Sherla v. Wp.2036.2019_7.Doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO.2036 OF 2019 Vodafone Idea Ltd. … Petitioner VsDy. Commissioner of income Tax, CPC, … RespondentsBangalore & Ors. Mr.J.D. Mistri, Senior Advocate with Mr.Nitesh Joshi i/b Mr.AtulJasani for the Petitioner Mr.N.C. Mohanty for Respondents CORAM: AKIL KURESHI & S.J. KATHAWALLA, JJ. DATED: SEPTEMBER 3, 2019 P.C. (Per Akil Kureshi, J.): 1.Heard the learned Counsel for the parties for final disposal ofthe petition at the stage of admission. 2.The petitioner has challenged the action of the respondents,i.e., the authorities of the Income Tax department of not releasingpetitioner’s refund of a sum of Rs.207 crores (rounded off) arisingout of an intimation under section 143 (1) of the Income Tax Act,1961 (‘the Act’ for short) dated 26.10.2018 in relation to thepetitioner’s return for AY 2016-2017. 3.Brief facts are as under: The petitioner is a company registered under the Companies Act and is engaged in the business of providing communicationservices. For the AY 2016-2017, the petitioner had filed return ofincome declaring a loss of Rs.2,561 crores (rounded off). Sincethe assessing officer was not processing the return of thepetitioner, the petitioner had previously approached this Court byfiling Writ Petition No.2146 of 2018 which was disposed of by anorder dated 1.10.2018. In the context of the grievance of thepetitioner that the return was not being processed promptly, theCourt made the following observations in the said order: “7.The communication, copy of which is at Annexure-Amakes interesting reading with regard to assessment year2016-2017. It is solemnly stated that the return for thisassessment year has been processed but it is pushed towhat is stated as and styled as the Centralized ProcessingCenter. That is stated to be forwarded for computation. 8.We fail to understand as to why somebody who is in-charge of making and framing assessment, namely, theAssessing Officer can process the return and ordinarilyempowered to finalize it as well but must forward it or push itto this center for computation. If computation such a difficult,if not an important task, why it cannot be performed by thisAssessing Officer, is not clarified to us at all. It is evidentthat, after it is pushed to this center, from the centre’scommunication, copy of which is handed over Mr.Mohanty dated 7[th] August, 2018, it is apparent that this center hasdone nothing in relation to this computation. The said letterdated 7[th] August, 2018 is taken on record and marked “X” foridentification. It may be lying with it until such time as thelaw permits holding up of the further proceedings or till thelast date. We only remind the Revenue of the inherent risk insuch an exercise. Far from making things simpler, we are ofthe opinion that such complications and confusions oftenprejudice the interest of the Revenue. It can then very wellbe managed with such centers and officials manning thesame that they sit on files and thereafter returns areprocessed as it is or there is nothing left to be done inrelation thereto. They would definitely have to be thenaccepted in the manner forwarded by the Assessee. Thatwould be indeed prejudicial to the interest of the Revenue ifnot necessarily harassing the Assessee. A balance has to becreated and this procedure, cumbersome as it is, does notfacilitate the same. In such circumstance, we direct thisCentralized Processing Center-ITR to forthwith take adecision and as regards the computation. The decision betaken and communicated to the concerned Assessing Officerwithin a period of four weeks from today. 9.Any opinion on the merits of the issue would prejudiceboth sides. We do not think and as rightly urged byMr.Pardiwala that the whole exercise would necessarilyresult in either a refund or a demand. We expect theauthorities to take a decision and not delay the matters.Even if there is any exercise and warranting an adjustment,there is no reason to delay that, by sitting on the files andforcing the Assessee like the Petitioner to approach thisCourt in its writ jurisdiction. It is as if the authorities wait for awrit Court to issue direction so that they can take and pullfiles out of the turn and grant necessary reliefs. 