Bombay High Court
Avana Global Fzco vs Deputy Commissioner Of Income Tax ... on 5 March, 2024
Author: Gs Patel
Bench: G.S.Patel
2024:BHC-OS:3896-DB Avana Global FZCO v Deputy Commissioner of Income
Tax & Ors
906-OSWP-879-2024-J+.doc
Arun
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 879 OF 2024
Avana Global FZCO,
C/o D 301 to 305, Level 3, Tower II
Seawoods Grand Central, Avana Logistek
Limited, Seawoods Navi Mumbai, Navi
Mumbai 400 706 ...Petitioner
~ versus ~
1. Deputy Commissioner of
Income Tax,
International Tax, Circle 1(1)(2),
Room No 528, 5th Floor,
Air India Building, Nariman Point,
Mumbai 400 021.
ARUN
RAMCHANDRA
SANKPAL
2. Additional Commissioner
Digitally signed
by ARUN
of Income Tax,
RAMCHANDRA
SANKPAL
Date: 2024.03.08
International Tax, Circle 1(1)(2),
10:03:39 +0530
Room No 528, 5th Floor,
Air India Building, Nariman Point,
Mumbai 400 021.
3. Centralized Processing
Centre,
Income Tax Department,
Bengaluru 560 500
4. The Union of India, ...Respondents
Through Joint Secretary and Legal
Adviser, Branch Secretariat,
Department of Legal Affairs, Ministry
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of Law and Justice, 2nd Floor, Aayakar
Bhavan, MK Road, New Marine Lines,
Mumbai 400 020.
A PPEARANCES
for the petitioner Mr Divesh Chawla, i/b Atul K
Jasani.
for the respondents Mr Suresh Kumar, with Mohini
Chougule & Jyoti Yadav, i/b
Suresh Kumar.
CORAM : G.S.Patel &
Kamal Khata, JJ.
DATED : 5th March 2024
ORAL JUDGMENT (Per GS Patel J):-
1. Rule. Rule returnable forthwith. There is an Affidavit in
Reply.
2. The prayers in the Petition are as follows:
"(a) that this Hon'ble Court may be pleased to issue a
Writ of Certiorari, or a Writ in the nature of Certiorari, or
any other appropriate Writ, order or direction under Article
226 of the Constitution of India, calling for the records of
the present case and after examining the legality and
validity thereof quash and set aside:
(i) the action of Respondent No. 3 on 9th March
2023 of adjusting the refund of Rs.3,53,99,815/- for
AY 2017-18, against demand for AY 2018-19,
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wherein stay applications were pending and without
issuing any intimation to the Petitioner under
Section 245 of the Income Tax Act, 1961;
(ii) the action of Respondent No. 3 on 10th
March 2023, of adjusting the refund of
Rs.2,30,52,355/- and Rs.80,74,925/- for AY 2022-23,
against stayed tax demand for AY 2018-19, wherein
stay applications were pending and without issuing
any intimation to the Petitioner under Section 245 of
the Act; and
(iii) the inaction of the Respondent No. 1 in
disposing off the stay application and rectification
application for AY 2018-19 and rectification
application for AY 2017-18 and AY 2022-2023 filed
by the Petitioner.
(b) that this Hon'ble Court may be pleased to issue a
Writ of Mandamus or a Writ in the nature of Mandamus, or
any other appropriate Writ, order or direction under Article
226 of the Constitution of India, directing the Respondents
to issue consequential refunds of Rs.3,53,99,815/- and
Rs.2,30,52,355/- and Rs.80,74,925/- for AY 2017-18 and AY
2022-23 respectively aggregating to Rs.6,65,27,095/- to the
Petitioners along with interest under Section 244A of the
Act up to the date of payment within a fixed time frame;
(c) that this Hon'ble Court may be pleased to issue a
Writ of Mandamus or a Writ in the nature of Mandamus, or
any other appropriate Writ, order or direction under Article
226 of the Constitution of India, directing the Respondents
to issue consequential refunds of on any further amounts
determined by the rectification application."
