High Court Of Karnataka
CIT, Bangalore vs. Digital Global Soft Ltd.
Assessment Year : 1999-2000
Section : 237, 155, 263
N. Kumar And Ravi Malimath, JJ.
IT Appeal No. 30 Of 2006
September 19, 2011
JUDGMENT
N. Kumar, J. – This appeal is by the Revenue, challenging the order passed by the Tribunal which found fault with the Commissioner exercising suo motu power under Section 263 of the Income-tax Act, 1961, for short, hereinafter referred to as the ‘Act’ and set aside the order passed under Section 154 of the Act by the Assessing Authority granting the benefit of refund of tax on tax deducted at source on the ground that it is erroneous as well as prejudicial to the Revenue.
2. The assessee filed the return of income for the assessment year 1999-2000 on 29.12.1999 showing the income of Rs. 11,45,67,180-00. The assessee claimed credit for an amount of Rs. 1,36,35,634-00 towards tax deducted at source. The Assessing Officer processed the return of income under Section 143(1)(a) on 14.11.2000 accepting the return and determining a refund of Rs. 1,08,66,716-00. However, as against the assessee’s claim of Rs. 1,36,35,634-00, the Assessing Officer gave credit only to a sum of Rs. 38,14,844-00 towards tax deducted at source. Subsequently, the assessee filed letter dated 19.12.2000 and 12.02.2001 requesting for rectification of the intimation on the ground that credit for entire tax deducted at source was not given. The assessee also pointed out that at the time of filing the return, credit for TDS amounting to Rs. 19,44,692-00 was not claimed since the relevant TDS certificates were not available and since these certificates have been received subsequently, they wanted credit to be given to the extent of Rs. 19,44,692-00. Thereafter, the Assessing Officer passed an order under Section 154 rectifying the intimation. In this order, he gave credit to a sum of Rs. 1,45,98,652-00 towards tax deducted at source which included the amount of Rs. 19,44,672-00 in respect of which no claim was made in the original return of income. Since the assessee did not claim this amount of TDS in the return filed on 29.12.1999 and also no details of the same were indicated in the return and accompanying papers there was no mistake apparent from the records warranting rectification of the intimation to give credit to this amount. Therefore, the Commissioner exercising his power under Section 263 of the Act, found fault with giving credit to the amount of Rs. 19,44,672-00 as tax deducted at source, when that amount was not claimed in the returns filed by the assessee. Therefore, they proceeded to modify the order under Section 154 by withdrawing the credit given to the amount of Rs. 19,44,672-00. Aggrieved by the said order, the assessee preferred an appeal to the Tribunal. The Tribunal held that tax deducted at source partakes the character of advance tax. As per Section 237, the assessee is entitled to refund in respect of such tax deducted at source. The Assessing Officer was satisfied that the credit for such tax was not given earlier. The certificates were found to be correct. The income comprised in such certificate has already suffered taxation. Thus, there is no reason to hold that the assessee is not entitled to credit for such tax. It is settled law that to pass an order under Section 263, the order sought to be revised should not only be erroneous but also prejudicial to the interest of Revenue. There is no prejudice to the Revenue if the credit of such tax deducted is given. After all, the credit is given only in respect of such sum which are already deducted from the income of the assessee and which has been paid to the credit of the Government. Thus, there is neither any error in the order Section 154 nor any prejudice caused to the Government by giving credit for the same. To this extent, there is no error in the order under Section 154 dated 12.06.2001 sought to be revised by the Commissioner. Therefore, they have set aside the order of the Commissioner under Section 263. Aggrieved by the said order, the Revenue is in appeal.
3. The learned Counsel for the Revenue assailing the impugned order contends that for exercising the power under Section 154, the mistake should be apparent from the record. It is only then, the Income Tax authorities gets jurisdiction to rectify the mistake. In the instant case, the claim for refund is made after the passing of the order. In the return filed, the claim to the extent of Rs. 19,44,672-00 was not put forth at all. As the law stood then, unless a return accompanied by TDS certificate and the claim is made on that basis, the assessee shall not be entitled to any refund of excess tax paid. Therefore, the order passed by the Assessing Authority on 14.11.2000 did not suffer from any mistake. Therefore, when an application is filed on 19.12.2000 and 12.02.2001 claiming the said amount by enclosing TDS certificate, he could not have exercised his power under Section 154 as there was no error apparent on the face on the record. Even otherwise, the amendment introducing sub-section 14 of Section 155 came on the statute book from 01.06.2002. It has no retrospective operation. Even according to the amended provision, the assessee was not entitled to the said refund. The order passed by the Assessing Authority was erroneous and prejudicial to the interest of the revenue. The Commissioner was justified in exercising his revisional jurisdiction which is vested in him. Therefore the Tribunal committed serious error in interfering with the said order.
