High Court Of Punjab & Haryana
Shreyans Industries Ltd. vs. CIT & Anr.
Asst. Year 1992-93
G.C. Garg & N.K. Agrawal, JJ.
CWP No. 18512 of 1997
6th August, 1998
O.P. Goyal with Sandip Kumar, for the Applicant : R.P. Sawhney with Rajesh Bindal, for the Respondents
G.C. GARG, J. :
Petitioner, a company incorporated under the Companies Act, is engaged in the manufacture of cotton yarn and paper in its unit at Machiwara and Ahmedgarh in the State of Punjab. It is an assessee under the IT Act for the last many years with permanent account No. 28-050-CO-4964.
The company filed its return for the asst. yr. 1992-93 in December, 1992 declaring a taxable income of Rs. 19,87,428. The Dy. CIT (Special Range), Ludhiana, assessed the income by order dt. 7th May, 1993, under s. 143(3) of the IT Act, for short the âActâ at Rs. 23,32,300. Proceedings under s. 154 of the Act were taken and an amount of Rs. 1,24,945 on account of claim of depreciation was disallowed and the total income was assessed at Rs. 24,57,240 vide order dt. 10th Sept., 1993. Petitioner filed appeal against the assessment order dt. 7th May, 1993, which was disposed of by order dt. 16th Nov., 1995, by the CIT(A). Meanwhile the assessment was reopened under s. 147 of the Act by issuing a notice under s. 148 of the Act. The assessment was reframed under s. 143(3) r/w s. 147 of the Act and the net taxable income was determined by assessment order dt. 16th Feb., 1996, at Rs. 73,28,428. The CIT(A), Ludhiana, allowed the appeal filed by the assessee against the order dt. 16th Feb., 1996, by his order dt. 3rd Sept., 1996, and annulled the assessment as framed by the AO. The CIT, filed an appeal before the Tribunal in November, 1996, against the order of the CIT(A), Ludhiana, and the same is pending adjudication. The operation of the order dt. 3rd Sept., 1996, has not been stayed by the Tribunal.
In the above situation petitioner made a request to respondent No. 2 to give effect to the order dt. 3rd Sept., 1996, and to grant refund as an amount of Rs. 60,69,411 which became due to the petitioner in respect of the other years was adjusted against the demand for the asst. yr. 1992-93 after taking note of the order of the AO dt. 16th Feb., 1996. Petitioner made repeated requests for refund. It may be noticed at this stage that, in the reassessment proceedings the capital expenditure of Rs. 1,07,81,494 incurred by the petitioner on equipment used for scientific research under s. 35 of the Act was disallowed. It was on this account tax liability was created by the fresh order of assessment dt. 16th Feb., 1996, in the sum of Rs. 73,28,428. Petitioner was informed by letter dt. 3rd Jan., 1997, Annexure P-6, by the Dy. CIT, Ludhiana, that the appeal effect in the case of the petitioner for the asst. yr. 1992-93 has been given vide office order dt. 28th Oct., 1996, and as a result of the said order a refund of Rs. 66,10,084 has become payable, out of which demand of Rs. 13,858 and Rs. 25,000 for the asst. yrs. 1992-93 and 1994-95, respectively, have been adjusted, thus leaving a balance of Rs. 65,71,226 and the same has been withheld under s. 241 of the Act after taking prior approval of the CIT, Jallandhar, vide letter dt. 21st Nov., 1996, and the refund has been withheld up to the decision of the Tribunal in the case of the assessee for the year 1992- 93. Petitioner made another representation for the refund of the amount, which was again replied by letter dt. 23rd Oct., 1997, Annexure P-8. It was communicated that the CIT passed the following order in the case of the assessee: “I have gone through the fresh representation. There is no change in the facts/circumstances of the case since the withholding of refund was approved by my predecessor, i.e., CIT, Jalandhar. Therefore, there is no need for reviewing the matter.” Petitioner made few other representations seeking refund and ultimately filed the present writ petition challenging the orders dt. 3rd Jan., 1997, and 23rd Oct., 1997, withholding the refund vide Annexure P-6 and P-8 and seeking a writ of mandamus directing the respondents to refund the amount of Rs. 65,71,236 along with stipulated rate of interest.
