Reported in/ published in http://judis.nic.in/judis_chennai/filename=41825
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 30.4.2013
CORAM:
THE HONOURABLE MR.JUSTICE V.DHANAPALAN
W.P.No.8571 of 2013
&
M.P.No.1 of 2013
M/s.Cognizant Technology Solutions India P. Ltd.,
6th Floor, New No.165/Old No.110,
Menon Eternity Building,
St.Mary's Road,
Chennai-600 018
represented by its Director .. Petitioner
Vs.
The Deputy Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai-600 101. .. Respondent
Writ Petition filed under Article 226 of the Constitution of India, praying for issuance of a Writ of Certiorarified Mandamus to call for the records and
quash the impugned order made in PAN AAACD3312M, dated 22.3.2013 passed by the respondent herein for Assessment Year 2008-09 in so far as it seeks to adjust the refund of Rs.103,09,77,260/- as against the alleged demand outstanding for Assessment Year 2009-10 and
consequently direct the respondent herein to refund the aforesaid sum of Rs.103,09,77,260/- under Section 240 of the Income Tax Act, 1961 together with interest thereon as may be payable under Section 244/244-A of the Act.
For petitioner : Mr.Arvind P.Datar, Senior Counsel
assisted by Mr.Sandeep Bagmar.R
For 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 Senior Standing Counsel appearing for the respondent-Income Tax Department.
4. The petitioner calls in question the order made in PAN AAACD3312M, dated 22.3.2013 passed by the respondent herein for Assessment Year 2008-09 in so far as it seeks to adjust the refund of Rs.103,09,77,260/- as against the alleged demand outstanding for Assessment Year 2009-10, seeking to quash the same and consequently direct the respondent herein to refund the aforesaid sum of Rs.103,09,77,260/- under Section 240 of the Income Tax Act, 1961 (for short, 'the Act') together with interest thereon as may be payable under Section 244/244-A of the Act.
5. The case of the petitioner is as follows:
(a) The petitioner is a Private Limited Company incorporated under the Companies Act, 1956 and engaged in the business of development of computer software and related services and its export and provides various software solutions to variety of industries.
The petitioner carries out its business activities through various units set up in Software Technology Parks (STPs) and Special Economic Zones (SEZs) and claims deduction under Section 10-A and 10-AA of the Act.
(b) For the assessment year 2008-09, the petitioner filed their Return of income on 29.9.2008, which was processed under Section 143(1) of the Act on 8.3.2010. The petitioner's case was selected for scrutiny by the Assistant Commissioner of Income Tax under Section 143(2) of the Act on 12.8.2009 and details were called for by the respondent under Section 142(1) of the Act on 26.8.2011, for which, detailed submissions were made by the petitioner before the respondent from time to time.
(c) The petitioner's case was referred to the Transfer Pricing Officer for 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 order dated 11.10.2011, accepted the arm's length price of the transactions of the petitioner-Company with that of their group companies abroad. Consequently, no transfer pricing adjustments were made by the respondent.
(d) 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 following items had been disallowed:
(i) Disallowance of excess claim of 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 returned income of Rs.93,54,87,072/- and
consequently, a demand of Rs.181,37,25,560/- was raised, vide demand notice, dated 31.12.2011 under Section 156 of the Act.
(e) Pursuant to the said demand notice, 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.71,55,83,993/- pending disposal of the appeal before the Commissioner of Income Tax (Appeals) (i.e. for short, 'CIT(A)') or until 31.12.2012 whichever is earlier.
The petitioner remitted Rs.25,22,00,000/- on 24.2.2012 and the respondent adjusted income tax refund of Rs.71,47,53,133/- relating to various assessment years on various dates only with express consent of the petitioner given during the hearing while completing the assessment, and thereafter, on 17.12.2012, the petitioner requested for extension of stay of demand till the disposal of appeal by CIT(A).
(f) The petitioner filed an appeal against the said assessment order, dated 30.12.2011, for assessment year 2008-09 on 30.1.2012 and the same was decided in favour of the petitioner on 25.2.2013. The CIT(A) allowed the appeal except on one issue pertaining to disallowance under Section 14-A of the Act.
(g) The petitioner's case for the assessment year 2009-10 was selected for scrutiny by the respondent under Section 143(2), vide notice dated 23.8.2011. The respondent, vide order dated 22.8.2012, transferred the case of the petitioner for the assessment year 2009-10 to the Additional Commissioner of Income Tax, LTU, Chennai. The assessment for the assessment year 2009-10 was completed by the Addl.C.I.T. on 5.3.2013 and the income of the petitioner was assessed at Rs.1473,42,53,550/- (as per normal provisions of the Act) as against the returned income of Rs.2229,73,15,902/- (under Section 115-JB of the Act) and consequently, a demand of Rs.362,38,85,090/- was raised, vide notice dated 7.3.2013 under Section 156 of the Act, which was received by the petitioner on 11.3.2013, which provided for 30 days' time for payment of the said demand and the said period of 30 days expired on 10.4.2013.
(h) By virtue of the order passed by the C.I.T (Appeals) on 25.2.2013, the petitioner became entitled to refund of Rs.103,09,77,260/-. The respondent has to refund the amount to the assessee automatically in terms of Section 240 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 payments made for purchase of software licence), are similar to that of the one made in assessment year 2008-09, which was eventually decided in favour of the petitioner by CIT(A) and many of the issues being similar, were already decided in favour of the petitioner for the assessment year 2005-06 and 2007-08 by the Income Tax Appellate Tribunal, Chennai, by order dated 23.1.2013 in I.T.A.Nos.114 and 2100 (Mds) of 2011 and I.T.A.No.90(Mds) of 2011. Thus, the demand made by the Additional C.I.T. for the assessment year 2009-10, is untenable.
