Wp/26656/2006 Of M/S. Kitti Steels Ltd., 126, Pogalguda (Village) v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATUREANDHRA PRADESH AT HYDERABAD THE HON'BLE MR JUSTICE J.CHELAMESWARand THE HON'BLE MR JUSTICE D. APPA RAO WRIT PETITION.NO :26656 of 2007 Dated: 19thJanuary 2007. Between: M/s. Kitti Steels Ltd., 126, Pogalguda (Village),Yamnampet, Industrial Estate, Ghatkesar, R.R.District. AND ..... PETITIONER The Deputy Commissioner of Income Tax, Circle 2 (1),Hyderabad and another. .....RESPONDENTS THE HON’BLE SRI JUSTICE J.CHELAMESWARAND THE HON’BLE SRI JUSTICE D.APPA RAO W.P.NO.26656 OF 2006 And W.P.M.P.No.1235 of 2007 ORAL ORDER: (Per the Hon’ble Sri Justice J.Chelameswar) The 1[st] petitioner is a Limited Company and the2[nd] petitioner is its Managing Director. It is stated inthe affidavit filed in support of the writ petition that the1[st] petitioner is declared to be a sick industry by theBIFR on 21-04-2006. A copy of the order of the BAFR is filed in thematerial papers filed along with the writ petition. AtParagraph No.9 of the said order, it is recorded by theBIFR that the 1[st] petitioner company herein hasbecome sick industrial company as on 31-03-1999. The relevant portion of the same reads as follows: “ After considering thesubmissions made and keeping inmind AAIFR’s order dated 1.11.2004in Appeal No.263/2002 filed by KSL,the Bench was satisfied that thecompany had become a sickindustrial company as on 31.3.1999in terms of Section 3(1)(o) of SICAand accordingly declared it to beso. Accordingly, the company’sCase Nos. 114/2003, 272/2004 and278/2004 would becomeinfructuous.” Orders under Sections 201 and 201(1A) of theIncome Tax Act, dated 28-02-1997, were issued bythe Income Tax Officer, Ward-5(3), (TDS),Hyderabad, demanding payment of an amount ofRs.25,88,335/- from the 1[st] petitioner. The details ofsuch demand as per the counter affidavit filed in thewrit petition are as follows: “Financial Year-1994-95:Demand u/s.201 for non remittanceof tax deducted .. Rs.4,53,458Interest u/s.201(1A) on thedefault amount for the period of default .. 1,30,394 Financial Year-1995-96:Demand u/s.201 for non remittanceof tax deducted .. Rs.13,61,031Interest u/s.201(1A) on thedefault amount for the period of default .. 2,49,492 Financial Year-1996-97:Demand u/s.201 for non-deductionof tax at source .. Rs. 3,93,960 ____________.. Rs.25,88,335 _____________ Aggrieved by the same, the1[st] petitioner carried the matter in appeal before theCommissioner of Income Tax (Appeals)-V,Hyderabad. By an order dated 14-12-2001, the appeal was partly allowed. Dealing with the demand of theappellate authority observed that “…no basis ordetails were mentioned in the order except raisingthe demand”. Further, at Paragraph No.8 of theappellate order, it is observed that the order underappeal was very cryptic and not a speaking order, inthe following words. “8. I have carefully consideredthe facts of the case and thesubmissions of the appellant. Thereis no doubt that the order passed bythe Assessing Officer is verycryptic in nature and cannot be saidto be speaking order. However,considering the facts on record andthe submissions made by theappellant, the appeal is disposed orunder.” Insofar as financial year 1995-96 is concerned,the appellate authority recorded a finding at ParagraphNo.10.1 that the 1[st] petitioner is not liable to deductcertain amount of tax at source, to the followingeffect: “ 10.1 Accordingly, it is heldthat the appellant was not liable todeduct tax at source on payment ofsalary and remuneration amountingto Rs.1,65,360/- and Rs.1,20,800/-respectively on the ground that nosuch payment was actually madeeven though the amounts werecredited in the books of accounts during the financial year 1996-97.” Insofar as financial year 1995-96 is concerned,the appellate authority recorded a finding at ParagraphNo.10.1 that the 1[st] petitioner is not liable to deductcertain amount of tax at source, to the followingeffect: “ 10.1 Accordingly, it is heldthat the appellant was not liable todeduct tax at source on payment ofsalary and remuneration amountingto Rs.1,65,360/- and Rs.1,20,800/-respectively on the ground that nosuch payment was actually madeeven though the amounts werecredited in the books of accounts during the financial year 1996-97.” It is further held at Paragraph No.10.4, that ademand of Rs.2,52,027/- as well as the consequentialinterest thereon under Sections 201 and 201(1A) ofthe Act, pertaining to the tax deductible at source onthe dividend payments, is not sustainable and thesame are deleted. Paragraph No.10.4, reads asfollows: “ 10.4 So far as TDS onaccount of dividend payments isconcerned, the provision of sec.194of the Act is very clear. Theappellant was liable to deduct tax atsource on the dividends beforemaking any payment. However,since no payment was made in thiscase and the Assessing Officer hasnot given a finding to the contrary,the demand raised u/s., 201 of theAct amounting to Rs.2,52,027/- aswell as consequential interestcharged U/s.201 (1A) of the act,cannot sustained and hence, thesame are deleted.” Coming to the financial year 1996-97 isconcerned, the appellate authority directed theAssessing Officer to verify whether certain paymentsof salaries