Commissioner for such time as may be determined by the Commissioner during the pendency of the proceedings under the Act where the grant of refund is likely to adversely affect the Revenue. Pendency of proceedings by way of reference application in the High Court against the order of the Tribunal and the pendency of appeal before the Tribunal against the order of the Commissioner of Income-tax (Appeals) ordering refund, stand established on the record , Refund of the amount of interest on the principal amount of tax has been. withheld a suit was likely to adversely affect the Revenue because the petitioner had not been doing well in the business and had filed a loss return of Rs.1,55,273 for the assessment year 1994-95 and a nil return of income for the assessment year 1995-96.
Under section 241 power to withhold the refund cannot be exercised merely because some proceedings under the Act are pending. The Income-tax Officer has also to form an opinion that the grant of refund is likely to affect the Revenue adversely. It does not mean that whenever the proceedings are pending, the Revenue can withhold the refund. Whether the grant of refund during the pendency of the proceedings would adversely affect the interests of the Revenue, would depend upon the facts and circumstances of each case.
It seems that the respondents have withheld the payment of the amount of interest only because the reference proceedings initiated by the Revenue questioning the validity of the order of the Tribunal and the appeal filed before the Tribunal against the order of the Commissioner of Income-?tax (Appeals) were pending. It has been held by this Court in Leader Valves (Pvt.) Ltd. v. CIT (1987) 167 ITR 542, Suri Sons v. CIT (1988) 169 ITR 320 and Hansa Agencies (Private) Ltd. v. CIT (1988) 169 ITR 322, that mere pendency of the proceedings initiated by the Revenue questioning the validity of the order under which the refund had become due is not a sufficient ground for withholding the interest on the refund.
After wiping out the loss for the previous year and deductions made in computing the total income as provided under Chapter VI-A of the Act, a nil return was filed for the assessment year 1995-96. The petitioner had a reasonably good turnover for the assessment year 1995-96 on which profits had been earned. The facts on the basis of which the Commissioner of Income-tax had formed the opinion that it would adversely affect the interests of, the Revenue if the refund of interest is made do not stand scrutiny, judged from reasonableness or fairness.
The Department charges interest on late deposit of tax and has a right to levy penalty as well. In fairness to the assessee, the Legislature has enacted sections 214 and 244(1-A) to pay interest on the amount of tax deposited in case the levy of tax is set aside in appeal or in further proceedings. In the present case, as observed earlier, we do not find the justification for withholding the interest on the amount of refund. If the refund of the amount of tax deposited did not adversely affect the Revenue, we fail to understand as to how the payment of interest on the said amount would adversely affect the interests of the Revenue especially when the petitioner is a running concern with reasonably good turnover and earning profits.
For the reasons stated above, we accept this petition and quash the impugned order, Annexure P-3, withholding the amount of interest. The respondents are directed to pay interest on the amount already refunded within two months of the receipt/production of a certified copy of this order. The amount of interest be calculated in accordance with the statutory provisions. No costs.
Copy of this order be given dasti or payment
M. B. A./2041/FC ????????????????????????????????????????????????????????????????????????????? Petition accepted