10.As far as this aspect is concerned, we express noopinion. We clarify that on merits this Court has neitherexpressed any view in favour of a refund or against it.” 4.It was pursuant to this order that the return was processedwhich gave rise to refund of Rs.180 crores (rounded off) and withinterest, it came to Rs.207 crores (rounded off). In ordinarycourse, the petitioner should have received the refund from thedepartment. However, under section 245 of the Act, the competentauthority has right to claim the set-off of such refund against anytax remaining payable even if it arises out of any other assessmentyear. Under section 281B of the Act, the competent authoritysubject to following proper procedure also has a power toprovisionally attach any property of an assessee to protect theinterest of the revenue under certain circumstances. The refundwould undoubtedly be covered within the said expression - anyproperty belonging to the assessee. We would take a closer lookat those sections later. 5.For the time being, we may record that the respondentswhile intimating the processing of the return under section 143(1)of the Act, appended a following note to the said communication: “NOTE:- As per the records of CPC, the following demandsare outstanding. An intimation under Section 245 of theIncome Tax Act, 1961 has been issued separately proposingto adjust the outstanding demands against the refunddetermined as per this order. Since, the release of the refundable amount will be considered on the basis of yourresponse/compliance to the Intimation U/s 245, you arerequested to submit your response expeditiously.” 6.As per this note, thus, the respondents proposed to adjustthe said refund against outstanding tax demands in terms ofsection 245 of the Act and called upon the petitioner to respond tosuch proposal. This note also contained a table of variousoutstanding tax demands of the petitioner for different assessmentyears. 7. The petitioner responded to such note under a communication dated 29.11.2018. Referring to each of the sevenoutstanding tax demands, as per the table appended to the note,the petitioner pointed out that such demands were stayed by theIncome Tax Appellate Tribunal (‘Tribunal’ for short) under variousorders. The respondents served yet another communication tothe petitioner proposing to invoke section 245 of the Act in order todeny the release of the refund. This communication dated1.2.2019 contained specific reference to four outstanding taxdemands. The petitioner replied to such communication underletter dated 5.3.2019, once again pointing out that each of theabove mentioned demands has been stayed by the Tribunal. 8. The attempt to adjust petitioner’s refund was abandoned at this stage. The Deputy Commissioner of Income Tax, Mumbai,instead passed the impugned order dated 19.7.2019 invokingsection 281B which reads as under: “Order u/s 281B of the I T Act 1961 The following refunds for AY 2016-17 in the abovecases determined after processing the return of income u/s143(1) are hereby provisionally attached up to 31.12.2019: - The order has been passed with the prior approval of the Pr.Commissioner of Income Tax 5, Mumbai.” 9.At that stage, the petitioner has filed this petition challenging 8. The attempt to adjust petitioner’s refund was abandoned at this stage. The Deputy Commissioner of Income Tax, Mumbai,instead passed the impugned order dated 19.7.2019 invokingsection 281B which reads as under: “Order u/s 281B of the I T Act 1961 The following refunds for AY 2016-17 in the abovecases determined after processing the return of income u/s143(1) are hereby provisionally attached up to 31.12.2019: - The order has been passed with the prior approval of the Pr.Commissioner of Income Tax 5, Mumbai.” 9.At that stage, the petitioner has filed this petition challenging the action of the department in not releasing the refund, seekingsetting aside of the said order dated 19.7.2019 and making afurther prayer that the respondents be directed to release the saidrefund with statutory interest. 10.The learned Counsel Shri Mistri, appearing for the petitioner,submitted that the action of the department is wholly illegal andunlawful. Originally, the department refused to process the returnfor the AY 2016-2017. When the High Court directed thedepartment to do so, the refund was not released arising out ofintimation on the ground that previous tax demands wereoutstanding. When it was pointed out that these demands werestayed by the Tribunal, the authorities invoked the power ofprovisional attachment under section 281B of the Act, without therebeing any justifiable reason. 