The Lakshmi Mills Co. Ltd v. The Joint Commissioner Of Income Tax Special Range-I Coimbatore – 641 018

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 27.8.2014 CORAM THE HON'BLE MR.JUSTICE R.SUDHAKARANDTHE HON'BLE MR.JUSTICE G.M.AKBAR ALI The Lakshmi Mills Co. Ltd.1100, Avanashi RoadPappanaickenpalayamCoimbatore – 641 037....Appellant/AppellantVs. The Joint Commissioner of Income TaxSpecial Range-ICoimbatore – 641 018....Respondent/Respondent PRAYER: Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal Bench 'D' Chennai,dated 16.12.2005 made in ITA No.1113/Mds/2003 for the assessment year1994-1995 against the order of the Deputy Commissioner of Income TaxCompany Circle IV (1), Coimbatore, dated 02.04.2003 and made inAAC17564R 94-95 for the Assessment year 1994-95 against the order ofthe Commissioner of Income Tax - II, Coimbatore, dated 26.02.2003 andmade in C.No.220(3) 2002-03/CIT-II/CBE for the Assessment year 1994-95. This appeal is filed by the Revenue challenging the order of theIncome Tax Appellate Tribunal Bench 'D' Chennai, dated 16.12.2005made in ITA No.1113/Mds/2003, for the assessment year 1994-1995. 2.1. The brief facts of the case are as under: The assessee isengaged in the manufacture of textiles and fabrics. The machineries https://hcservices.ecourts.gov.in/hcservices/ used in the said manufacturing process are subject to wear and tear.Some of the machinery parts were replaced from time to time and theassessee claimed the expenditure on replacement of such machineryparts as revenue expenditure. The Department did not accept thisplea and treated the expenditure as capital expenditure. 2.2. Initially, the said issue cropped up in the assessmentyears 1991-1992 and 1992-1993 and the issue as to whether suchexpenditure on replacement of machinery parts would be revenueexpenditure or capital expenditure was resolved by way of a revisionorder and as a result, the assessee filed a rectification petition interms of Section 154 of the Income Tax Act (for brevity, “the Act”)for the assessment year 1994-1995 and an order came to be passed bythe Joint Commissioner of Income Tax, Special Range-I, Coimbatore, on20.4.2000, determining the total income at Rs.2,61,46,290/- and thetax payable thereon was determined after adding all statutory claimsat Rs.37,40,256/-. At this juncture, it was noticed by the JointCommissioner of Income Tax, Special Range-I, Coimbatore that on self-assessment under Section 140A of the Act, an higher amount ofRs.77,58,956/- was paid by the assessee and, therefore, there was anexcess payment of tax of Rs.40,18,700/-. It was also noted thatthere are other earlier dues amounting to Rs.60,72,035/- towardsrefund payable to the assessee and in all the amount refundable tothe assessee was arrived at Rs.1,00,90,735/-. To the said amount, afurther sum of Rs.12,12,381/- was added, which is the payment of taxmade by the assessee voluntarily in terms of the Kar Vivad SamadhanScheme, 1998 (for brevity, “the KVSS, 1998”). Thus, the total amountrefundable was arrived at Rs.1,13,03,116/- together with interest. 2.3. The said order passed by the Joint Commissioner of IncomeTax, Special Range-I, Coimbatore was found to be erroneous andprejudicial to the interest of the revenue and hence, a notice underSection 263 of the Act was issued by the Commissioner of Income Tax-II, Coimbatore on 29.11.2002. The Commissioner of Income Tax-II,Coimbatore, after hearing the objections of the assessee, held thatthe amount of Rs.12,12,381/- paid by the assessee voluntarily underthe KVSS, 1998 cannot be refunded and that portion of the order ofthe assessing officer directing refund of tax paid under the KVSS,1998 was reversed. 2.3. The said order passed by the Joint Commissioner of IncomeTax, Special Range-I, Coimbatore was found to be erroneous andprejudicial to the interest of the revenue and hence, a notice underSection 263 of the Act was issued by the Commissioner of Income Tax-II, Coimbatore on 29.11.2002. The Commissioner of Income Tax-II,Coimbatore, after hearing the objections of the assessee, held thatthe amount of Rs.12,12,381/- paid by the assessee voluntarily underthe KVSS, 1998 cannot be refunded and that portion of the order ofthe assessing officer directing refund of tax paid under the KVSS,1998 was reversed. 