3. As the prayers indicate, the first challenge is to the purported
adjustment by Respondents Nos 1 to 3 of a refund of Rs
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3,53,99,815/- for the AY 2017-2018 against a demand for the
subsequent AY 2018-2019. There were applications pending for the
subsequent AY 2018-2019. However, the case of the Petitioner is
that the Petitioner was given no intimation under Section 245 of the
Income-Tax Act, 1961 ("IT Act").
4. The prayer clause (a)(ii) is in similar terms but is in regard to
two amounts of Rs 2,30,52,355/- and Rs 80,74,925/- and the
adjustment on 10th March 2023 for the AY 2022-2023 against the
demand for AY 2018-2019. Although this demand was stayed and
the stay application was pending, here again there was no intimation
under Section 245 of the IT Act.
5. The third substantive prayer is directed to the failure of the
1st Respondent, the Deputy Commissioner of the Income Tax
Department to dispose of the stay application and the rectification
application for the AY 2018-2019 and the rectification applications
for the AYs 2017-2018 and 2022-2023.
6. Prayer clauses (b) and (c) are for corresponding writs of
mandamus.
7. The prayers make it clear that the entirety of the case is
centred around the interpretation of Section 245 of the IT Act.
Specifically, the question is whether an intimation under this
Section is or is not mandatory. In another manner of speaking, the
question is whether the Revenue can set off or withhold a refund
without an intimation under Section 245 of the IT Act.
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8. Section 245 of the IT Act reads as follows:
"245. (1) Where under any of the provisions of this Act,
a refund becomes due or is found to be due to any person,
the Assessing Officer or Commissioner or Principal
Commissioner or Chief Commissioner or Principal Chief
Commission, as the case may be, may, in lieu of payment of
the refund, set off the amount to be refunded or any part of
that amount, against the sum, if any, remaining payable
under this Act by the person to whom the refund is due,
after giving an intimation in writing to such person of the
action proposed to be taken under this sub-section.
(2) Where a part of the refund is set off under the
provisions of sub-section (1), or where no such amount is
set off, and refund becomes due to a person, and the
Assessing Officer, having regard to the fact that proceedings
for assessment or reassessment are pending in the case of
such person, is of the opinion that the grant of refund is
likely to adversely affect the revenue, he may, for reasons to
be recorded in writing and with the previous approval of the
Principal Commissioner or the Commissioner, as the case
may be, withhold the refund up to the date on which such
assessment or reassessment is made."
9. As Section 245(1) shows, it is permissible for the Revenue to
set off a refund that is found due against a demand but only after an
intimation is given in writing to the person of the action proposed,
i.e., the proposed set off or adjustment. Sub-section (2) of Section
45 was introduced by an amendment. It speaks of a set off of part of
a refund or an alternative scenario where there is no set off and a
refund becomes due. In that situation, if the Assessing Officer
having regard to the fact that the proceedings for assessment or
reassessment are pending, forms an opinion that the grant of a
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refund is likely to adversely affect the Revenue, he may, after
recording reasons in writing and with the previous approvals of the
Principal Commissioner, as the case may be, withhold the refund up
to the date on which that assessment or reassessment is made.
10. There are also relevant circulars of 2013 in regard to
compliance of Section 245 before making any adjustment of a
refund.
11. The Affidavit in Reply on behalf of the Revenue is exceedingly
peculiar. From paragraph 5.5 there are several sub-paragraphs that
deal with the various assessment proceedings and the pendency of
the stay proceedings. However, sub-paragraph (1) at internal page 6
clearly says that the adjustment by the CPC was effected without
issuing a Notice under Section 245 of the IT Act. Sub-paragraphs
(2) and (3) deal with a question of Tax Deducted at Source
("TDS") credit but also mention an adjustment of the refund. It is
therefore undisputed that no intimation under Section 245 of the IT
Act was ever issued to the Petitioners.
12. The aggregate figures are like this. The refund for the AY
2017-2018 is Rs 3,53,99,815/-, for the AY 2022-2023 the refund is
Rs 3,11,27,280/-. The total refund due is Rs.6,65,27,095/-.