(k) Even assuming without admitting that the three new and minor issues as stated above, are decided against the petitioner, the total sum of income tax demand payable will only be approximately to an extent of Rs.6,00,00,000/- as against the untenable demand made at Rs.362,38,85,090/-.
(l) Where the demand made is substantially greater than the Returned income, the recovery proceedings are liable to be stayed and where the demand arises out of the issues which have been decided in favour of the assessee in the earlier years by an appellate authority, the same ought to be stayed and such an assessee cannot be treated as being in default in respect of the amount attributable to such disputed amount.
6. The petitioner challenges the impugned order on the ground that it is without jurisdiction and contrary to Sections 240 and 245 of the Act, as the same has been passed by the respondent without intimating in writing to the petitioner. The order of adjustment of refund made by the respondent is bad in law, as the jurisdiction to make adjustment or set-off vests only with the assessing officer who has made the assessment and the consequent demand under Section 156 of the Act and the respondent is not the assessing officer and is not competent to make the order of adjustment of refund and pass the impugned order, which amounts to treating the petitioner as an assessee in default or in arrears when the time limit for payment of the demand for the assessment year 2009-10 has not yet expired. The petitioner assails the impugned order also on the ground that the petitioner is entitled to move a stay petition under Section 220(6) of the Act against the notice of demand made in the assessment year 2009-10 within 30 days from the date of receipt of the notice under Section 156 of the Act; however, by the action of the respondent, 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 of the Act must be followed and written intimation must be sent to the assessee before adjusting refund of the outstanding demand and any lapse in this regard shall be viewed seriously. The petitioner claims balance of convenience in their favour and alleges that prima-facie case is made out and states that grave prejudice and irreparable loss will be caused if the impugned order is allowed to be acted upon.
7. The respondent has filed counter affidavit, inter-alia stating as follows:
(a) The respondent objects to the usage of the term "alleged demand" by the petitioner, as the demand for the assessment year 2009-10 was raised under the provisions of the Act and is very much existing on record and the demand for Rs.362,38,85,090/- raised in the assessment year 2009-10 is a legally enforceable demand as on date, as demand notice was issued along with the assessment order, and the said notice was served on the assessee on 11.3.2013. The averment of the petitioner that the income tax refund of Rs.71,47,53,133/- relating to various assessment years were adjusted against the demand of the assessment year 2008-09 only with the express consent of the petitioner given during the hearing while completing the assessments, is not correct. The refunds due to an assessee can be adjusted against the demands due to the same assessee, as per the provisions of Section 245 of the Act.
(b) While disposing of the assessee's petition for stay of demand raised in assessment year 2008-09, the assessing officer issued order under Section 220(6) of the Act on 6.7.2012, wherein stay was granted for demand of Rs.87,55,83,993/- (Rs.16,00,00,000/- + Rs.71,55,83,993/-) till the disposal of appeal before CIT(Appeal) or 31.12.2012, whichever is earlier. However, it is clearly mentioned in that order that any refund arising to the assessee shall be appropriated against the pending demands without prejudice to that order. Section 220(6) of the Act gives discretionary power to the assessing officer to dispose of a stay petition filed by the assessee and further empowers him to impose such conditions as he may think fit for granting stay of demand.
(c) The respondent does not deny that consequent to the appellate order, the petitioner is entitled to refund of Rs.103,09,77,260/- in the assessment year 2008-09 and as soon as the appellate order for assessment year 2008-09 was received 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 and also to give effect to various appellate orders and collection of demands. The delay in dispatching the intimation about the adjustment of refund, is genuinely regretted, which is only a procedural delay and the act of adjustment of refund against the demand payable, is well within the framework of law.
(e) The averment of the petitioner that the refund due to the petitioner in assessment year 2008-09 was adjusted against the demand raised in assessment year 2009-10 even before the same becoming due, is not acceptable. The demand raised under the Act becomes payable the moment the demand notice is served on the assessee (petitioner). As per Section 220(1) of the Act, the assessee is required to pay the demand specified in demand notice under Section 156 of the Act within 30 days from the date of service of the demand notice and the period of 30 days can further be reduced by the assessing officer if he has any reason to believe that it will be detrimental to the Revenue, if the full period of 30 days is allowed. If the demand is not paid within the period of 30 days, the assessee is liable to pay simple interest @ 1% for every month of default under Section 220(2) of the Act. Hence, the demand raised under the Act is to be paid within 30 days from the date of service of demand notice and the petitioner's contention that the same becomes due for payment only on 10.4.2013, i.e. after the lapse of 30 days from the date of service of demand notice on 11.3.2013, is not correct. If the demand is not paid within the stipulated period of 30 days, the petitioner is liable for penalty under Section 221(1) of the Act. Further, steps for recovery can be initiated as provided in Sections 222 and 226 of the Act. When the petitioner is duty bound to make payment of demand within 30 days, there is nothing wrong on the part of the Department to collect the demand by adjustment of refund within the stipulated period of 30 days. In fact, by adjusting the refund against the demand within the period of 30 days from the date of service of demand notice, the liability of the petitioner to pay interest under Section 220(2) of the Act is reduced to that extent.