2.4. Assailing the said order, the assessee preferred an appealbefore the Tribunal. The Tribunal, placing reliance on Section 93 ofthe KVSS, 1998, held that the amount paid in pursuance of adeclaration under Section 88 of the KVSS, 1998 is not refundableunder any circumstances. The relevant portion of the said order readsas under: “4. We have considered the rival submission on eitherside, and also perused the material available on record.Admittedly, the assessee has filed the declaration underKVS Scheme 1998 and the Designated Authority has https://hcservices.ecourts.gov.in/hcservices/ determined the tax payable. As determined by theDesignated Authority, the assessee has also paid thetaxes. In consequence to allowance of additionaldepreciation, the income returned by the assessee in theregular return was reduced considerably, therefore,there was refund of taxes already paid. In thatprocess, the Assessing Officer refunded the tax paidunder Section 140A, self assessment tax and also thetaxes paid under KVS Scheme, 1998. The only objectionof the Revenue is that the tax paid under KVS Scheme1998 cannot be refunded under any circumstances. Theassessee's contention is that the provisions containedin Sec.93 of the KVS Scheme 1998 is illegal since theGovernment cannot withhold any money belonging to anindividual, when there was no tax liability. 5. We have also gone through the KVS Scheme 1998 enactedby Parliament. Sec 93 of the KVS Scheme reads asfollows: 'Any amount paid in pursuance of declaration madeunder Section 88 shall not be refunded under anycircumstances.' In view of the above provisions, it is very clear thatwhen the assessee filed a declaration availing benefitunder KVS Scheme 1998 and paid the taxes determined bythe Designated Authority, the tax paid by the assesseecannot be refunded under any circumstances. In thiscase, admittedly, the Assessing Officer refunded the taxpaid by the assessee under KVS Scheme 1998 and also paidinterest thereon. Therefore, in our opinion, there isan error in the order of the Assessing Officer to thatextent which is prejudicial to the interests of theRevenue. Therefore, in our opinion, the twin conditionsrequired for invoking power under Section 263 aresatisfied. 6. The next contention of the assessee is that Sec.93 ofthe KVS Scheme 1998 is illegal since the Governmentcannot withhold any part of the money when theindividual has no tax liability. Admittedly, theParliament has enacted a specific provision prohibitingthe refund of the amount under any circumstances whichwas paid in pursuance of declaration filed under KVSScheme. This Tribunal is a creature under the IncomeTax Act. Therefore, this Tribunal has no power toexamine the constitutional validity or otherwise ofSec.93 of KVS Scheme 1998. Therefore, we are unable toaccept the contention of the assessee.” 2.5. Aggrieved by the said order passed by the Tribunal, the https://hcservices.ecourts.gov.in/hcservices/ 6. The next contention of the assessee is that Sec.93 ofthe KVS Scheme 1998 is illegal since the Governmentcannot withhold any part of the money when theindividual has no tax liability. Admittedly, theParliament has enacted a specific provision prohibitingthe refund of the amount under any circumstances whichwas paid in pursuance of declaration filed under KVSScheme. This Tribunal is a creature under the IncomeTax Act. Therefore, this Tribunal has no power toexamine the constitutional validity or otherwise ofSec.93 of KVS Scheme 1998. Therefore, we are unable toaccept the contention of the assessee.” 2.5. Aggrieved by the said order passed by the Tribunal, the https://hcservices.ecourts.gov.in/hcservices/ assessee has filed this appeal and the same was admitted on thefollowing substantial questions of law:“1. Whether on the facts and in the circumstances of thecase the Tribunal was right in law in holding that theAssessment Order was erroneous and prejudicial to theinterest of the revenue and therefore these twinconditions required for invoking power u/s 263 aresatisfied? 2. Whether on the facts and in the circumstances of thecase the Tribunal was right in not holding that correctdepreciation allowed by the Assessing Officer dates backto the original Assessment and therefore all the actionsof both the Assessee and the designated Authority inconnect with KVSS were void and the refund granted wasvalid? 3. Whether the provisions of Section 93 of the Finance (No.2) Act, 1998 had the intention to refuse refund inthe circumstances of the case of the Appellant?” 3.1. Firstly, we would consider the substantial questions of law (2) and (3) conjointly, as the same are intertwined. 3.2. The learned counsel for the assessee tried to impress uponus that in view of the revision order passed in respect of assessmentyears 1991-92 and 1992-1993, unabsorbed depreciation was broughtforward to the assessment year 1994-1995 and that resulted in higheramount of refund and pending such revision, in order to resolve theissue, insofar as assessment year 1994-1995 is concerned, theassessee opted to settle the matter by invoking the provisions of theKVSS, 1998 and paid the tax due thereon and, therefore, the saidamount should be refunded to the assessee. 