13. If the rectification applications are taken into account, there
are additional refunds that are due. For the AY 2017-2018, the
additional refund would be Rs.5,89,648/-; for the AY 2018-2019,
the additional refund due would be Rs.82,97,926/- and for the AY
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2022-2023, the additional refund due, if rectification is permitted
and is given effect to, would be Rs 3,56,75,300/-; coming to the
additional total of Rs 4,45,62,874/-.
14. Paragraphs 3(a) and (b) of the Petition from pages 25 to 27
read thus:
"(a) On 9 March 2023, Respondent No 3 adjusted the
refund of Rs.3,53,99,815/- for AY 2017-2018 against the
disputed demand for AY 2018-19 without issuing any
intimation to the Petitioner under Section 245 of the
Income Tax Act, 1961 (hereinafter referred to as "Act") and
without disposing off the stay application dated 23
September 2021 and letter dated 9 November 2022 filed by
the Petitioner for AY 2018-19, which is wholly erroneous,
arbitrary and contrary to law and judicial precedents.
Further, without considering that the issues are covered in
favour of the Petitioner by the order passed by the Hon'ble
Income Tax Appellate Tribunal (hereinafter referred to as
"Tribunal") for the AY 2016-17 and 2017-18, it shows
non-application of mind, which is wholly erroneous,
arbitrary and contrary to law. Hereto annexed and marked
as Exhibit "A" and "B" is a screenshot of the TIN NSDL
website and corresponding challan status as per OLTAS
reflecting the status of the income tax refund for AY 2017-
18 as adjusted against the demand for AY 2018-19;
(b) On 10 March 2023, Respondent No 3 adjusted the
refunds of Rs.2,30,52,355/- and Rs.80,74,925/- for AY
2022-23 against the demands for AY 2018-19 without
issuing any intimation to the Petitioner under section 245 of
the Act and without disposing off the stay application dated
23 September 2021 and letter dated 9 November 2022 filed
by the Petitioner for AY 2018-19 which is wholly erroneous,
arbitrary and contrary to law and judicial precedents.
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Further, without considering that the issues are covered in
favour of the Petitioner by the order passed by the Hon'ble
Tribunal for the AY 2016-17 and 2017-18, it shows non-
application of mind, which is wholly erroneous, arbitrary
and contrary to law. Hereto annexed and marked as Exhibit
"C" and "D" is a screenshot of the TIN NSDL website
and corresponding challan status as per OLTAS reflecting
the status of the income tax refund for AY 2022-23 as
adjusted against the demand for AY 2018-19."
15. There is then in paragraph 7, for the AY 2017-2018, there is a
specific averment that the 3rd Respondent adjusted the refund
against an outstanding demand for the AY 2018-2019 but failed to
consider that the stay application filed by the Petitioner for that AY
was pending. Further, the adjustment was made without any
intimation under Section 245 of the IT Act.
16. For the AY 2018-2019 there was also a stay application. That
was not disposed of. We are today not concerned with the merits of
the stay application. But paragraph 14 mentions that even for this
AY 2018-2019 the demand was adjusted against the refund
determined for the AY 2017-2018 and the AY 2022-2023 despite
the stay application being pending and also without an intimation
under Section 245 of the IT Act.
17. For the AY 2022-2023, the Petitioner had filed a rectification
application inter alia in regard to short TDS credit. The Petitioner
raised a grievance that refunds had been adjusted without intimation
under Section 245 of the IT Act and without an opportunity of
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being heard. As noted, the Petitioner had filed a stay application for
the entirety of the demand for the AY 2018-2019.
18. Paragraph 21 mentions that an online grievance has been filed
but there has been no intimation. Paragraphs 22 and 23 of the
Petition read as follows:
"22. Respondents No 3, on 9 March 2023, without issuing
any intimation under Section 245 of the Act and contrary to
the record and law, and without complying with the
procedure under Section 245 of the Act, wrongfully
adjusted the refunds for AY 2017-18 amounting to
Rs.3,53,99,815/- (refund determined as per OGE of
Rs.3,64,59,590/- less Taxes Deducted at Source of
Rs.10,59,775/- on interest thereon) against the disputed
demand for AY 2018-19 of Rs.5,84,53,170/- (wherein the
issues are entirely covered in favour of the Petitioner by he
order passed by the Hon'ble Tribunal in earlier AYs and the
stay application were pending disposal.