and remunerations were actually made tothe staff and the Director of the company during thesaid financial year and on verification, if it is found that the payments were actually made, the demandwould stand confirmed. The relevant portion to theabove effect at Paragraph No.11, reads as follows: “ … Form the submissions ofthe appellant, it is not clear as towhether the salaries, andremuneration were paid to staff andthe Directors, Therefore, theAssessing Officer is directed toverify if such payment was actuallymade and in the event of paymenthaving been made during thefinancial year 1996-97, the liabilityof the appellant as computed by theAssessing Officer Under Section201 (1) of the Act, will standconfirmed. In the result, the appeal is partlyallowed.” In substance, the appellate order straightawayheld that out of the demand of Rs.25,88,335/-originally made by the I.T.O., by his order dated 28-02-1997, Rs.5,38,187/- is unsustainable apart fromholding that the interest charged under Section201(1A) of the Act on the amount of Rs.2,52,027/- forthe financial year 1995-96, is also unsustainablethough it was not quantified by the appellate authority. A consequential order came to be passed bythe I.T.O., concerned on 27-02-2002. Curiously, withreference to the financial year 1995-96, the I.T.O.,refers only to the deletions made by the appellate authority at Paragraph No.10.4, of the appellate orderand no deduction is made of the amounts specified inParagraph No.10.1 of the order, amounting toRs.2,86,160/- and passed a revised demand order foran amount of Rs.23,01,655/-. It appears from the affidavit filed by thepetitioners and the counter affidavit filed by theDepartment that the abovementioned demandincludes certain amount, allegedly deducted at sourceby the 1[st] petitioner from out of the payments madeby it to one M/s. Ramdas & Company. The said M/s.Ramdas & Company filed its income tax returns forthe relevant assessment year, (though it is not veryclear from the pleading) claiming credit for certainamounts allegedly deducted by the 1[st] petitionerherein. Even according to the counter affidavit, thesaid claim of M/s. Ramdas & Company was rejectedby the Department. Therefore, the said M/s. Ramdas& Company approached this Court earlier by way ofW.P.No.35753 of 1998, wherein the 1[st] petitionerherein was the It appears from the affidavit filed by thepetitioners and the counter affidavit filed by theDepartment that the abovementioned demandincludes certain amount, allegedly deducted at sourceby the 1[st] petitioner from out of the payments madeby it to one M/s. Ramdas & Company. The said M/s.Ramdas & Company filed its income tax returns forthe relevant assessment year, (though it is not veryclear from the pleading) claiming credit for certainamounts allegedly deducted by the 1[st] petitionerherein. Even according to the counter affidavit, thesaid claim of M/s. Ramdas & Company was rejectedby the Department. Therefore, the said M/s. Ramdas& Company approached this Court earlier by way ofW.P.No.35753 of 1998, wherein the 1[st] petitionerherein was the 3[rd] respondent. The said writ petition came to bedisposed of by an agreed/consent order dated 27-06-2000. The petitioner herein and theabovementioned M/s. Ramdas & Company,represented by its partner Smt. Ranjana Varma, were directed to appear before the Assistant Commissionerconcerned for determination of the amounts actuallydeducted by the 1[st] petitioner herein while makingpayment to the said M/s. Ramdas & Company. It isto be mentioned here that the Income TaxDepartment, represented by two of its officers, was aparty to the abovementioned agreed/consent order. However, by an order dated 27-03-2001, the DeputyCommissioner of Income Tax (Appeals)-III,Hyderabad, passed an order, after hearing both theparties as directed by this Court, raising a demand ofonly Rs.13,57,219/-, insofar as the assessment year1996-97 is concerned. Aggrieved by the said determination, the 1[st] petitioner filed an appeal before the Commissionerof Income Tax (Appeals)-III, Hyderabad. By an orderdated 20-01-2003, the appellate authority allowed theappeal in-toto, on the ground that the order dated 27-03-2001, is an order without jurisdiction, leaving itopen to the Assistant Commissioner concerned, tomake a determination as was directed by this Courtwhile disposing of W.P.No.35753 of 1998. Admittedly,such a determination has never come to be madeeven as on today. In the meanwhile, a criminal case in C.C.No.9of 2000, came to be registered by the Department against the petitioners before the Special Judge forEconomic Offences, Hyderabad under Sections 276Band 276C(2) r/w Section 278B(1)(2) of the IncomeTax Act. The case of the petitioners is that in view of thefact that the liability of the petitioners to pay tax forthe financial year 1995-96, is not finally determined sofar by the Department though the petitioners arewilling to pay any amount of tax, etc., legally due fromthem on an appropriate determination of the same inthe light of the earlier order of this Court inW.P.No.35753 of 1998, dated 27-06-2000. It isspecifically averred by the petitioners in the affidavitfiled in support of the writ petition at Paragraph No.17that on 05-12-2006, they