11.On the other hand, the learned Counsel Shri Mohantysubmitted that when the High Court previously ordered expeditiousprocessing of the petitioner’s return under the order dated19.10.2018, it was clarified that the High Court has not examinedthe merits of the petitioner’s claim of refund. He submitted that thedemands are stayed by the Tribunal for various assessment yearswithout entering into the merits of the assessments which wereconfirmed by the appellate Commissioner. He submitted that ascrutiny assessment of the petitioner’s return for AY 2016-2017would be over shortly. In this year also, there is every likelihood of sizeable tax demands arising in relation to the petitioner’sinternational transactions and other issues which are alreadyexamined in the earlier assessment years. The department is,therefore, justified in carrying a bonafide belief that theassessment of the said return is likely to give rise to sizeable taxdemands. In order to protect the interest of the revenue, theimpugned order has been passed provisionally attaching thepetitioner’s refund. He submitted that the final assessment afterscrutiny alone, can give a legal shape to the petitioner’s ultimatetax liability. 12.Having heard the learned Counsel for the parties and havingperused the documents on record, the facts of the case present acurious sequence. As noted, previously, the petitioner had filed aWrit Petition before this Court complaining about the departmentnot showing sufficient urgency in processing the petitioner’s returnfor AY 2016-2017 which the petitioner expected would give rise tosizeable refund. The High Court directed the respondents tocomplete the process expeditiously. Consequently, the intimationunder section 143(1) of the Act gave rise to refund of a sum ofRs.180 crores. With interest, this refund came to approximately Rs.207 crores. Immediately, the department raised the possibilityof invoking section 245 of the Act in order not to release therefund. The petitioner pointed out that the tax demands referred toin the communications proposing to invoke section 245 of the Acthave all been stayed by the Tribunal under different interim orders. 13.Section 245 of the Act pertains to set-off of refunds againstthe tax remaining payable and reads as under: Rs.207 crores. Immediately, the department raised the possibilityof invoking section 245 of the Act in order not to release therefund. The petitioner pointed out that the tax demands referred toin the communications proposing to invoke section 245 of the Acthave all been stayed by the Tribunal under different interim orders. 13.Section 245 of the Act pertains to set-off of refunds againstthe tax remaining payable and reads as under: “245. Where under any of the provisions of this Act, a refundis found to be due to any person, the Assessing Officer,Deputy Commissioner (Appeals), Commissioner (Appeals) orPrincipal Chief Commissioner or Chief Commissioner orPrincipal Commissioner or Commissioner, as the case maybe, may, in lieu of payment of the refund, set off the amountto be refunded or any part of that amount, against the sum, ifany, remaining payable under this Act by the person to whomthe refund is due, after giving an intimation in writing to suchperson of the action proposed to be taken under thissection.” 14.Under this provision, thus, where under any of the provisionsof the Act, a refund is found to be due to any person, it would beopen for the competent authority mentioned in the said provisionto, in lieu of payment of refund, set off the amount to be sorefunded or any part thereof against the sum remaining payableunder the Act by the person to whom the refund is due and payable. This provision thus, could have been applied if the taxdemand was due and recoverable from the petitioner. In thepresent case, admittedly, all such tax demands were suspended bythe Tribunal. Enabling the department to adjust such taxdemands against the petitioner’s refund would amount tooverreaching the interim orders passed by the Income TaxAppellate Tribunal. As long as the stay against the recoveries wasin operation issued by the competent appellate authority, Tribunalor Court, it would not be open for the department to enforce therecoveries through the aid of section 245 of the Act. Perhaps, itwas not necessary for us to elaborate on this since advisedly, thedepartment has given up this line of action for refusing refund tothe petitioner. 15.These brief comments were however, necessary since thedepartment seeks to press in service the power of provisionalattachment under section 281B of the Act and in context of which,the Counsel for the department has taken us through the nature ofinterim orders passed by the Tribunal. Section 281B of the Actpertains to provisional attachment by the revenue in certain cases.Subsection (1) of section 281B reads as under: “281B. (1) Where, during the pendency of any proceedingfor the assessment of any income or for the assessment orreassessment of any income which has escapedassessment, the Assessing Officer is of the opinion that forthe purpose of protecting the interests of the revenue it isnecessary so to do, he may, with the previous approval ofthe Principal Chief Chief Commissioner or ChiefCommissioner, Principal Commissioner or Commissioner,Principal Director General or Director General or PrincipalDirector or Director, by order in writing, attach provisionallyany property belonging to the assessee in the mannerprovided in the Second Schedule.” 