4. Per contra, the learned Counsel for the assessee supported the impugned order.
5. In the light of the facts and rival contentions, the substantial question of law that arise for consideration in this appeal is as under:
“Whether the order passed by the Assessing Authority giving credit to the amount paid by way of tax deducted at source and consequently directing refund when the assessee has not claimed the said amount in the returns filed under the purported exercise of power under Section 154 of the Act is valid?”
6. Chapter 17 of the Act deals with Collection and Recovery of Tax. Section 190 deals with deduction at source and advance payment. Section 192 to Section 195 provides for deduction of tax at source under various heads. Section 199 of the Act provides credit for tax deducted. It reads as under:
“199(1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as a case may be.”
Similarly, sub-section (2) makes it clear that:
“(2) Any sum referred to in sub-section (1A) of Section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made.”
7. Corresponding duty is caste on a person deducting those tax in accordance with foregoing provisions to pay within the prescribed time, the sum so deducted to the credit of Central Government or as the Board directs as stipulated in Section 200 of the Act.
8. Section 139 of the Act deals with Return of Income. Sub-section (9) of Section 139 sets out under what circumstances the return so filed is defective. Explanation to the said provision makes it clear that the tax, if any claimed to have been deducted or collected at source and the advance tax and tax on self assessment, if any, claimed to have been paid has to accompany the return filed under Section 139. If it does not accompany the return under Section 139, the return so tiled shall be regarded as defective. In other words, in the return filed under Section 139, if the assessee is claiming deduction of the tax deducted at source, the said return should accompany the proof of such tax deducted at source. However, proviso to said provision makes it clear that if the person who deducted the tax has not furnished the certificate to the assessee, if only after such valid claim is made, the amount deducted is treated as payment on behalf of person from whose income the deduction was made and credit to the tax is given. If, on assessment of the said return filed, the amount of tax paid by the assessee or on his behalf are treated as paid by him or on his behalf for any assessment year, exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of the excess under Section 237 of the Act. Once an order is passed by the Assessing Authority under Section 143(1)(a) or under Section 143(3), under Section 154 of the Act, a power is vested with the said Assessing Authority to rectify any mistake apparent from the record in the said order. In order to rectify the said mistake, he can amend any order passed by him, under the provision of the Act or amend any intimation or deemed intimation under sub-section (1) of Section 143. Such an amendment can be made on its own motion or when the mistake is brought to its notice by the assessee or where the authority concerned is Commissioner of appeals, by the Assessing Officer also. When the amendment is made under the Section, an order shall be passed in writing by the income tax authority concerned, where any such amendment has effect of reducing the assessment, the Assessing Officer shall make any refund which may be due to such assessee. Such an order of amendment has to be passed within a period of six months from the end of the month in which the application is received by it either by making amendment or refusing to allow the claim. If any amendment to be carried out is prejudicial to the interest of the assessee, then the assessee must be heard. If the order passed by the Assessing Authority is merged with the order passed by the appellate Commissioner or Tribunal, the Assessing Authority has no jurisdiction to amend or rectify the mistake in such order.
9. Under the scheme of this provision there is no scope for assessee to file an application seeking for refund of amount which he has not claimed in the original return. However, the Parliament taking note of the hardship that is being faced by the assessee in cases of deduction made in accordance with the provisions of Sections 192 to 194 and other provisions of the Act, where certificates under Section 203 are not furnished to them. In the result, credit is not given for the tax so deducted, introduced new sub-section 14 of Section 155 to provide relief to such persons. The Memorandum explaining provisions in the Finance Bill 2002 dealing with credit for deduction at source reads as under:
“Under the existing provisions of Section 199 of the Income Tax Act any deduction made in accordance with the provisions of Sections 192 to 194, 194A, 194B, 194C, 194D, 194E, 194EE, 194F, 194G, 194H, 194-I, 194J, 194K, 194L, 195, 196A, 196B, 196C and 196D and paid to the account of Central Government it is treated as a payment of tax on behalf of the person from whose income the deduction was made or the owner of the security or depositor or owner of property or of unit holder or of the shareholder, as the case may be and credit is given to such person for the amounts so deducted on the production of a certificate furnished under Section 203 in the assessment made under this Act for the assessment year for which such income is assessable.
