M/S Graphite India Ltd v. Dy. Commissioner Of Income Tax

OD 1 ORDER SHEET WPO 113 of 2018IN THE HIGH COURT AT CALCUTTACONSTITUTIONAL WRIT JURISDICTIONORIGINAL SIDE M/S GRAPHITE INDIA LTD Vs DY. COMMISSIONER OF INCOME TAX, CIRCLE 11(1) KOLKATA & ORS. BEFORE: The Hon’ble JUSTICE MD. NIZAMUDDIN Date : 15[th] February, 2022(Via Video Conference) Mr. Somak Basu, Adv.…for the petitionerMr. S.N. Dutta, Adv.…for the respondents The Court: Heard learned advocates appearing for the parties. In this matter petitioner has challenged the impugned action ofthe assessing officer making adjustment of the demand in questionunder Section 245 of the Income Tax Act, 1961 for the assessmentyear 2015-16 with the refund for assessment year 2008-09 withoutdisposing the objection to the intimation of proposal to makeadjustment under Section 245 of the Act and without disposing theapplication of the petitioner under Section 220 (6) in connection withthe demand arising out of the assessment order relating toassessment year 2015-16 during the pendency of appeal before theCIT (Appeals) against the said assessment. On perusal of relevant record and considering the facts of thiscase I am of the view that the following two legal questions arise inthis writ petition : (i)Whether impugned action of the assessing officer underSection 245 of the Income Tax Act, 1961 makingadjustment of the demand for the assessment year 2015-16with the refund for the assessment year 2008-09 withoutconsidering and disposing of the objection of the petitioneragainst the intimation of proposal to make adjustmentunder Section 245 of the said Act and without affordingany opportunity of hearing to the petitioner and withoutpassing a formal order of his satisfaction that the assesseepetitioner will not be in a position to satisfy the demand fortax in question and the tax amount cannot be recovered atall, is legal and valid ? (ii)Whether impugned action of the respondent assessingofficer making adjustment of the whole amount of demandrelating to assessment year 2015-16 under Section 245 ofthe Act and which is admittedly in excess of 20% of thedemand in question, from the refund of assessment year2008-09, during the pendency of the appeal against theassessment order for the assessment year 2015-16,without disposing and passing any formal order on theapplication of the assessee petitioner under Section 220 (6)of the Act, is contrary to and inconsistent with the office memorandum F. No. 404/72/93-ITCC dated 29[th] February,2016 and the office memorandum F. No. 404/72/93-ITCCdated 31[st] July, 2017 issued by the Central Board of DirectTaxes ? Brief facts involved in this writ petition are as hereunder : On 29[th] December, 2017 the assessing officer passed assessmentorder under Section 143 (3) of the Act relating to assessment year2015-16 and the petitioner preferred an appeal against the samebefore the CIT (Appeals). The petitioner also filed an application underSection 220 (6) of the Act on 29[th] January, 2018 before theRespondent assessing officer concerned for not treating theassessee/petitioner as assessee in default relating to demand inquestion arising out of the assessment order passed relating toassessment year 2015-16. It appears from record that the respondentno. 1 issued an intimation on 12[th] March, 2018 under Section 245 ofthe Act proposing to adjust the demand relating to assessment year2015-16 from the refund of the assessment year 2008-09 and againstsuch intimation petitioner had filed its objection before the respondentno. 1 and also filed the instant writ petition being aggrieved by theaforesaid impugned order of intimation. It appears from record thatduring the pendency of the writ petition petitioner received income taxrefund order advice from the State Bank of India relating to refundadjustment, without considering and disposing of the objection of thepetitioner against the aforesaid impugned intimation of proposal foradjustment and without disposing and passing any formal order on application of the petitioner under Section 220 (6) of the Act which isan admitted fact. It also appears from record that during pendency ofappeal the amount which has been adjusted for the assessment year2015-16 from the refund of assessment year 2008-09 is more than20% of the demand raised in the assessment order relating toassessment year 2015-16. Petitioner submits that such action of the respondent assessingofficer in making adjustment in question without disposing itsobjection to the intimation under Section 245 of the Act and withoutdisposing its application under Section 220 (6) of the Act is bad andnot sustainable in the eye of law. In support of his contention learned advocate appearing for thepetitioner relies on a decision of the Division Bench of Delhi HighCourt in the case of “Glaxo Smith Kline Asia P. Ltd. vs. Commissionerof Income-Tax and Ors.” reported in 290 ITR 35 and particularly onplacitum 26 and 28 of the said decision which are as follows : “26.In our view, the power under section 245 of the act, is adiscretionary power given to each of the