Plasticotes Investment Pvt. Ltd v. The Chief Commissioner Of Income Tax And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1559 OF 2005 WITH WRIT PETITION NO. 1565 OF 2005 Plasticotes Investment Pvt. Ltd. vs.The Chief Commissioner of Income Taxand ors. ...Petitioner. ...Respondents. Mr. J.D. Mistry, Senior Counsel i/by Atul K. Jasani for the Petitioner.Mr. Suresh Kumar for the Respondents. CORAM : M. S. SANKLECHA AND G.S. KULKARNI, JJ.DATE : O9 JULY 2014 DATE : ORAL ORDER: (Per M.S.Sanklecha, J.) These two petitions under Article 226 of the Constitution of India challenges the common order dated 5 November 2004 passed by the Assessing Officer refusing to grant refund due to the petitioner for the Assessment years 1986-87 and 1987-88. The common impugned order has refused to grant refund in view of proviso (a) to Section 240 of the Income Tax Act (“the Act”) as such refund could be granted only on a fresh assessment being made and no such fresh assessment has been made in this case. 2)It is an agreed position between Counsel that the facts in both the petitions are identical save for difference in assessment years, relevant dates and amount/quantum of refund due. Thus for the sake of convenience we refer to the facts stated in Writ Petition No.1559 of 2005 filed in respect of Assessment Year 1987-88 which are as under: a)On 30 July 1987, the petitioner filed its return declaring total income of Rs.7.86 lacs. The Assessing Officer by an order dated 17 March 1989 assessed the petitioner to an income of Rs.19.30 lacs and raised a further tax demand of Rs.8.92 lacs inclusive of interest. b)Being aggrieved, the petitioner preferred an appeal against the order dated 17 March 1989 of the Assessing Officer to the Commissioner of Income Tax (Appeals)(“CIT-A”). In the mean time, the petitioner in consequence of the assessment order dated 17 March 1989 deposited a sum of Rs.3.64 lacs and the Assessing officer suo moto adjusted the refund due to the petitioner for the earlier assessment years to the extent of Rs.6.92 lacs against the total dues payable for Assessment Year 1987-88 at Rs.8.92 lacs. In the result, the petitioner has deposited with the Revenue an amount of Rs.10,44,594/- pending the disposal of its appeal by the CIT(A).This deposit of Rs.10,44,594 was in excess of the tax payable on the returned income of Rs.7.86 lacs. c)On 14 January 1999, the CIT(A) set aside the assessment order dated 17 March 1989 for Assessment Year 1987-88 and restored the file to the Assessing officer for denovo adjudication. d)The Assessing Officer however, did not comply with the directions for reassessment in order dated 14 January 1999 of the CIT(A) and in due course, the time to pass assessment order for Assessment Year 1987-88 expired on 31 March 2001. This was so as Section 153(2) of the Act at the relevant time provided a period of 2 years from the end of the financial year in which the CIT(A) passed the order dated 14 January 1999. (e)However, in view of the failure of the Assessing Officer to pass any assessment order, the petitioner on 25 Feb. 2004, addressed a communication to the Chief Commissioner of Income Tax and sought direction to the Assessing Officer to refund the tax and the interest paid by the petitioner. On 26 April 2004, the petitioner made a detailed representation to the Assessing officer and pointed out that the order of assessment originally passed had been set aside by the CIT (A) by order dated 14 January 1999 and remanded for denovo adjudication. However, as no order of assessment has been passed consequent to the direction for remand and the time to frame an assessment, consequent to the order of the CIT(A) had expired on 31 March 2001. Therefore, it was contended that the petitioner is entitled to refund of tax paid in excess of that payable on the basis of the returned income. f)In response to the petitioner's representation dated 26 April 2005, the Assessing Officer, by the impugned communication dated 5 November 2004 denied the petitioner's request for refund. This was on the basis that the refund could not be granted by virtue of proviso (a) to Section 240 of the Act. Mr. Mistry, learned Senior Counsel appearing for the petitioner in support of the petition submits:- a)The impugned order dated 5 November 2004 refusing to grant the refund due on the ground that as no final assessment order has been passed amounts to collecting taxes without the authority of law. The Revenue is taking advantage of its own wrong in first not passing the assessment order and thereafter on the basis of above failure, unlawfully retaining the petitioner's property without authority of law; b) The order of the Assessing officer has been set aside by order dated 14 January 1999 of CIT(A) and the proceedings for A.Y. 1987-88 was remanded for denovo adjudication. The Assessing Officer was obliged to do the reassessment within a period of two years under Section 153(2) of the Act i.e. upto 31 March 2001. In any case the reassessment order has not been passed till date. Therefore, in the above circumstances, no occasion to invoke the proviso (a)to Section 240 of the Act can arise; and c)The petitioners are only seeking a refund of the amount paid in excess of the tax payable on the returned income. The amounts paid consequent to the assessment order is being sought as refund. The issue is concluded in favour of the petitioner by the decision of the Supreme Court in CIT v. Shelly Products, 261 ITR 367. 4)As against the above, Mr. Suresh Kumar, learned Counsel for the Revenue in support of the impugned order dated 5 November a)No assessment order could be passed by the Assessing Officer as the order of CIT(A) dated 14 January 1999 directing denovo adjudication was never received by the Assessing Officer as stated in the affidavit in reply. Thus, in the absence of the order of the appellate authority being served upon the Assessing Officer, the period of limitation does not begin to run; and b)The Assessing Officer being a creature of the Act is bound to act in a manner as mandated by proviso (a) to Section 240 of the Act i.e. no refund can be granted on the basis of the order of the Appellate authority till a reassessment order is passed as directed by the CIT (A). 