(f) The main issue, viz., disallowance of tax holiday benefit on receipt towards software maintenance, was dealt in a different manner in assessment year 2009-10 from the one dealt in assessment year 2008-09. In 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 overseas software maintenance was denied in the assessment order, which resulted in substantial reduction in tax holiday under Section 10-A/10-AA of the Act, i.e. from Rs.2163,35,14,860/- claimed by the assessee-Company to Rs.1004,40,71,894/-. Based on the findings made in the assessment year 2009-10, the order of CIT (Appeals) granting relief to the assessee on the issue of tax holiday on overseas software maintenance was not accepted and it is proposed to file further appeal by the Department before the I.T.A.T.
(h) With regard to the decisions of the appellate authorities in the earlier assessment years, the assessing officer has not accepted these decisions and proposals had already been submitted to the Commissioner for further contesting these appellate decisions in the earlier assessment years to the next higher appellate forum. The order of CIT (A) in assessment year 2008-09 is proposed to be contested before the ITAT and orders of ITAT for assessment years 2005-06 and 2007-08 are proposed to be appealed before this Court under Section 260-A of the Act. The time limit for filing such appeals has not barred and the same will be filed in an appropriate manner after compliance of legal formalities. Thus, the receipt of appellate order in favour of the assessee in the earlier year, would not make demand raised in subsequent year, viz., 2009-10 on similar issues as an untenable one.
(i) As per Instruction No.1914 issued by the CBDT, the assessing officer may grant stay for such demands arising out of issues which were decided in assessee's favour in earlier years. Section 220(6) of the Act empowers the assessing officer to impose such conditions as he may think fit before granting stay against collection of demand. Accordingly, while disposing of assessee's stay petition in assessment year 2008-09, it was clearly stated in the order dated 6.7.2012 that any refund arising to the assessee will be adjusted against the demand irrespective of the stay granted. The stay orders granted by the office of the respondent under Section 220(6) of the Act, invariably contains a clause that refund arising to the assessee shall be adjusted against demand irrespective of the stay order. On similar lines, even if the demand raised in assessment year 2009-10, were to be stayed by the assessing officer, then the refund determined in assessment year 2008-09 would have been 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 Act for assessment year 2009-10, the Additional Commissioner of Income Tax (LTU) shall return the files to the Deputy Commissioner of Income Tax, Large Taxpayer Unit, Chennai, i.e. the respondent. Thus, after completing the assessment proceedings under Section 143(3) of the Act in assessment year 2009-10, vide order dated 7.3.2013, the Additional CIT, LTU has returned the relevant records to the assessing officer, viz., Deputy CIT, LTU and thereafter, refund determined in assessment year 2008-09 was adjusted against the demand raised in assessment year 2009-10.
(k) It is for the assessee to file a stay petition under Section 220(6) of the Act as and when a demand notice is served on them. The Department need not anticipate for any stay petition to be filed by the petitioner. At the time of determination of refund in assessment year 2008-09, no stay petition has been filed by the petitioner against notice of demand in assessment year 2009-10. Hence, the refund determined in assessment year 2008-09 was rightfully adjusted against the demand of assessment year 2009-10.
(l) The demand raised under the provisions of the Act is required to be paid within 30 days from the date of service of notice. It does not mean that no collection can be made till 30th day. In fact, after the lapse of 30 days, the assessee shall be treated to be in default of taxes and is liable for interest under Section 220(2) and penal provisions under Section 221(1) and other recovery proceedings under Section 222 and 226 of the Act. Hence, there is no violation of fundamental rights of the petitioner by collection of demand by adjusting refund determined in the petitioner's case.
(m) Though the assessee relied on various decisions of the Courts, in the instant case, the demand of assessment year 2009-10 is a correct demand raised after completion of assessment proceedings under Section 143(3) of the Act, which is not disputed even by the petitioner. Along with the adjustment of refund through Online, the intimation regarding adjustment was conveyed in the order giving effect to the appellate order in assessment year 2008-09. The delay of a few days in despatching the intimation to the assessee, arising due to the workload of time barring assessments at the end of March 2013, is regretted. However, the refund has been adjusted against a valid demand.
(n) The demand raised in 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 of the impugned order does not arise.
(q) The order dated 22.3.2013 was passed to give effect to the order of CIT (Appeals) for assessment year 2008-09, whereby, refund of Rs.103,09,77,260/- was determined. If this order is quashed, no refund can be issued. Even if the order dated 22.3.2013 is quashed, then a fresh order of refund is to be passed in assessment year 2008-09. In such circumstances, as per provisions of Section 245 of the Act, the demand pending in assessment year 2009-10 needs to be adjusted against the refund, which will be a repetition of what was already done by the Department, which does not serve any purpose. According to the respondent, the Writ Petition is not maintainable and is devoid of merits and hence, the respondent prayed to dismiss the Writ Petition.
8. The respondent has also filed an affidavit, dated 18.4.2013, stating as follows:
(i) A demand of Rs.362,38,85,090/- was raised, vide assessment order, dated 7.3.2013 issued under Section 143(3) of the Act in the petitioner's case relating to the assessment year 2009-10.
(ii) The appellate order of CIT (Appeals), Large Taxpayer Unit, Chennai, relating to the assessment year 2008-09, was received by the respondent's office on 22.3.2013 and that appellate order was given effect to and a refund of Rs.103,09,77,260/- was determined in the petitioner's case, vide order made in PAN: AAACD3312M, dated 22.3.2013.
(iii) The refund of Rs.103,09,77,260/- determined in the assessment year 2008-09, was adjusted against the tax demand relating to the assessment year 2009-10 as per the provisions of Section 245 of the Act and the adjustment of refund against the tax demanded, was done Online on 26.3.2013 and intimation regarding the same was sent to the petitioner thereafter by post.