16.Under sub-section (1) of section 281B of the Act thus, where “281B. (1) Where, during the pendency of any proceedingfor the assessment of any income or for the assessment orreassessment of any income which has escapedassessment, the Assessing Officer is of the opinion that forthe purpose of protecting the interests of the revenue it isnecessary so to do, he may, with the previous approval ofthe Principal Chief Chief Commissioner or ChiefCommissioner, Principal Commissioner or Commissioner,Principal Director General or Director General or PrincipalDirector or Director, by order in writing, attach provisionallyany property belonging to the assessee in the mannerprovided in the Second Schedule.” 16.Under sub-section (1) of section 281B of the Act thus, where during the pendency of any proceedings for assessment orreassessment, the assessing officer is of the opinion that for thepurposes of protecting the interest of revenue, it is necessary so todo, he may with the previous approval of the higher authority passan order in writing provisionally attaching the property belonging tothe assessee. These are drastic powers permitting the assessingofficer to attach any property of an assessee even before thecompletion of assessment or reassessment. These powers arethus in the nature of attachment before judgment. They haveprovisional applicability and in terms of sub-section (2) of section281B of the Act, a limited life. Such powers must, therefore, beexercised in appropriate cases for proper reasons. Such powerscannot be exercised merely by repeating the phraseology used in the section and recording the opinion of the officer passing such order that he was satisfied for the purpose of protecting theinterest of revenue, it was necessary so to do. 17.It was in this context that we had heard the learned Counselfor the department as to the reason why such an order came to bepassed, particularly when the order itself does not cite the reasonsfor the said authority to hold such an opinion. In this context, theCounsel for the department had argued before us that in thepresent assessment year i.e., AY 2016-2017, the issues where theassessing officer believes that there will be sizeable tax demandsare common as in the earlier assessment years and which aresubject matter of appeals before the Tribunal and in which theTribunal has passed interim orders preventing the department fromcarrying out a recovery. He emphasized that what the Tribunal hasstayed is recoveries and not the orders. 18.Even if it were to be believed that by going by his previousassessments, the assessing officer is most likely to confirm thedemands while carrying out the final assessment of the petitioner’sreturn for the AY 2016-2017, we cannot lose sight of the fact thatthe demands for the previous assessments have been stayed by the Tribunal. The Tribunal has given reasons why it was persuadedto pass such interim orders. It is not possible for us to dissect thereasons of the Tribunal and come to the conclusion that in the finalanalysis, such demands would be confirmed. Permitting thedepartment to provisionally attaching the petitioner’s refund for thecurrent year on the ground that in the final assessment, thedemands are likely to be confirmed, would amount to ignoring thehard fact that for the earlier assessment years, the Tribunal hassuspended the recoveries arising out of the demands made by theassessing officer on similar issues. It may be that before doing so,the Tribunal has either put the petitioner to some terms or hasfound itself satisfied that the deposits already made are sufficient.Nevertheless, looked from any angle, the occasion for thecompetent authority to exercise the drastic power under section281B of the Act has not arisen. We do not doubt his power,however, we do not find proper justification for exercise of suchpower. 19.Under the circumstances, the impugned order dated26.10.2018 is set aside. The respondents shall release the refundarising out of the intimation under section 143(1) of the Act for the 19.Under the circumstances, the impugned order dated26.10.2018 is set aside. The respondents shall release the refundarising out of the intimation under section 143(1) of the Act for the Under the circumstances, the impugned order dated AY 2016-2017 with further statutory interest, if any, to be paidwithin two weeks from the date of receipt of a copy of this order. 20.With these directions, the petition is disposed of. (S.J. KATHAWALLA, J.) (AKIL KURESHI, J.)