5)Before considering the rival submissions, it would be convenient to reproduce Section 240 of the Act which reads as under :- “240. Where, as a result of any order passed in appeal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf: [Provided that where, by the order aforesaid,- (a)an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment; (b)the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income “240. Where, as a result of any order passed in appeal or other proceedings under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf: [Provided that where, by the order aforesaid,- (a)an assessment is set aside or cancelled and an order of fresh assessment is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment; (b)the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income 6)We have considered the rival submissions. Section- 240 of the Act casts an obligation upon the Revenue to refund any amount due to an assessee as a consequence of an order passed in appeal without the assessee having to make any claim to that effect. The proviso (a) thereto has been incorporated only to ensure that when an assessment has been restored to the Assessing Officer for fresh assessment order then the refund which is due on account of the Appellate order will be granted only after a fresh assessment order is passed by the Assessing Officer. So far as proviso (b) to Section 240 of the Act is concerned, it clearly provides that where assessment is annulled by the Appellate Authority and the refund becomes due to an assessee, the refund to be paid would only be the excess of the tax paid to the tax payable on the returned income. In this case, the petitioner is not seeking refund of the tax payable on the basis of the returned income but seeking refund of the tax and interest paid in excess of that payable on the returned income. This was consequent to the assessment order passed by the Assessing Officer for assessment year 1986-87 and 1987-88.The petitioner is not seeking refund of the amount of tax paid on the income returned by them for assessment year 1986-87 and 1987-88. An identical issue was subject matter of consideration before the Supreme Court in Shelly Products (supra) wherein the Supreme Court has observed that :- “6)What then it is the effect of the failure to make an order of assessment after the earlier assessment made is set aside or nullified in appropriate proceedings? If the assessing authority cannot make a fresh assessment in accordance with the provisions of the Act it amounts to deemed acceptance of the return of income furnished by the assessee. In such a case the assessing authority is denuded of its authority to verify the correctness and completeness of the return, which authority it has while framing a regular assessment. It must accept the return as furnished and shall not in any event raise a demand for payment of further taxes. Accepting the income as disclosed in the return of income furnished by the assessee, it must refund to the assessee any tax paid in excess of the liability incurred by him on the basis of income disclosed. Even if the tax paid is found to be less than that payable, no further demand can be made for recovery of the balance amount since a fresh assessment is barred. In other words, the tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability, duly computed on the basis of the return furnished and the rates applicable, the excess shall be refunded to the assessee, since its retention may offend article 265 of the Constitution”. The above observations of the Supreme Court are applicable to the facts of the petitioner's case. The above observations of the Supreme Court are applicable to the facts of the petitioner's case. 7)The stand of the Assessing Officer that no refund could be granted as no assessment order on remand could be passed because copy of the order dated 14 January 1999 of the CIT(A) was not served upon him is not acceptable for the reason that the Assessing Officer could have himself called for a copy of the same from the office of the CIT(A). In any case a copy of the order dated 14 January 1999 was served upon the Assessing Officer with a copy of this petition some time in 2005 and since then no order of assessment has yet been passed by the Assessing Officer. Once CIT(A) has remanded the proceedings to the Assessing Officer for passing a fresh assessment order it is not open to the Assessing Officer not to carry out the directions of the CIT (A) to the detriment of the assessee. If the revenue's submission that no refund can be granted to an assessee consequent to an order passed in an appeal unless the Assessing Officer passes a fresh assessment order is accepted then in that event Revenue would be able to deprive all assessees of their property without the authority of law by by merely stating that it are helpless on account of its failure to pass an assessment order consequent to an order of appeal. The Revenue's submission is an attempt to justify its conduct by taking advantage of its own wrong to deprive the citizen of its money. 8)Mr. Mistry, the learned Senior Counsel during the course of his submissions also invited our attention to the decision of the Punjab & Haryana High Court in Bharti Engineering Corporation vs. Union of India and ors. (2008) 298 ITR 400 (P&H), wherein in identical fact situation, the High Court took a view that revenue is bound to refund the amount in excess of the tax payable of the return. In Bharti Engineering Corporation (supra) the Court while dealing with the identical facts before us about bar of Section 240 observed that “ If the argument of the learned Counsel for the revenue is accepted, the same would mean that the assessee will not be able to get their refund even if an assessment is set aside and the matter is sent back for redetermination and the Assessing Officer is under legal bar to pass a fresh order because of the expiry of the period permitted under law for the purpose. The assessee cannot be made to suffer on account of lapse on the part of the Assessing Officer or any other officer of the Department.” The aforesaid observations are equally apply to the present facts. 9)In view of the above, both the petitions are allowed and the respondents are directed to grant refund of the amount of Rs. 8,31,515/- for the Assessment Year 1986-87 and Rs.10,44,594/- for Assessment Year 1987-88 along with interest in accordance with law after due verification. 10)Accordingly, both the petitions are allowed in the above terms. No order as to costs. (G. S. KULKARNI, J.) (M.S. SANKLECHA, J.)