(iv) Section 245 of the Act stipulates that the assessing officer may adjust the refund against the demand after giving an intimation to the assessee. There is no provision for cancellation of the refund adjustment and the amount adjusted has already been remitted into Government Account and therefore, no refund can be issued once again in assessment year 2008-09.
(v) If the adjustment of refund is cancelled, then it will result in refunding the collection made in assessment year 2009-10, i.e. an amount of Rs.103.09 crores collected out of demand of Rs.362.38 crores may have to be refunded 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 there were certain lapses on the part of the Department in some cases, the CBDT reiterated the position in the subsequent circulars also. Therefore, the learned Senior Counsel appearing for the petitioner submitted that there is non-compliance of the provisions of Section 245 of the Act, as there was no intimation sent to the petitioner-assessee before the impugned adjustment of refund is made by the respondent.
11. On the other hand, the learned Senior Standing Counsel appearing for the respondent-Revenue submitted that it is only to give effect to the order of the Commissioner of Income Tax (Appeals), LTU, Chennai in I.T.A.No.108/11-12/LTU(A), dated 25.2.2013 and the assessment order under Section 143(3) of the Act, dated 30.12.2011 read with rectification order, dated 23.1.2013, the impugned order dated 22.3.2013 has been passed and therefore, the amount due to be paid by the petitioner-assessee has been adjusted towards the demand outstanding for the assessment year 2009-10 and accordingly, Rs.103,09,77,260/- had been adjusted, which was duly intimated to the petitioner-assessee and ultimately, it is the adjustment made towards the due to the Department.
12. I have heard the learned counsel appearing for the parties and perused the material documents available on record.
13. It is seen that the petitioner-Company is an assessee in PAN.No.AAACD3312M and they are engaged in the business of development of computer software and related services and its export and they provide various software solutions to variety of industries. The petitioner carries out their business activities through various units set up in Software Technology Parks (STPs) and Special Economic Zones (SEZs) and claims deduction under Section 10-A and 10-AA of the Act. It is the case of the petitioner that for the assessment year 2008-09, the petitioner filed their Return of income on 29.9.2008 and the same was processed under Section 143(1) of the Act on 8.3.2010. The petitioner's case was selected for scrutiny by the Assistant Commissioner of Income Tax under Section 143(2) of the Act on 12.8.2009 and the details were called for by the respondent under Section 142(1) of the Act on 26.8.2011 and the petitioner claims that detailed submissions were made by the petitioner before the respondent from time to time.
14. The petitioner's case was referred to the Transfer Pricing Officer for 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/-) pending disposal of the appeal before the Commissioner of Income Tax (Appeals) or until 31.12.2012, whichever is earlier. The petitioner remitted an amount of Rs.25,22,00,000/- on 24.2.2012 and the respondent adjusted income tax refund of RS.71,47,53,133/- relating to various assessment years on various dates only with express consent of the petitioner given during the hearing while completing the assessments. Thereafter, the petitioner on 17.12.2012, requested for extension of stay of demand till the disposal of the appeal by CIT(A).
16. The petitioner filed an appeal against the said assessment order dated 30.12.2011 for the assessment year 2008-09 on 30.1.2012 and the same was decided in favour of the petitioner on 25.2.2013. The CIT(A) allowed the appeal except on one issue pertaining to disallowance under Section 14-A of the Act. The assessment for the assessment year 2009-10 was completed by the Additional C.I.T. on 5.3.2013 and the income of the petitioner was assessed at Rs.1473,42,53,550/- as against the Returned income of Rs.2229,73,15,902/- under Section 115-JB of the Act, and consequently, a demand of Rs.362,38,85,090/- was raised, vide notice dated 7.3.2013 under Section 156 of the Act, which was received by the petitioner-assessee on 11.3.2013, which provided for a period of 30 days' time for payment of the said demand.
17. By virtue of the order passed by the CIT (A) on 25.2.2013, the petitioner became entitled to refund of Rs.103,09,77,260/- and as per the contention of the petitioner, the respondent has to refund the said amount to the assessee automatically in terms of Sections 240 of the Act and that under Section 245 of the Act, the respondent can set-off the same only after giving intimation in writing to the petitioner; but, by the impugned order dated 22.3.2013, the respondent set-off the said refund amount of Rs.103,09,77,260/- in respect of the demand of Rs.362,38,85,090/- made for the assessment year 2009-10. The respondent ultimately passed the impugned order, dated 22.3.2013 by giving effect to the order of the CIT (Appeals), LTU, Chennai, in I.T.A.No.108/11-12/LTU(A), dated 25.2.2013 and modifying the assessment order under Section 143(3), dated 30.12.2011 read with rectification order, dated 23.1.2013, and challenging the said order, dated 22.3.2013, the Writ Petition is filed by the petitioner.
18. The only question that arises 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, 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. (emphasis supplied).
21. On a perusal of the entire material documents including the impugned order, it is clearly evident that there is no intimation in writing to the petitioner-assessee before making such an adjustment of refund. No doubt, the respondent is empowered to make the adjustment of refund, but the same can be done only in the manner as contemplated under the provisions of the Act. It is conspicuous from the 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.
22. For the foregoing reaasonings, the impugned order is set aside. The Writ Petition is allowed and the matter is remanded back to the respondent for compliance of Section 245 of the Act, and thereafter, the respondent is at liberty to adjust the refund amount payable to the petitioner with the amount payable for the respective assessment year, in accordance with law. Such an exercise shall be completed by the respondent within a period of four weeks from the date of receipt of a copy of this order. No costs. The Miscellaneous Petition is closed.
cs
To
The Deputy Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai 600 101
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 30.4.2013
CORAM:
THE HONOURABLE MR.JUSTICE V.DHANAPALAN
W.P.No.8571 of 2013
&
M.P.No.1 of 2013
M/s.Cognizant Technology Solutions India P. Ltd.,
6th Floor, New No.165/Old No.110,
Menon Eternity Building,
St.Mary's Road,
Chennai-600 018
represented by its Director .. Petitioner
Vs.