23. Similarly, Respondent No 3, on 10 March 2023,
without issuing any intimation under Section 245 of the Act
and contrary to the record and law, and without complying
with the procedure under Section 245 of the Act,
wrongfully adjusted the refunds for AY 2022-23 amounting
to Rs.3,11,27,280/- (refund determined in the intimation
issued under section 143(1) of Rs.3,18,77,915/- less Taxes
Deducted at Source of Rs.7,50,635/- on interest) entirely
against the demand including interest under section 220 of
he Act for AY 2018-19 (wherein the issues are entirely
covered in favour of the Petitioner by the order passed by
the Hon'ble Tribunal in earlier AYs and the stay application
were pending disposal)."
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19. Reliance is placed by the Petitioners on the following
authorities: Jet Privilege (P) Ltd v Deputy Commissioner of Income
Tax- 5(2)(1), Mumbai,1 decided by a Division Bench of this Court
and Hindustan Unilever Ltd v Deputy Commissioner of Income Tax-
1(1),2 also decided by a Division Bench of this Court.
20. In Hindustan Unilever Ltd, the Division Bench referenced
Section 245 read with Section 220 of the IT Act. The relevant
findings of the Division Bench in paragraphs 14, 15, 24 and 26 are
reproduced hereunder. .
"14. Section 245 of the Act, empowers the revenue to
adjust refunds due to an assessee against any tax
payable(of the same character as the refund due) by
him. The exercise of this power is discretionary as is
evident from the use of the word "may" therein.
Besides the requirement of giving notice/intimation of
the proposed action of adjustment out of the refund due
is also an indication of discretionary nature of power not
mandatory. This notice/intimation is required to be
given so as to enable a party to point out not only factual
errors but also point out why such a power should not be
exercised in the facts of the case, such as the demand
sought to be adjusted is still a subject matter of appeal
and the issue is covered by decisions of higher forums
etc. On consideration of the same, it is open to the
officer of the revenue concerned to exercise its
discretion, to adjust or not. This giving of prior
intimation has been held by this Court in A.N. Shaikh,
Sixteenth ITO v. Suresh B Jain [1987] 165 ITR 86/[1986]
29 Taxman 191 to be mandatory before any adjustment
1 (2021) 131 taxmann.com 119; 2021 SCC OnLine Bom 1799.
2 (2015) 60 taxmann.com 326; 2015 SCC OnLine Bom 6006.
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can be made. The exercise of powers under Section 245
of the Act being discretionary has also been so held by
the Delhi High Court in Glaxo Smith Kline Asia (P) Ltd.
V. CIT [2007] 290 ITR 35/160 Taxman 259. We
respectfully concur with the above view of the Delhi
high Court that the power under Section 245 of the Act
is discretionary. Thus the exercise of a power of
adjusting demands out of refunds due would depend
upon the facts and circumstances of each case.
15. In view of the above, as held by this Court in
A.N.Shaikh, Sixteenth ITO's case (supra) the giving of prior
intimation under Section 245 of the Act is mandatory. The
purpose being to enable the party to point out that there are
factual errors or some further developments, if any, for
example a stay of the demand, Supreme Court decision
covering the demand which is still a subject matter of a
pending appeal etc which would warrant not adjusting the
refund against the pending demand. Thus when a party
does raise such issues in response to a prior intimation,
the officer of the revenue exercising powers under
Section 245 of the Act must apply his mind to it and
must record reason why the objection is not sustainable
and also communicate it to the party. This before or at
the time of adjusting the refund. This alone would
ensure that that the power of adjustment under Section
245 of the Act is not exercised arbitrarily. Such a
procedure would cause no prejudice to the revenue as
the occasion to grant the refund would not arise till the
objection to the intimation is disposed of. Of course the
objections should be disposed of expeditiously as undue
delay in granting of refund would cause prejudice to the
party entitled to the refund.