addressed a letter to the 1[st] respondent herein, offering to pay the entireamount of tax and other statutory dues with referenceto the abovementioned financial years and alsoexpressing their willingness to compound the offencein accordance with law. The 1[st] respondent did notrespond to the said letter. Hence, the present writpetition with the prayer as follows: “ For the reasons stated in theaccompanying affidavit, thepetitioners herein prays that thisHon’ble court may be pleased toissue an appropriate Writ, order ordirection more particularly one in the nature of Writ of Mandamusdirecting the Respondents to passappropriate orders in the applicationmade by the Petitioners on 5-12-2006 to decide the dispute regardingthe payment of compounding fee onthe amount payable under theIncome Tax Act, 1961 to therespondents for the assessmentperiod of 1995 to 1998 till the saidmatter is decided not to take anycoercive steps, and to pass suchother order or orders as this Hon’blecourt may deem fit and proper in thecircumstances of the case.” “ For the reasons stated in theaccompanying affidavit, thepetitioners herein prays that thisHon’ble court may be pleased toissue an appropriate Writ, order ordirection more particularly one in the nature of Writ of Mandamusdirecting the Respondents to passappropriate orders in the applicationmade by the Petitioners on 5-12-2006 to decide the dispute regardingthe payment of compounding fee onthe amount payable under theIncome Tax Act, 1961 to therespondents for the assessmentperiod of 1995 to 1998 till the saidmatter is decided not to take anycoercive steps, and to pass suchother order or orders as this Hon’blecourt may deem fit and proper in thecircumstances of the case.” In view of the peculiar facts of the case, morespecifically, the earlier order of this Court inW.P.No.35753 of 1998, dated 27-06-2000 and also inview of the fact that the determination, pursuant to thesaid agreed order, never came to be made, wethought it fit to call upon the respondents to file acounter affidavit at the stage of admission itself, inorder to give a quietus to the prolonged litigation. The fact that the final tax liability of thepetitioners insofar as the financial year 1995-96 isconcerned, is not yet determined, is not controvertedby the respondents in their counter affidavit. Regarding the claim for credit of certain deductionsmade by the petitioners at Paragraph No.8 of theaffidavit filed in support of the writ petition, the respondents state as follows in their counter affidavit: “ 5. It is further submitted thatwith reference to the contents inpara 8 of the writ affidavit that therespondents ought to have deductedan amount of Rs.5,81,000/0 fromthe demand raised against it, it ishumbly submitted that the amountof Rs.98,000/- paid by it throughCathelic Syrian Bank Ltd., andfurther sum of Rs.1,95,000/- paid byit in terms of earlier orders of thisHon’ble Court inW.P.No.35753/1998 is being givencredit against the demand raised. The other contention of the writpetitioner as mentioned in para 8 ofwrit affidavit relating to adjustmentof Rs.2,88,000/- from the creditavailable with the Department, it ishumbly submitted that the saidcontention is lack of relatedparticulars. However, the saidclaim will be considered inaccordance with law, on submissionof related details with supportingdocuments by the writpetitioner…………” Stating so, the respondents claim as follows: “ …………. The balanceamount payable by the writpetitioner after giving credit to theabove mentioned two payments isas under: Demand as per the consequential order dated 27-02-2002 .. Rs.23,01,655 Payment made on 26-11-1998 .. Rs. 98,000 Payment made on 28-06-2000 .. Rs. 1,95,000 ____________ Balance amount payable [excluding interest u/s.220(2)] .. Rs.20,08,655 ____________ Insofar as the representation of the petitionersdated 05-12-2006 is concerned, the respondents takea stand at Paragraph No.7 of the counter affidavit asfollows: “ ……. It is further submittedthat the orders of demand relating toTDS since vests with the 2[nd]respondents, the petitioner oughttohave submitted its representationto the said office instead ofsubmitted to the 1[st] respondent whois not the authority dealing with theTDS matters……..” This court can only place on record itsunhappiness on the state of affairs. It sounds strangeto hear from the respondents that the petitionersmade a representation to a wrong authority, while onthe record of this case it is established that anauthority without jurisdiction made a determination ofthe tax liability of the petitioners with reference to the ____________ Insofar as the representation of the petitionersdated 05-12-2006 is concerned, the respondents takea stand at Paragraph No.7 of the counter affidavit asfollows: “ ……. It is further submittedthat the orders of demand relating toTDS since vests with the 2[nd]respondents, the petitioner oughttohave submitted its representationto the said office instead ofsubmitted to the 1[st] respondent whois not the authority dealing with theTDS matters……..” This court can only place on record itsunhappiness on the state of affairs. It sounds strangeto hear from the respondents that the petitionersmade a representation to a wrong authority, while onthe