The Deputy Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai-600 101. .. Respondent
Writ Petition filed under Article 226 of the Constitution of India, praying for issuance of a Writ of Certiorarified Mandamus to call for the records and
quash the impugned order made in PAN AAACD3312M, dated 22.3.2013 passed by the respondent herein for Assessment Year 2008-09 in so far as it seeks to adjust the refund of Rs.103,09,77,260/- as against the alleged demand outstanding for Assessment Year 2009-10 and
consequently direct the respondent herein to refund the aforesaid sum of Rs.103,09,77,260/- under Section 240 of the Income Tax Act, 1961 together with interest thereon as may be payable under Section 244/244-A of the Act.
For petitioner : Mr.Arvind P.Datar, Senior Counsel
assisted by Mr.Sandeep Bagmar.R
For 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 Senior Standing Counsel appearing for the respondent-Income Tax Department.
4. The petitioner calls in question the order made in PAN AAACD3312M, dated 22.3.2013 passed by the respondent herein for Assessment Year 2008-09 in so far as it seeks to adjust the refund of Rs.103,09,77,260/- as against the alleged demand outstanding for Assessment Year 2009-10, seeking to quash the same and consequently direct the respondent herein to refund the aforesaid sum of Rs.103,09,77,260/- under Section 240 of the Income Tax Act, 1961 (for short, 'the Act') together with interest thereon as may be payable under Section 244/244-A of the Act.
5. The case of the petitioner is as follows:
(a) The petitioner is a Private Limited Company incorporated under the Companies Act, 1956 and engaged in the business of development of computer software and related services and its export and provides various software solutions to variety of industries.
The petitioner carries out its business activities through various units set up in Software Technology Parks (STPs) and Special Economic Zones (SEZs) and claims deduction under Section 10-A and 10-AA of the Act.
(b) For the assessment year 2008-09, the petitioner filed their Return of income on 29.9.2008, which was processed under Section 143(1) of the Act on 8.3.2010. The petitioner's case was selected for scrutiny by the Assistant Commissioner of Income Tax under Section 143(2) of the Act on 12.8.2009 and details were called for by the respondent under Section 142(1) of the Act on 26.8.2011, for which, detailed submissions were made by the petitioner before the respondent from time to time.
(c) The petitioner's case was referred to the Transfer Pricing Officer for 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 order dated 11.10.2011, accepted the arm's length price of the transactions of the petitioner-Company with that of their group companies abroad. Consequently, no transfer pricing adjustments were made by the respondent.
(d) 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 following items had been disallowed:
(i) Disallowance of excess claim of 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 returned income of Rs.93,54,87,072/- and
consequently, a demand of Rs.181,37,25,560/- was raised, vide demand notice, dated 31.12.2011 under Section 156 of the Act.
(e) Pursuant to the said demand notice, 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.71,55,83,993/- pending disposal of the appeal before the Commissioner of Income Tax (Appeals) (i.e. for short, 'CIT(A)') or until 31.12.2012 whichever is earlier.
The petitioner remitted Rs.25,22,00,000/- on 24.2.2012 and the respondent adjusted income tax refund of Rs.71,47,53,133/- relating to various assessment years on various dates only with express consent of the petitioner given during the hearing while completing the assessment, and thereafter, on 17.12.2012, the petitioner requested for extension of stay of demand till the disposal of appeal by CIT(A).
(f) The petitioner filed an appeal against the said assessment order, dated 30.12.2011, for assessment year 2008-09 on 30.1.2012 and the same was decided in favour of the petitioner on 25.2.2013. The CIT(A) allowed the appeal except on one issue pertaining to disallowance under Section 14-A of the Act.
(g) The petitioner's case for the assessment year 2009-10 was selected for scrutiny by the respondent under Section 143(2), vide notice dated 23.8.2011. The respondent, vide order dated 22.8.2012, transferred the case of the petitioner for the assessment year 2009-10 to the Additional Commissioner of Income Tax, LTU, Chennai. The assessment for the assessment year 2009-10 was completed by the Addl.C.I.T. on 5.3.2013 and the income of the petitioner was assessed at Rs.1473,42,53,550/- (as per normal provisions of the Act) as against the returned income of Rs.2229,73,15,902/- (under Section 115-JB of the Act) and consequently, a demand of Rs.362,38,85,090/- was raised, vide notice dated 7.3.2013 under Section 156 of the Act, which was received by the petitioner on 11.3.2013, which provided for 30 days' time for payment of the said demand and the said period of 30 days expired on 10.4.2013.
(h) By virtue of the order passed by the C.I.T (Appeals) on 25.2.2013, the petitioner became entitled to refund of Rs.103,09,77,260/-. The respondent has to refund the amount to the assessee automatically in terms of Section 240 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 payments made for purchase of software licence), are similar to that of the one made in assessment year 2008-09, which was eventually decided in favour of the petitioner by CIT(A) and many of the issues being similar, were already decided in favour of the petitioner for the assessment year 2005-06 and 2007-08 by the Income Tax Appellate Tribunal, Chennai, by order dated 23.1.2013 in I.T.A.Nos.114 and 2100 (Mds) of 2011 and I.T.A.No.90(Mds) of 2011. Thus, the demand made by the Additional C.I.T. for the assessment year 2009-10, is untenable.