2. Written statement has been filed on behalf of the respondents. The case of the respondents is that the appeal against the order of assessment dt. 3rd Sept., 1996, is pending before the Tribunal, Chandigarh, and, therefore, it has not attained finality. The AO sent a proposal to the CIT by giving his opinion that the issue of refund to the assessee will adversely effect the interest of the Revenue. The CIT approved the withholding of the said refund vide letter dt. 21st Nov., 1996, Copy Annexure R-2. The CIT is not required to pass an order, but is only required to approve or disapprove the proposal of the AO. Since the CIT is not required to pass any order withholding the refund, the question of supplying a copy of the order to the assessee did not arise. The amount has been withheld after getting approval from the CIT and the said approval has been granted after due application of mind to the proposal sent by the AO. In para 19 of the written statement, it is sought to be highlighted that some amounts were due from the petitioner for some other assessment years, which were paid later on and a part of that amount was adjusted from the amount of refund and ultimately it has been sought to be justified that the petitioner is not entitled to the refund at this stage and no prejudice is caused to the assessee by withholding of the refund inasmuch as, if the Departmental appeal fails, the assessee is entitled for refund along with interest under s. 244A of the IT Act. The Dy. CIT, AO, vide letter, Annexure R-1, wrote to the CIT that the CIT(A) had annulled the assessment with the contentions that the reasons for reopening of assessment were not sufficient. The total additions on merits were also deleted by holding that the assessee is carrying out scientific research at his premises. The AO also pointed out that he personally visited the factory premises of the assessee and analysed all the facts involved and he was of the firm conclusion that no scientific research is being carried out by the assessee in his premises. In the end the AO recommended that the issue of refund to the assessee at this stage will adversely effect the interest of the Revenue. He consequently sought necessary approval for withholding the refund which was, as already noticed, was granted by order Annexure R-2.
3. In order to understand the controversy raised, it is necessary to notice the provisions of s. 241 of the IT Act, “Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of sub-s. (1) of s. 143 after return has been made under s. 139 or in response to a notice under sub-s. (1) of s. 142 and the AO is of the opinion having regard to the fact that; (i) the notice has been issued or is likely to be issued under sub-s. (2) of s. 143 in respect of the said return or (ii) the order is the subject-matter of an appeal or further proceedings; or (iii) in other proceedings under this Act is pending. That the grant of the refund is likely to adversely affect the Revenue, the AO may, with the previous approval of the Chief CIT or CIT, withhold the refund till such time as the Chief CIT or CIT may determine”.
4. In Suri Sons vs. CIT & Anr. (1988) 169 ITR 320 (P&H) : TC 52R.1521, it was held by a Division Bench of this Court that the assessing authority is not justified in withholding the refund in exercise of its power under s. 241 of the IT Act, which became due to the assessee, merely for the reason that the reference proceedings initiated by the Revenue questioning the validity of the order under which the refund had become due are pending before the appropriate authority. In Hansa Agencies Private Ltd. vs. CIT & Anr. (1988) 169 ITR 322 (P&H) : TC 52R.1525, it was again held that the assessing authority is not justified in withholding the refund in exercise of its powers under s. 241 of the IT Act, which became due to the assessee as a result of annulment of the assessment merely on the ground that the proceedings questioning the validity of the annulment order are pending. In Pioneer Sports Works vs. CIT & Anr. (1997) 140 CTR (P&H) 374 : (1997) 227 ITR 89 (P&H), a Division Bench of this Court while considering the provisions of s. 241 of the IT Act again came to a conclusion that power to withhold the refund cannot be exercised merely on the ground that some proceedings under the Act are pending. The AO is to form an opinion that the grant of the refund is likely to affect the Revenue adversely and it does not mean that whenever proceedings are pending, the AO can withhold the refund. It was further concluded that whether the grant of refund during the pendency of the proceedings would adversely affect the interest of the Revenue would depend upon the facts and circumstances of each case and that mere filing of an appeal before the Tribunal against the order of the CIT(A) would not entitle the Revenue to withhold the amount of interest.
