Hindustan Unilever Limited v. Deputy Commissioner Of Income Tax 1(1),Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO. O. C. J. WRIT PETITION (L) NO.700 OF 2010WITH WRIT PETITION (L) NO.704 OF 2010 Hindustan Unilever Limited. ...Petitioner. Vs. Deputy Commissioner of Income Tax 1(1),Mumbai & Ors. ...Respondents. .... Mr. Percy J.Pardiwala, Sr.Advocate with Mr.Nishant Thakkar and Mr.Rajesh Poojari i/b. M/s.Mulla & Mulla & CBC for the Petitioner.Mr. Vimal Gupta with Mr.Suresh Kumar for Respondents. ..... CORAM : DR.D.Y.CHANDRACHUD AND J.P.DEVADHAR, JJ. April 28, 2010. P.C. : By an order dated 24 March 2008, a penalty was imposed on the Petitioner by the Additional Commissioner of Income Tax (TDS), under Section 271-C of the Income Tax Act, 1961, on the ground that the Petitioner had failed to deduct tax at source amounting to Rs.6.24 crores on payments made to various parties for the purchase of goods and packing material in accordance with the specifications laid down by the Petitioner. The penalty that was imposed was in the amount of Rs.6.24 crores for Assessment Year 2004-05. A similar order was passed in respect of Assessment Year 2005-06 on 25 March 2009 where the penalty under Section 271-C was in the amount of Rs.18.99 crores. The Petitioner filed appeals before the CIT(A) together with applications for stay under Section 220(6) before the Assessing Officer. For Assessment Year 2007-08 a refund was determined as being due and payable to the Petitioner in the amount of Rs.16.31 crores following an order of assessment. The appeals filed by the Petitioner were dismissed by the Commissioner (Appeals) on 29 January 2010, though according to the Petitioner service of the impugned order was effected on 24 February 2010. On 15 February 2010, a notice was issued to the Petitioner under Section 245 of the Income Tax Act, 1961 proposing to set off the outstanding demand for Assessment Year 2004-05 in the amount of Rs.5.93 crores and for Assessment Year 2005-06 in the amount of Rs.18.99 crores (amounting in all to Rs.24.92 crores) against the refund of Rs.16.31 crores determined for 2007-08. The Petitioner filed its objection to the proposed set off of a refund against the demands for Assessment Years 2004-05 and 2005-06. Consequent upon the dismissal of the appeals by the Commissioner (Appeals), the applications for stay were disposed of by the Assessing Officer. Thereafter, on 2[nd] March 2010, the objection filed by the Petitioner to the setting off of the refund against the demands for Assessment Years 2004-05 and 2005-06 was also disposed of. Effect was given under Section 245 immediately thereafter. 2.At the present stage, the Court has been informed that the quantum appeals filed by the Petitioner against the dismissal of the appeals for Assessment Years 2004-05 and 2005-06 were heard for final disposal by the Income Tax Appellate Tribunal on 12 April 2010 and judgment has been reserved. In so far as the penalty under Section 271-C is concerned, this Court has been informed that appeals have been filed before the Tribunal and are pending. The grievance of the Petitioner relates to the manner in which the set off came to be effected under Section 245. The Petitioner has inter alia relied upon the circumstance that the Tribunal has, as a matter of fact, decided the issue of whether the Petitioner was liable to deduct tax at source on packing material purchased by the Petitioner to its specifications. The decision of the Ahmedabad Bench of the Tribunal dated 16 August 2005 pertains to Assessment Years 2000-01 to 2003-04 and was to the effect that the Petitioner, in purchasing packing material, was not liable to deduct tax at source under Section 194-C since there was no contract of works involved. This was confirmed by the Gujarat High Court on 19 December 2006 in Tax Appeals 494 to 499 of 2006. A Special Leave Petition filed against the decision of the Gujarat High Court was dismissed by the Supreme Court on 7 May 2007 (SLP (Civil) 4275 of 2007). The grievance of the Petitioner is that this aspect was not dealt with by the Commissioner (Appeals) in deciding the quantum appeals. It has also been urged before the Court that in this view of the matter, there was no justification for setting off the refund which was due to the Petitioner for Assessment Year 2007-08 against demands for Assessment Years 2004-05 and 2005-06. On the other hand, it has been urged on behalf to the Revenue that the adjustment was carried out strictly in accordance with the provisions of Section 245. 3.At this stage, it is not appropriate or proper for the Court to express any view on the merits of the contention of the Petitioner on whether tax was not liable to be deducted at source or otherwise under Section 194-C since the quantum appeals which arise out of the decision of the Commissioner (Appeals) have been heard by the Tribunal and a judgment is awaited. In the meantime, as already noted earlier, out of the total demand of Rs.24.92 crores for Assessment Years 2004-05 and 2005-06, the refund due to the Petitioner in the amount of Rs.16.31 crores for Assessment Year 2007-08 has been adjusted. The balance which is outstanding is Rs.8.77 crores. We consider it appropriate in the interests of justice to direct that the appeals that have been filed by the Petitioner against the orders passed by the Commissioner (Appeals) arising out of the imposition of the penalty under Section 271-C should be disposed of expeditiously by the Tribunal and preferably within a period of eight weeks of the date on which a certified copy of the order passed by this Court is placed on the record of the Tribunal. We order accordingly. In so far as the balance demand of Rs.8.77 crores is concerned, having regard to all the facts and circumstances of the case, including in particular, the circumstance that the order of the Ahmedabad Bench of the Tribunal in the case of the Petitioner, involving a similar issue, was confirmed by the Gujarat High Court and a Special Leave Petition preferred there against, came to be dismissed by the Supreme Court, we deem it appropriate to direct that the demand to the aforesaid extent shall not be enforced until the appeals before the Tribunal are heard and finally disposed of. We, however, clarify that we have not expressed any conclusive view, one way or other, on the merits of the rival contentions which would arise the in the appeals, including on the question as to whether as urged by the Petitioner, it had a reasonable cause within the meaning of Section 273-B. All these questions are kept open to be urged before and decided by the Tribunal. The Petitions shall stand disposed of in the aforesaid terms. There shall be no order as to costs. ( Dr.D.Y.Chandrachud, J.) ( J.P.Devadhar, J.)