(k) Even assuming without admitting that the three new and minor issues as stated above, are decided against the petitioner, the total sum of income tax demand payable will only be approximately to an extent of Rs.6,00,00,000/- as against the untenable demand made at Rs.362,38,85,090/-.
(l) Where the demand made is substantially greater than the Returned income, the recovery proceedings are liable to be stayed and where the demand arises out of the issues which have been decided in favour of the assessee in the earlier years by an appellate authority, the same ought to be stayed and such an assessee cannot be treated as being in default in respect of the amount attributable to such disputed amount.
6. The petitioner challenges the impugned order on the ground that it is without jurisdiction and contrary to Sections 240 and 245 of the Act, as the same has been passed by the respondent without intimating in writing to the petitioner. The order of adjustment of refund made by the respondent is bad in law, as the jurisdiction to make adjustment or set-off vests only with the assessing officer who has made the assessment and the consequent demand under Section 156 of the Act and the respondent is not the assessing officer and is not competent to make the order of adjustment of refund and pass the impugned order, which amounts to treating the petitioner as an assessee in default or in arrears when the time limit for payment of the demand for the assessment year 2009-10 has not yet expired. The petitioner assails the impugned order also on the ground that the petitioner is entitled to move a stay petition under Section 220(6) of the Act against the notice of demand made in the assessment year 2009-10 within 30 days from the date of receipt of the notice under Section 156 of the Act; however, by the action of the respondent, 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 of the Act must be followed and written intimation must be sent to the assessee before adjusting refund of the outstanding demand and any lapse in this regard shall be viewed seriously. The petitioner claims balance of convenience in their favour and alleges that prima-facie case is made out and states that grave prejudice and irreparable loss will be caused if the impugned order is allowed to be acted upon.
7. The respondent has filed counter affidavit, inter-alia stating as follows:
(a) The respondent objects to the usage of the term "alleged demand" by the petitioner, as the demand for the assessment year 2009-10 was raised under the provisions of the Act and is very much existing on record and the demand for Rs.362,38,85,090/- raised in the assessment year 2009-10 is a legally enforceable demand as on date, as demand notice was issued along with the assessment order, and the said notice was served on the assessee on 11.3.2013. The averment of the petitioner that the income tax refund of Rs.71,47,53,133/- relating to various assessment years were adjusted against the demand of the assessment year 2008-09 only with the express consent of the petitioner given during the hearing while completing the assessments, is not correct. The refunds due to an assessee can be adjusted against the demands due to the same assessee, as per the provisions of Section 245 of the Act.
(b) While disposing of the assessee's petition for stay of demand raised in assessment year 2008-09, the assessing officer issued order under Section 220(6) of the Act on 6.7.2012, wherein stay was granted for demand of Rs.87,55,83,993/- (Rs.16,00,00,000/- + Rs.71,55,83,993/-) till the disposal of appeal before CIT(Appeal) or 31.12.2012, whichever is earlier. However, it is clearly mentioned in that order that any refund arising to the assessee shall be appropriated against the pending demands without prejudice to that order. Section 220(6) of the Act gives discretionary power to the assessing officer to dispose of a stay petition filed by the assessee and further empowers him to impose such conditions as he may think fit for granting stay of demand.
(c) The respondent does not deny that consequent to the appellate order, the petitioner is entitled to refund of Rs.103,09,77,260/- in the assessment year 2008-09 and as soon as the appellate order for assessment year 2008-09 was received 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 and also to give effect to various appellate orders and collection of demands. The delay in dispatching the intimation about the adjustment of refund, is genuinely regretted, which is only a procedural delay and the act of adjustment of refund against the demand payable, is well within the framework of law.
(e) The averment of the petitioner that the refund due to the petitioner in assessment year 2008-09 was adjusted against the demand raised in assessment year 2009-10 even before the same becoming due, is not acceptable. The demand raised under the Act becomes payable the moment the demand notice is served on the assessee (petitioner). As per Section 220(1) of the Act, the assessee is required to pay the demand specified in demand notice under Section 156 of the Act within 30 days from the date of service of the demand notice and the period of 30 days can further be reduced by the assessing officer if he has any reason to believe that it will be detrimental to the Revenue, if the full period of 30 days is allowed. If the demand is not paid within the period of 30 days, the assessee is liable to pay simple interest @ 1% for every month of default under Section 220(2) of the Act. Hence, the demand raised under the Act is to be paid within 30 days from the date of service of demand notice and the petitioner's contention that the same becomes due for payment only on 10.4.2013, i.e. after the lapse of 30 days from the date of service of demand notice on 11.3.2013, is not correct. If the demand is not paid within the stipulated period of 30 days, the petitioner is liable for penalty under Section 221(1) of the Act. Further, steps for recovery can be initiated as provided in Sections 222 and 226 of the Act. When the petitioner is duty bound to make payment of demand within 30 days, there is nothing wrong on the part of the Department to collect the demand by adjustment of refund within the stipulated period of 30 days. In fact, by adjusting the refund against the demand within the period of 30 days from the date of service of demand notice, the liability of the petitioner to pay interest under Section 220(2) of the Act is reduced to that extent.
(f) The main issue, viz., disallowance of tax holiday benefit on receipt towards software maintenance, was dealt in a different manner in assessment year 2009-10 from the one dealt in assessment year 2008-09. In 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 overseas software maintenance was denied in the assessment order, which resulted in substantial reduction in tax holiday under Section 10-A/10-AA of the Act, i.e. from Rs.2163,35,14,860/- claimed by the assessee-Company to Rs.1004,40,71,894/-. Based on the findings made in the assessment year 2009-10, the order of CIT (Appeals) granting relief to the assessee on the issue of tax holiday on overseas software maintenance was not accepted and it is proposed to file further appeal by the Department before the I.T.A.T.