record of this case it is established that anauthority without jurisdiction made a determination ofthe tax liability of the petitioners with reference to the financial year 1995-96 is concerned, which waspromptly set aside by the appellate authority, who isno other than his superior in the Department. If theofficers of the Department are not sure of theirjurisdiction, citizens can hardly be blamed for makinga representation to a wrong authority. At any rate, thefact that such a representation was received by the1[st] respondent is not disputed. The representation iscategoric and the petitioners clearly desirous to paythe entire tax along with other dues and compound theoffence. The relevant portion of the representation isas follows: “In view of the foregoing facts,the company prefers to compoundthe offences to put a stop to thelong pending litigation in variousforums and to mitigate the ongoingprosecution amicably to buy peace,apart from discharging the taxliability. Therefore the companydesires to know the current positionof demands outstanding undervarious sections with the dates oforders and the likely compoundingfee payable, therefore kindly notifythe quantum of financial liability ofthe company for compounding theoffences in the light of the variousorders passed by the department asmentioned above, to enable thecompany to file a suitablecompounding petition before theChief Commissioner of Income Taxfor compounding the offence.” In such circumstances, we find the attitude ofthe Department wholly unjustified. We are of theopinion that the people cannot be prosecuted merelythere is technical prejudice of law. We have alreadynoticed that even according to the appellate orderdated 14-12-2001, the original determination isabsolutely laconic and without disclosing any basis. The consequential order dated 27-02-2002, as alreadyobserved is ex facie not in tune with the appellateorder. Coupled with these factors, the willingness ofthe petitioners to pay the entire amount of tax legallydue from them as and when the same is determinedand also the willing ness to compound the offence,lead us to the conclusion that it would be just andappropriate, in the totality of the circumstances, todirect the respondents to determine the amount of taxand other charges legally due from the petitioners inthe light of the order of the Commissioner dated 14-12-2001 and the earlier order of this Court inW.P.No.35753 of 1998, dated 27-06-2000, within aperiod of eight weeks from the date of receipt of acopy of this order and permit the petitioners tocompound the offence complained in C.C.No.9 of2000 referred to earlier. We further feel it just andproper in the background of the case that the petitioners shall deposit an amount of Rs.15-00 lakhswith the petitioners shall deposit an amount of Rs.15-00 lakhswith the 2[nd] respondent, within a period of two weeks from thedate of receipt of a copy of this order, to establishtheir bona fides in making the assertion that they arewilling to pay the entire amount of tax and otheramounts legally due from them and also compoundingthe offence. The said amount shall be appropriatedafter the final determination of the tax liability of thepetitioners, as indicated above, without prejudice tothe authority of the respondents to recover any furthersum, if really found due on such determination or theamount or a part of it, if it is found not, eventually, notdue from the petitioners, shall be refunded to thepetitioners forthwith. In view of the order passed today, we are alsoof the opinion that it is also just and necessary todirect the respondents not to proceed with theprosecution of C.C.No.9 of 2000 referred above,against the petitioner. For the foregoing discussion, with the abovedirections, the writ petition is disposed of at the stageof admission. ----------------------J.Chelameswar, J ----------------- D.Appa Rao, J 19[th] January, 2007mrk W.P.M.P.No.1235 of 2007 When the matter is listed today for pronouncementof the judgment, the present miscellaneous petition cameto be filed by a third-party. The entire dispute in the writ petition revolvesaround the allegation of the liability of the writ petitionerto deduct certain amounts towards income tax, which isallegedly required to be deducted by the writ petitionerwhile making payment to the present implead petitioner. The fact that there were certain transactions between thewrit petitioner and the present implead petitioner is not indispute, though there is some dispute about the liability tomake the deduction as alleged by the department andalso to the quantum of the money to be deducted. Earliera Division Bench of this Court directed to determinethese issues (the same was referred to in the judgmentpronounced today) and such determination has not takenplace so far. In the circumstances and in view of the directionsgiven today to the respondents to make the determinationof the writ petitioner’s liability for tax, we deem itappropriate to direct the respondents to afford anopportunity to the implead petitioner also while makingsuch a determination. With the above direction, the miscellaneouspetition is disposed. ----------------------J.Chelameswar, J-----------------D.Appa Rao, J 19[th] January, 2007mrk