24. The Delhi High Court in the case of Maruti Suzuki
India Ltd. (supra) had an occasion to deal with a similar
contention as is being raised by the Revenue in the present
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case namely the recovery of tax cannot and would not
include adjustment under Section 245 of the Act and the
stay of recovery under Section 220(6) of the Act would not
fetter the rights of the Revenue to adjust the demands out
of refund due to the assessee. This submission was
negatived by the Delhi High Court holding that recovery
could be made by various modes including adjustment
under Section 245 of the Act. The Delhi High Court held
that where an authority grants a stay of recovery under
Section 220(6) of the Act, it could provide in that order
granting stay of the recovery that the same would not be
extended to adjustment of refund. In cases where the stay
order is in absolute terms, it would be inappropriate on the
part of the Revenue to adjust the demand by way of
adjustment. The Delhi High Court observed as under:
".... However, when an order of stay of
recovery in simplistic and absolute terms is
passed, it would be improper and
inappropriate on the part of the Revenue to
recover the demand by way of adjustment. In
case of doubt or ambiguity, an application for
clarification or vacation/modification of stay
to allow adjustment can be, and should be
filed. But no attempt should be made and it
should not appear that the Revenue has tried
to overreach and circumvent the stay order.
Obedience and compliance with the stay order
in letter and spirit is mandatory. A stay order
passed by an appellate/higher authority must
be respected. No deviance or breach should be
made."
(Emphasis supplied)
We are in respectful agreement with this view.
26. The power under Section 245 is discretionary. The
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orders of stay have to be honoured before adjustment of the
demand out of refund is done by the Revenue. If the
Assessing Officer did not accept the assessee's contention
at the time of making the adjustment, the petitioner should
have been informed as to why the objections of the assessee
to the adjustment is not sustainable. Unless the Assessing
Officer exercising power under Section 245 of the Act
subjects himself to this discipline, he would be exercising
his powers in an arbitrary manner."
(Emphasis added)
21. Rule was accordingly made absolute.
22. Similarly in Jet Privilege, the Division Bench had before it an
almost identical question regarding Section 245. We reproduce
paragraphs 4 to 10.
"4. Mr. Pardiwalla states that alongwith appeal
challenging the demand for A.Y. 2015-16 and 2016-17, Stay
Applications were also filed and orders have been stayed
upon petitioner depositing 20% of the demand amounts.
The fact of petitioner depositing 20% has not been disputed
though Mr. Walve states that extension to deposit 20% for
A.Y. 2016-17 was not granted but petitioner still went ahead
and deposited it. In our view that should not really matter
because 20% has been deposited and respondents have
accepted the same. The stay for both A.Y. 2015-16 and
2016-17 have to be in force.
5. Mr. Pardiwalla submitted that before any adjustment
is made, it is mandatory to give intimation under Section
245 of the Act to the person to whom the refund is due of
the proposed action. In this case, admittedly, and we say
admittedly because the affidavit in reply/additional affidavit
filed by respondent confirms that the intimation under
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Section 245 of the Act was given only on 13th May, 2020.
At this point, if one refers to Form 26 AS which is the
annaul tax statement under Section 203 (AA) of the Act for
the A.Y. 2015-16 and for A.Y. 2016-17, adjustment against
the refund due has been made on 5th May, 2020, whereas
the mandatory notice under Section 245 of the Act has been
given only on 13th May, 2020. Mr. Pardiwalla submits that
it is settled law that failure to comply with this mandatory
requirement of prior intimation would make the entire
adjustment as wholly illegal and therefore, respondent
could not have made the adjustment as they wanted to.
Mr. Pardiwalla also submitted in any event,
petitioner having deposited 20% amount and stay having
been granted under Section 220 (6) of the Act, it would
mean that the time to make payment stands extended and
petitioner shall not be treated to be an assessee in default for
the recovery provisions to be set in motion and therefore,
the entire amount refundable after giving credit to the
amount already refunded becomes payable together with
accumulated interest.
6. Mr. Walve for respondent in fairness and in view of
the affidavit in reply filed fairly accepted that intimation
required under Section 245 of the Act was given only on
13th May, 2020. But his explanation is that the process for
intimating petitioner under Section 245 of the Act about
outstanding demand and interest payable was initiated on
17th March, 2020 but due to technical error, the intimation
got stuck and could not be delivered to the assessee's
registered E-mail id. Mr. Walve submitted that on 13th
May, 2020 technical error got rectified in CPC portal and
intimation under Section 245 of the Act was sent to the
assessee.