tax officers in the higherechelons to “set off the amount to be refunded on or any part ofthat amount against the same, if any, remaining payable underthis Act by the person to whom the refund is due.” That thispower is discretionary and not mandatory is indicated by theword “may”. Secondly, the set off is in lieu of payment of refund.Thirdly, before invoking the power, the officer is expected to givean intimation in writing to the assessee to whom the refund is due informing him of the action proposed to be taken under thissection. * * * * 28.As already noticed, this discretionary power has to beexercised after giving an opportunity to the assessee of beingheard preceded by an intimation to the assessee in writing of theaction proposed to be taken under section 245. A further implicitrequirement is that the Revenue will have to be satisfied that theassessee will not be in a position to satisfy the demand of tax andthat but for the set off, the outstanding tax amount cannot berecovered at all.” Similar view has been taken by the Delhi High Court in the case of“Oriental Insurance Co. Ltd. vs. Deputy Commissioner of Income-tax”reported in 229 Taxman 521 (Delhi). Petitioner has also relied on anunreported decision of Delhi High Court dated 3[rd] August, 2021 in thecase of “Eko India Financial Services Private Limited vs. AssistantCommissioner of Income Tax Circle 7(1) & Anr.” in W.P. (C)5819/2021 and particularly on paragraphs 10,11,12 and 13 whichare quoted hereinbelow : “10.Having heard learned counsel for the parties, this Court isof the view that the Government is bound to follow the rules andstandards they themselves had set on pain of their action beinginvalidated. [See : Amrit Singh Ahluwalia vs. State of Punjab& Ors. 1975 (3) SCR 82 and Ramana Dayaram Shetty vs. International Airport Authority of India & Ors. 1979 SCR (3) 1014]. 11.This Court is also of the view that the office memorandumdated 29[th] February, 2016 read with office memorandum dated25[th] August, 2017 stipulate that the Assessing Officer shallnormally grant stay of demand till disposal of the first appeal onpayment of 20% of the disputed demand. In the event, theAssessing Officer is of the view that the payment of a lump sumamount higher than 20% is warranted, then the Assessing Officerwill have to give reasons to show that the case falls in para 4(B) ofthe office memorandum dated 29[th] February, 2016. International Airport Authority of India & Ors. 1979 SCR (3) 1014]. 11.This Court is also of the view that the office memorandumdated 29[th] February, 2016 read with office memorandum dated25[th] August, 2017 stipulate that the Assessing Officer shallnormally grant stay of demand till disposal of the first appeal onpayment of 20% of the disputed demand. In the event, theAssessing Officer is of the view that the payment of a lump sumamount higher than 20% is warranted, then the Assessing Officerwill have to give reasons to show that the case falls in para 4(B) ofthe office memorandum dated 29[th] February, 2016. 12.This Court finds that the order under Section 245 of theAct for adjustments of refunds as well as the order on stay ofdemand under Section 220(6) of the Act do not give anyspecial/particular reason as to why any amount in excess of 20%of the outstanding demand should be recovered from thepetitioner-assessee at this stage in accordance with paragraph4(B) of the office memorandum dated 29[th] February, 2016.Consequently, this Court is of the view that the respondent isentitled to seek pre-deposit of only 20% of the disputed demandduring the pendency of the appeal in accordance with paragraph4(A) of the office memorandum dated 29[th] February, 2016, asamended by the office memorandum dated 25[th] August, 2017. 13.Accordingly, the respondent no. 1 is directed to refund theamount adjusted in excess of 20 % of the disputed demand forthe Assessment Year 2017-18, within four weeks. …………………………………….” On the similar issue petitioner has relied on another unreporteddecision of Delhi High Court in the case of “Skyline EngineeringContracts (India) Private Limited vs. Deputy Commissioner of IncomeTax Circle 22(2), Delhi & Ors.” in W.P. ( C) 6172/2021 & CM Appl.19561/2021 dated 23[rd] August, 2021 and particularly paragraphs 10,11 and 12 which are quoted hereinbelow : “10.This Court is also of the view that the office memorandumdated 29[th] February, 2016 read with office memorandum dated25[th] August, 2017 stipulate that the Assessing Officer shallnormally grant stay of demand till disposal of the first appeal onpayment of 20% of the disputed demand. In the event, theAssessing Officer is of the view that the payment of a lump sumamount higher than 20% is warranted, then the Assessing Officerwill have to give reasons to show that the case falls in para 4(B) ofthe office memorandum dated 29[th] February, 2016. 11.This Court finds that in the present matters no order hasbeen passed by the Assessing Officer under Section 245 of theAct for adjustments of refunds. Moreover, there is no order by theAssessing Officer giving any special/particular reason as to whyany amount in excess of 20% of the outstanding demand shouldbe recovered from the petitioner-assessee at this stage in accordance with paragraph (4B) of the office memorandum dated29[th] February, 2016. 