5. In the present case, nothing has been brought out in the letter of the AO, Annexure R-1 or in the order of the CIT, Annexure R-2, justifying the withholding of the refund. The CIT(A) deleted the total additions on merits by holding that the assessee is carrying out the scientific research at his premises and that the reasons for reopening the assessment were not sufficient. The AO in his letter, Annexure R-1, only recommended the filing of the appeal against the order of the CIT(A) and at the same time sought permission to withhold the refund as refunding the amount at this stage would adversely affect the interest of the Revenue. This letter of the AO has not brought out any fact which may show that the interest of the Revenue is likely to be adversely affected in the event of the refund being ordered or that the withholding of the refund is necessary in order to protect the interest of the Revenue. Petitioner is an assessee for the last many years and it was entitled to refund of a huge amount in respect of the previous years, which amount has been withheld on account of the order of the AO for the asst. yr. 199293, which order was upset by the CIT(A) by order dt. 3rd Sept., 1996. Except for this fact, nothing has been brought out that the interest of the Department would suffer and the refund be withheld. Neither in the written statement nor in the letter Annexure R-1, it has been suggested that the assessee is not paying tax or filing the returns regularly or that it is in arrears of tax relating to any assessment year. In fact, as per the averments made in the written statement and letter Annexure R-1, it is clear that the assessee was entitled to a refund of huge amount, which has been ordered to be withheld under the impugned orders. The assessee has tried to show that it had filed the IT returns in time and has paid an advance tax of Rs. 60,00,000 even for the subsequent years and that it is not in arrears of tax or penalty relating to any assessment year whatsoever and thus the Department was not at all justified in withholding the refund only by stating that the interest of the Revenue would suffer in the event of the refund being ordered.
6. Mr. Sawhney, learned counsel appearing for the Revenue, on the other hand, placed reliance on Leader Valves Pvt. Ltd. vs. CIT & Anr. (1987) 63 CTR (P&H) 322 : (1987) 167 ITR 542 (P&H) : TC 52R.1522, which decision in no way helps the Revenue or supports the view taken by the Revenue. In this case again it was held that s. 241 of the Act does not contemplate that the grant of refund during the pendency of the proceedings under the Act is an act, which necessarily affects the Revenue adversely. Whether the grant of refund during the pendency of the proceedings will adversely affect the interest of the Revenue depends upon the facts and circumstances of each case. This decision thus in no way supports the stand of the Revenue.
7. In Raju Babu & Ors. vs. CIT & Anr. (1996) 219 ITR 642 (All) : TC 52R.1527, the order of the CIT withholding the refund was upheld and the writ petition was dismissed, only by observing : “Considering the provisions of s. 241 of the Act and the fact that the CIT had already passed an order on 9th Sept., 1992, to withheld the refund till the decision of the appeal, we see no illegality in the impugned order”.
8. Mr. Sawhney further placed reliance on the decision of this Court in CIT vs. Export India Corporation (P) Ltd. (1996) 133 CTR (P&H) 224 : (1996) 219 ITR 461 (P&H) : TC 52R.1527. This decision again has no relevance to the facts of this case and the provisions of s. 241 were not under consideration in this case.
9. On a consideration of the matter and having regard to the facts and circumstances of this case, we are of the opinion that the orders Annexures P-6 and P-8 are not sustainable in law and deserve to be quashed. Sec. 241 of the Act does authorise the AO to withhold the refund with the previous approval of the CIT for such time as may be determined by the CIT, but in our view some facts are required to be brought on record to justify the withholding of refund. The mere fact and the only fact that the order is under challenge either before the High Court or before the Tribunal, in our view, is no ground to withhold the refund or to reach a conclusion that the refund would adversely affect the Revenue. In the present case, a huge amount has been withheld only on the ground that the appeal against the order of the CIT(A) is pending before the Tribunal. No material is forthcoming on the record in this case which could justify the withholding of the refund. Petitioner who is an assessee is not shown to be in default in the payment of income-tax dues or even in the matter of filing of returns. Once that is so, the order of the AO recommending the withholding of refund and the order of the CIT granting the approval for withholding of the refund cannot be justified under the provisions of s. 241 of the IT Act. We consequently allow this writ petition and quash impugned orders Annexure P-6 and P-8. The respondents are directed to pay the amount to the petitioner in accordance with law within a period of two months from the date of receipt by them of a copy of this order.
[Citation : 252 ITR 544]