7. For ease of reference, we shall quote Section 245 of
the Act, which read as under;
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245. Set off of refunds against tax remaining
payable 2 Where under any of the provisions
of this Act, a refund is found to be due to any
person, the [Assessing] Officer, Deputy
Commissioner (Appeals)], Commissioner
(Appeals)] or Chief Commissioner or
Commissioner], as the case may be, may, in
lieu of payment of the refund, set off the
amount to be refunded or any part of that
amount, against the sum, if any, remaining
payable under this Act by the person to whom
the refund is due, after giving an intimation in
writing to such person of the action proposed
to be taken under this section.
8. Mere perusal of the section makes it clear that the
officers mentioned in the section, as the case may be, may,
in lieu of payment of the refund, set off the amount to be
refunded or any part of that amount, against the sum, if any,
remaining payable under the Act by the assessee to whom
the refund is due. The officer may set off the amount to be
refunded or any part of that amount only after giving an
intimation in writing to the assessee of the action that he
proposed to take under this section. Therefore, it clearly
requires the intimation to be given prior to the officer sets
off the amount payable against the amount to be refunded.
It can be neither simultaneous nor subsequent.
We find support for this view in Suresh B. Jain v.
A.N. Shaikh, Sixteenth Income-tax Officer [1986] 28 Taxman
321 [1987] 165 ITR 151 (Bom.), confirmed by the Division
Bench of this court in A.N. Shaikh, Sixteenth Income-tax
Officer v. Suresh B. Jain [1986] 29 Taxman 191 [1987] 165
ITR 86 (Bom.) and in Hindustan Unilever Limited v. Deputy
Commissioner of Income-tax-1 [2015] 60 taxmann.com
326/233 Taxman 353/377 ITR 281 (Bom.) relied upon by Mr.
Pardiwalla.
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9. The fact that respondent has not followed the
mandatory prior requirement of intimation under
Section 245 of the Act would make the adjustment
wholly illegal and therefore, respondent was clearly in
error in not refunding the amount.
10. As per the Office Memorandum [F. No. 404/72/93 -
ITCC] issued dated 29th February, 2016, amended by
another Office Memorandum dated 25th August, 2017 the
assessing officer shall grant stay of demand where the
outstanding demand is disputed on assessee paying 20% of
the disputed demand. Admittedly, petitioner has filed an
appeal disputing the outstanding demand for A.Y. 2015-16
and A.Y. 2016-17 and have deposited 20% of the amount
demanded. Therefore, there is a stay of demand in force.
The effect of this deposit would mean that the time to make
the payment stands extended and petitioner is not deemed
to be an assessee in default for the recovery provisions to be
set in motion [(Hindustan Unilever Limited., case (supra)]."
(Emphasis added)
23. Accordingly, even in that matter Rule was made absolute.
24. Before us therefore there are now two issues. The first is that
these unilateral adjustments without prior intimation are contrary to
the specific wording of the statute itself. They are contrary to settled
decisions of this Court. The second aspect is the failure to dispose
of the stay application and the rectification application. These
cannot be kept pending indefinitely like this.
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25. We have yet to find a reason in the Affidavit in Reply
justifying the failure to take up and dispose of the stay application
and the rectification application.
26. Having regard to these circumstances and the unambiguous
state of the law in this regard, we make Rule absolute in terms of
prayer clauses (a), a(i), a(ii), a(iii), (b) and (c) set out above.
27. The Petition is disposed of in these terms with no order as to
costs.
28. All refunds are to be processed and paid out within a period of
four weeks from today. We are told that the stay application has been
decided after this Petition was filed and the Petitioner has no
grievance in that regard.
29. The rectification applications are to be taken up and decided
on a priority basis as early as possible and preferably within a period
of eight weeks from today.
30. It is notable that there are no reasons recorded in compliance
with the provisions of Section 245(2) of the IT Act either.
(Kamal Khata, J) (G. S. Patel, J)
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