Hardship is being faced by the assessees since in many cases certificates under Section 203 are not furnished to them and as a result credit is not given for the tax so deducted.
With a view to mitigate this hardship, it is proposed to insert a new sub-section (14) in Section 155 to provide that where in the assessment for any previous year or in any intimation or deemed intimation under Sub-Section (1) of Section 143 for any previous year, credit for tax deducted in accordance with the provisions of Section 199 has not been given on the ground that the certificate furnished under Section 203 was not filed with the return and subsequently such certificate is produced before the Assessing Officer within two years from the end of the assessment year in which such income is assessable, credit of tax deducted at source shall be given to the assessee on production of such certificate. Nothing contained in the proposed sub-section shall apply unless the income from which tax has been deducted has been disclosed in the return of income filed by the assessee for the assessment year.
The proposed amendment shall enable the Assessing Officer to rectify the order of assessment or any intimation or deemed intimation under Sub-Section (1) of Section 143.
As a consequence, it is also proposed to amend sub-section (9) of section 139 to provide that where the return is not accompanied by proof of the tax, if any claimed to have been deducted at source, the return of income shall not be regarded as defective if such certificate was not furnished under Section 203 to the person furnishing his return of income and such person produces the certificate within a period of two years specified under sub-section (14) of Section 155.”
Section 155(14) reads thus:
“155(14) Where in the assessment for any previous year or in any intimation or deemed intimation under sub-section (1) of Section 143 for any previous year, [credit for tax deducted or collected in accordance with the provisions of Section 199 or, as the case may be, Section 206C] has not been given on the ground that the certificate furnished under Section 203 [or section 206(c) was not filed with the return and subsequently such certificate is produced before the Assessing Officer within two years from the end of the assessment year in which such income is assessable, the Assessing Officer shall amend the order of assessment or any intimation or deemed intimation under sub-section (1) of Section 143, as the case may be, and the provisions of Section 154 shall, so far as may be, apply thereto:
Provided that nothing contained in this sub-section shall apply unless the income from which the tax has been deducted [or income on which the tax has been collected] has been disclosed in the return of income filed by the assessee for the relevant assessment year.”
10. This provision was inserted by Finance Act, 2002 which came into effect from 01.06.2002. Therefore, with the introduction of the aforesaid provision, for claiming such refund, the assessee could invoke the provisions of Section 154. Therefore, if an assessee in the return filed has claimed credit for tax deducted or collected in accordance with the provisions of Section 199 and has not furnished the certificate under Section 203 along with the return but subsequently produce the such certificate before the Assessing Officer within two years from the end of the assessment year in which such income is assessable, the Assessing Officer is vested with the power to amend the order of assessment or any intimation or deemed intimation under sub-section (1) of Section 143, as the case may be and the provisions of Section 154 shall so far as may be apply thereto. It is a beneficial provision introduced with the intent to undo the hardship that is faced by the assessee who are unable to produce the certificate along with the returns, though, the person who has to pay money to them has deducted the tax at source, credited to the Government, but he was unable to get credit for non-production of the certificate.
11. In the instant case the period of assessment is 1999-2000. The order under Section 143(1)(a) is passed on 14.11.2000. In the return filed, the assessee did not claim credit for a sum of Rs. 19,44,672-00 as he was not in possession of the TDS certificate. The deemed assessment is made on 14.11.2000. It is on 12.02.2001, an application is filed under Section 154 of the Act enclosing the TDS certificate numbering 72, claiming credit for a sum of Rs. 19,44,672-00 and seek refund of the said amount. The Assessing Authority in purported exercise of his power under Section 154 of the Act, accepted the said claim, amended the order of assessment dated 14.11.2000 and directed refund of the said amount by his order dated 12.06.2001. It is that order which is now found fault with the Commissioner by virtue of the power conferred on him under Section 263 of the Act, on the ground that the said order is not only erroneous but also prejudicial to the interest of the Revenue.
12. Now, from the facts aforesaid, it is not in dispute that the said amount ordered to be refunded is the amount belonging to the assessee which was deducted at source and credited to the Government and after the assessment it was found that the assessee is not liable to pay the said amount as tax and therefore he was legitimately entitled for refund of the said amount. Because, he did not putforth the claim in the return as he was not able to produce the certificates under Section 203, he had not got the refund of the said amount. The moment he came in possession of the certificate, he filed an application on 12.02.2001, within two years from the date of the end of assessment year claiming the said amount. The Assessing Authority being fully satisfied about the genuineness of the certificate, as the said amount has been paid to the Government, as the assessee was not liable to pay any tax, he has ordered refund. Is that order erroneous or it that order prejudicial to the interest of the Revenue, is the question which requires to be considered.