(h) With regard to the decisions of the appellate authorities in the earlier assessment years, the assessing officer has not accepted these decisions and proposals had already been submitted to the Commissioner for further contesting these appellate decisions in the earlier assessment years to the next higher appellate forum. The order of CIT (A) in assessment year 2008-09 is proposed to be contested before the ITAT and orders of ITAT for assessment years 2005-06 and 2007-08 are proposed to be appealed before this Court under Section 260-A of the Act. The time limit for filing such appeals has not barred and the same will be filed in an appropriate manner after compliance of legal formalities. Thus, the receipt of appellate order in favour of the assessee in the earlier year, would not make demand raised in subsequent year, viz., 2009-10 on similar issues as an untenable one.
(i) As per Instruction No.1914 issued by the CBDT, the assessing officer may grant stay for such demands arising out of issues which were decided in assessee's favour in earlier years. Section 220(6) of the Act empowers the assessing officer to impose such conditions as he may think fit before granting stay against collection of demand. Accordingly, while disposing of assessee's stay petition in assessment year 2008-09, it was clearly stated in the order dated 6.7.2012 that any refund arising to the assessee will be adjusted against the demand irrespective of the stay granted. The stay orders granted by the office of the respondent under Section 220(6) of the Act, invariably contains a clause that refund arising to the assessee shall be adjusted against demand irrespective of the stay order. On similar lines, even if the demand raised in assessment year 2009-10, were to be stayed by the assessing officer, then the refund determined in assessment year 2008-09 would have been 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 Act for assessment year 2009-10, the Additional Commissioner of Income Tax (LTU) shall return the files to the Deputy Commissioner of Income Tax, Large Taxpayer Unit, Chennai, i.e. the respondent. Thus, after completing the assessment proceedings under Section 143(3) of the Act in assessment year 2009-10, vide order dated 7.3.2013, the Additional CIT, LTU has returned the relevant records to the assessing officer, viz., Deputy CIT, LTU and thereafter, refund determined in assessment year 2008-09 was adjusted against the demand raised in assessment year 2009-10.
(k) It is for the assessee to file a stay petition under Section 220(6) of the Act as and when a demand notice is served on them. The Department need not anticipate for any stay petition to be filed by the petitioner. At the time of determination of refund in assessment year 2008-09, no stay petition has been filed by the petitioner against notice of demand in assessment year 2009-10. Hence, the refund determined in assessment year 2008-09 was rightfully adjusted against the demand of assessment year 2009-10.
(l) The demand raised under the provisions of the Act is required to be paid within 30 days from the date of service of notice. It does not mean that no collection can be made till 30th day. In fact, after the lapse of 30 days, the assessee shall be treated to be in default of taxes and is liable for interest under Section 220(2) and penal provisions under Section 221(1) and other recovery proceedings under Section 222 and 226 of the Act. Hence, there is no violation of fundamental rights of the petitioner by collection of demand by adjusting refund determined in the petitioner's case.
(m) Though the assessee relied on various decisions of the Courts, in the instant case, the demand of assessment year 2009-10 is a correct demand raised after completion of assessment proceedings under Section 143(3) of the Act, which is not disputed even by the petitioner. Along with the adjustment of refund through Online, the intimation regarding adjustment was conveyed in the order giving effect to the appellate order in assessment year 2008-09. The delay of a few days in despatching the intimation to the assessee, arising due to the workload of time barring assessments at the end of March 2013, is regretted. However, the refund has been adjusted against a valid demand.
(n) The demand raised in 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 of the impugned order does not arise.
(q) The order dated 22.3.2013 was passed to give effect to the order of CIT (Appeals) for assessment year 2008-09, whereby, refund of Rs.103,09,77,260/- was determined. If this order is quashed, no refund can be issued. Even if the order dated 22.3.2013 is quashed, then a fresh order of refund is to be passed in assessment year 2008-09. In such circumstances, as per provisions of Section 245 of the Act, the demand pending in assessment year 2009-10 needs to be adjusted against the refund, which will be a repetition of what was already done by the Department, which does not serve any purpose. According to the respondent, the Writ Petition is not maintainable and is devoid of merits and hence, the respondent prayed to dismiss the Writ Petition.
8. The respondent has also filed an affidavit, dated 18.4.2013, stating as follows:
(i) A demand of Rs.362,38,85,090/- was raised, vide assessment order, dated 7.3.2013 issued under Section 143(3) of the Act in the petitioner's case relating to the assessment year 2009-10.
(ii) The appellate order of CIT (Appeals), Large Taxpayer Unit, Chennai, relating to the assessment year 2008-09, was received by the respondent's office on 22.3.2013 and that appellate order was given effect to and a refund of Rs.103,09,77,260/- was determined in the petitioner's case, vide order made in PAN: AAACD3312M, dated 22.3.2013.
(iii) The refund of Rs.103,09,77,260/- determined in the assessment year 2008-09, was adjusted against the tax demand relating to the assessment year 2009-10 as per the provisions of Section 245 of the Act and the adjustment of refund against the tax demanded, was done Online on 26.3.2013 and intimation regarding the same was sent to the petitioner thereafter by post.
(iv) Section 245 of the Act stipulates that the assessing officer may adjust the refund against the demand after giving an intimation to the assessee. There is no provision for cancellation of the refund adjustment and the amount adjusted has already been remitted into Government Account and therefore, no refund can be issued once again in assessment year 2008-09.