12.Consequently, this Court is of the view that therespondents are entitled to seek pre-deposit of only 20%^of thedisputed demand during the pendency of the appeals inaccordance with paragraph 4(A) of the office memorandum dated29[th] February, 2016, as amended by the office memorandumdated 25[th] August, 2017.” 11.This Court finds that in the present matters no order hasbeen passed by the Assessing Officer under Section 245 of theAct for adjustments of refunds. Moreover, there is no order by theAssessing Officer giving any special/particular reason as to whyany amount in excess of 20% of the outstanding demand shouldbe recovered from the petitioner-assessee at this stage in accordance with paragraph (4B) of the office memorandum dated29[th] February, 2016. 12.Consequently, this Court is of the view that therespondents are entitled to seek pre-deposit of only 20%^of thedisputed demand during the pendency of the appeals inaccordance with paragraph 4(A) of the office memorandum dated29[th] February, 2016, as amended by the office memorandumdated 25[th] August, 2017.” Mr. Dutta, learned advocate appearing for the respondentsopposing this writ petition submits that under Section 245 of the Actthere is no provision for granting of hearing before taking action ofadjustment and it is not mandatory. He also submits that the wholeissue relating to assessment year 2015-16 can be resolved in thepending appeal before the CIT (Appeals) including the impugnedaction under Section 245 of the Act. I am not convinced with theargument and submission of Mr. Dutta in view of admitted facts asrecorded above and the law laid down in the aforesaid judgments citedby the petitioner that affording of opportunity of hearing to theassessee/petitioner before making any adjustment under Section 245of the Act is mandatory and just intimation of proposal to adjustmentis a mere idle formality. More so when the petitioner has already filedan objection against the intimation proposing adjustment of refundfrom the due of another assessment year, respondent assessing officerwas bound to dispose of the same and to take a decision on the saidobjection. Mr. Dutta could not satisfy this Court from any record that any formal order was passed by the assessing officer on the objectionto the aforesaid intimation under Section 245 of the Act andspecifically recording regarding his satisfaction that the demand of taxin question cannot be recovered at all and has come to a specificconclusion that the petitioner is not in a position to pay the amount ofdemand in question. Mr. Dutta also could not satisfy from the recordthat any specific order was passed on the application of the petitionerunder Section 220(6) of the Act either rejecting or accepting the samebefore taking such coercive action under Section 245 of the Act andmore so in adjusting the amount more than 20% of the demand inquestion by disregarding and ignoring the aforesaid officememorandum of CBDT which was binding upon him is bad in law. Considering the submissions of the parties and the judgmentsrelied upon and the admitted facts which appear from record, this writpetition is disposed by allowing the same by holding that theimpugned action of the assessing officer under Section 245 of theIncome Tax Act, 1961 making adjustment of demand of assessmentyear 2015-16 in excess of 20 % from the refund of assessment year2008-09 without disposing of the objection of the petitioner againstthe intimation under Section 245 of the Act and taking any formaldecision on the said objection is bad and not sustainable in law andthe impugned action under Section 245 of the Act without disposing ofand taking any decision on application of the petitioner under Section220 (6) of the Act and acting contrary to the aforesaid officememorandum of CBDT dated 29[th] February, 2016 and 31[st] July, 2017 is bad in law. Accordingly the Assessing officer concerned is directedto refund the amount adjusted in excess of 20% of the demand arisingout of the assessment order relating to assessment year 2015-16 fromthe refundable amount from the assessment relating to assessmentyear 2008-09 within four weeks from the date of communication ofthis order. is bad in law. Accordingly the Assessing officer concerned is directedto refund the amount adjusted in excess of 20% of the demand arisingout of the assessment order relating to assessment year 2015-16 fromthe refundable amount from the assessment relating to assessmentyear 2008-09 within four weeks from the date of communication ofthis order. It is expected that the appeal in question pending before the CIT(Appeals) relating assessment year 2015-16 will be disposed ofexpeditiously without granting any unnecessary adjournment to thepetitioner. With these observations and directions, this writ petition beingWPO 113 of 2018 is disposed of. TR/ (MD. NIZAMUDDIN, J.)