13. Section 263 of the Act, which confers on Commissioner the revisional power to interfere with the orders prejudicial to the Revenue reads as under:
“263. Revision of orders prejudicial to revenue.—(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation.- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section.
(a) An order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include –
(i) An order of assessment made by the Assistant Commissioner or Joint Commissioner or the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144A;
(ii) An order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under section 120;
(b) “Record” shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;
(c) Where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation.-In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso of section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.”
14. This provision was the subject matter of interpretation by the Apex Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 / 109 Taxman 66 , where the Supreme Court has held as under:
“A bare reading of this provision makes it clear that the prerequisite to the exercise of jurisdiction by the Commissioner suo motu under it, is that the order of the Income-Tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. The Commissioner has to be satisfied of twin conditions, namely, (i) the order of the Assessing Officer sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent – if the order of the Income Tax Officer is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue recourse cannot be had to section 263(1) of the Act.
The phrase “prejudicial to the interests of the Revenue” is not an expression of art and is not defined in the act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax……..”
“…..The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully’ payable by a person, it will certainly be prejudicial to the interests of the Revenue.
The phrase “prejudicial to the interest of the Revenue” has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the Revenue, unless the view taken by the Income Tax Officer is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue.”
15. In the case of Dawjee Dadabhoy & Co. v. S.P. Jain [1957] 31 ITR 872 (Cal.) explaining the meaning of the words ‘prejudicial to the interest of the revenue’ it was held as under:
“The words, “prejudicial to the interests of the revenue”, have not been defined, but it must mean that the orders or assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realised or cannot be realised. It can mean nothing else.”
16. As is clear from the wording in Section 263, the Commissioner gets the jurisdiction to revise any proceedings under this Act if he considers that any order passed therein by the Assessing Officer is erroneous insofar as it is prejudicial to the interest of the Revenue. Therefore, it is clear that he cannot exercise the power of revision solely on the ground that the order passed is erroneous. He gets jurisdiction only if such erroneous order is prejudicial to the interest of the Revenue. Prejudicial to the Revenue means, lawful revenue due to the State has not been realized or cannot be realized. In other words, by the order of the Assessing Authority if the lawful revenue to the State has not been realized or cannot be realized, as the said order is prejudicial to the interest, of the Revenue and also erroneous, he gets jurisdiction to interfere with the said order under Section 263. Therefore, for attracting Section 263, the condition precedent is (a) the order of Assessing Officer sought to be revised is erroneous and (b) it is prejudicial to the interest of the Revenue. If one of them is absent, i.e., if the order of the Income tax officer is erroneous but is not prejudicial to the Revenue, recourse cannot be had to Section 263(1) of the Act. The satisfaction of both the conditions stipulated in the Section is sine qua non for the Commissioner to exercise his jurisdiction under Section 263.
17. In this background, if we look into the facts of the case, as the provisions of Section 155(14) was not in the statute book on the day the Assessing Officer passed the order, coupled with the scope of his power under Section 154, the order passed on 12.06.2001 cannot be strictly in accordance with law. It is erroneous. The amendment came into effect only from 01.06.2002. But on the delay the Commissioner was exercising his power and passing the order on 31.07.2002, the said amendment was very much in the statute book. Therefore, on 31.07.2002, when revisional jurisdiction was exercised, the Commissioner could not have held that the order passed by the Assessing Authority is erroneous, as on that day the amended law provided for such reference.
18. Even if it is erroneous, unless the said erroneous order is prejudicial to the interest of the Revenue, the Commissioner could not have exercised the said power. From the admitted material on record, the amount that is ordered to be refunded to the assessee is not the amount, which is lawfully due to the Revenue at all, it was an amount which the Revenue legitimately should have refunded if only the claim had been made in the return enclosing the certificates under Section 203. The said amount should have been refunded to the assessee. Because he was handicapped by such certificates not being forwarded to him, consequently not able to make the claim, such a claim was not made. The moment he got possession of those certificates on 12.02.2001, within two years from the date of the end of the assessment year, he has putforth the claim. The said amount was not a lawful amount to the Government. It was an amount which should have been refunded to the assessee.
19. In that view of the matter, we do not see any merit in this appeal. The substantial question of framed is answered in favour of the assessee and against the Revenue.
Appeal dismissed. Parties to bear their own costs.
[Citation : 354 ITR 489]