(v) If the adjustment of refund is cancelled, then it will result in refunding the collection made in assessment year 2009-10, i.e. an amount of Rs.103.09 crores collected out of demand of Rs.362.38 crores may have to be refunded 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 there were certain lapses on the part of the Department in some cases, the CBDT reiterated the position in the subsequent circulars also. Therefore, the learned Senior Counsel appearing for the petitioner submitted that there is non-compliance of the provisions of Section 245 of the Act, as there was no intimation sent to the petitioner-assessee before the impugned adjustment of refund is made by the respondent.
11. On the other hand, the learned Senior Standing Counsel appearing for the respondent-Revenue submitted that it is only to give effect to the order of the Commissioner of Income Tax (Appeals), LTU, Chennai in I.T.A.No.108/11-12/LTU(A), dated 25.2.2013 and the assessment order under Section 143(3) of the Act, dated 30.12.2011 read with rectification order, dated 23.1.2013, the impugned order dated 22.3.2013 has been passed and therefore, the amount due to be paid by the petitioner-assessee has been adjusted towards the demand outstanding for the assessment year 2009-10 and accordingly, Rs.103,09,77,260/- had been adjusted, which was duly intimated to the petitioner-assessee and ultimately, it is the adjustment made towards the due to the Department.
12. I have heard the learned counsel appearing for the parties and perused the material documents available on record.
13. It is seen that the petitioner-Company is an assessee in PAN.No.AAACD3312M and they are engaged in the business of development of computer software and related services and its export and they provide various software solutions to variety of industries. The petitioner carries out their business activities through various units set up in Software Technology Parks (STPs) and Special Economic Zones (SEZs) and claims deduction under Section 10-A and 10-AA of the Act. It is the case of the petitioner that for the assessment year 2008-09, the petitioner filed their Return of income on 29.9.2008 and the same was processed under Section 143(1) of the Act on 8.3.2010. The petitioner's case was selected for scrutiny by the Assistant Commissioner of Income Tax under Section 143(2) of the Act on 12.8.2009 and the details were called for by the respondent under Section 142(1) of the Act on 26.8.2011 and the petitioner claims that detailed submissions were made by the petitioner before the respondent from time to time.
14. The petitioner's case was referred to the Transfer Pricing Officer for 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/-) pending disposal of the appeal before the Commissioner of Income Tax (Appeals) or until 31.12.2012, whichever is earlier. The petitioner remitted an amount of Rs.25,22,00,000/- on 24.2.2012 and the respondent adjusted income tax refund of RS.71,47,53,133/- relating to various assessment years on various dates only with express consent of the petitioner given during the hearing while completing the assessments. Thereafter, the petitioner on 17.12.2012, requested for extension of stay of demand till the disposal of the appeal by CIT(A).
16. The petitioner filed an appeal against the said assessment order dated 30.12.2011 for the assessment year 2008-09 on 30.1.2012 and the same was decided in favour of the petitioner on 25.2.2013. The CIT(A) allowed the appeal except on one issue pertaining to disallowance under Section 14-A of the Act. The assessment for the assessment year 2009-10 was completed by the Additional C.I.T. on 5.3.2013 and the income of the petitioner was assessed at Rs.1473,42,53,550/- as against the Returned income of Rs.2229,73,15,902/- under Section 115-JB of the Act, and consequently, a demand of Rs.362,38,85,090/- was raised, vide notice dated 7.3.2013 under Section 156 of the Act, which was received by the petitioner-assessee on 11.3.2013, which provided for a period of 30 days' time for payment of the said demand.
17. By virtue of the order passed by the CIT (A) on 25.2.2013, the petitioner became entitled to refund of Rs.103,09,77,260/- and as per the contention of the petitioner, the respondent has to refund the said amount to the assessee automatically in terms of Sections 240 of the Act and that under Section 245 of the Act, the respondent can set-off the same only after giving intimation in writing to the petitioner; but, by the impugned order dated 22.3.2013, the respondent set-off the said refund amount of Rs.103,09,77,260/- in respect of the demand of Rs.362,38,85,090/- made for the assessment year 2009-10. The respondent ultimately passed the impugned order, dated 22.3.2013 by giving effect to the order of the CIT (Appeals), LTU, Chennai, in I.T.A.No.108/11-12/LTU(A), dated 25.2.2013 and modifying the assessment order under Section 143(3), dated 30.12.2011 read with rectification order, dated 23.1.2013, and challenging the said order, dated 22.3.2013, the Writ Petition is filed by the petitioner.
18. The only question that arises 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, 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. (emphasis supplied).
21. On a perusal of the entire material documents including the impugned order, it is clearly evident that there is no intimation in writing to the petitioner-assessee before making such an adjustment of refund. No doubt, the respondent is empowered to make the adjustment of refund, but the same can be done only in the manner as contemplated under the provisions of the Act. It is conspicuous from the 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.
22. For the foregoing reaasonings, the impugned order is set aside. The Writ Petition is allowed and the matter is remanded back to the respondent for compliance of Section 245 of the Act, and thereafter, the respondent is at liberty to adjust the refund amount payable to the petitioner with the amount payable for the respective assessment year, in accordance with law. Such an exercise shall be completed by the respondent within a period of four weeks from the date of receipt of a copy of this order. No costs. The Miscellaneous Petition is closed.
cs
To
The Deputy Commissioner of Income Tax,
Large Taxpayer Unit,
1775, Jawaharlal Nehru Inner Ring Road,
Anna Nagar Western Extension,
Chennai 600 101