3.3. The Central Government introduced the KVSS, 1998 by theFinance (No. 2) Act, 1998. The scheme was introduced by the CentralGovernment with a view to collect revenues through direct andindirect taxes by avoiding litigation. If an assessee opts toresolve the tax dispute which is pending, he can make a declarationunder Section 88 of the KVSS, 1998. After such declaration is made,the Designated Authority shall determine the tax payable and intimatethe same to the assessee. The assessee, if he accepts the order, isliable to pay the tax voluntarily. If, however, the assessee makespayment in terms of the order of the Designated Authority underSection 90 of the KVSS, 1998, the amount shall not be refundableunder any circumstances as stated in Section 93 of KVSS, 1998, whichreads as under: “Section 93. No refund of amount paid under the Scheme.Any amount paid in pursuance of a declaration made underSection 88 shall not be refundable under anycircumstances.” 3.4. Once an assessee voluntarily invokes the KVSS, 1998 and hadpaid the tax liability in terms of the provisions of the KVSS, 1998,he should abide by the provisions of the KVSS, 1998. He is notentitled to resile from such determination and seek refund. The sameruns counter to Section 93 of the KVSS, 1998, which emphaticallystates that amount paid shall not be refundable “under anycircumstances”. The assessee in this case claims refund of the verysame amount, which claim is barred in terms of the above provision. “Section 93. No refund of amount paid under the Scheme.Any amount paid in pursuance of a declaration made underSection 88 shall not be refundable under anycircumstances.” 3.4. Once an assessee voluntarily invokes the KVSS, 1998 and hadpaid the tax liability in terms of the provisions of the KVSS, 1998,he should abide by the provisions of the KVSS, 1998. He is notentitled to resile from such determination and seek refund. The sameruns counter to Section 93 of the KVSS, 1998, which emphaticallystates that amount paid shall not be refundable “under anycircumstances”. The assessee in this case claims refund of the verysame amount, which claim is barred in terms of the above provision. 3.5. In the case on hand, the assessee opted to avail thebenefit conferred under KVSS, 1998 and made a declaration underSection 88 of KVSS, 1998. The competent authority accepted thedeclaration and passed an order. The assessee proceeded to opt forthe KVSS, 1998 and paid the tax as determined to conclude the lisbetween the assessee and the department. Having accepted to settlethe issue under the KVSS, 1998, it will not lie in the mouth of theassessee to turn around and claim refund referring to earlierassessment years. Therefore, in terms of Section 93 of the KVSS,1998, the assessee cannot seek refund of amount paid under the KVSS,1998. 3.6. In such view of the matter, we answer the substantialquestions of law (2) and (3) against the assessee and in favour ofthe Revenue. 4.1. Insofar as the first substantial question of law isconcerned, as to whether the Commissioner of Income Tax was justifiedin invoking power under Section 263 of the Act, in view of thereasoning given by us while dealing with questions of law (2) and (3)that in terms of Section 93 of the KVSS, 1998, the assessee cannotseek refund of amount voluntarily paid under the KVSS, 1998, theorder passed under Section 154 of the Act by the assessing officer,in our considered opinion, is erroneous and prejudicial to theinterest of the Revenue. The twin conditions stipulated underSection 263 of the Act for invocation of said provision by theCommissioner are fulfilled in the case on hand, as the order of theAssessing Officer is erroneous and prejudicial to the interests ofthe Revenue, as it runs counter to Section 93 of the KVSS, 1998. 4.2. In such view of the matter, the first substantial questionof law is answered against the assessee and in favour of the Revenue. https://hcservices.ecourts.gov.in/hcservices/ For the foregoing reasons, this appeal is dismissed. No costs. Sd/-Asst. Registrar (CS-III) //True Copy//Sub Asst. Registrar.sasiTo1.The Assistant Registrar,Income Tax Appellate TribunalChennai Bench "D", Chennai.2.The Secretary, Central Board of Direct Taxes, New Delhi.3.The Commissioner of Income Tax-IICoimbatore.4.The Joint Commissioner of Income Tax Special Range-I, Coimbatore.5.The Section Officer, V.R.Section, High Court, Madras-104.1CC to Mr.Philip George, Advocate, SR 399831CC to Mr.T.P.Senthil Kumar, Advocate, SR 40023 T.C.(A).No.2324 of 2006JSV PSI 12/09/2014