Punjab-Haryana High Court
Pioneer Sports Works (P) Ltd. vs Commissioner Of Income Tax & Anr. on 22 April, 1997
Equivalent citations: (1997)140CTR(P&H)374
Author: Ashok Bhan
Bench: Ashok Bhan
JUDGMENT
ASHOK BHAN, J. :
Petitioner has challenged the order dt. 4th December, 1996, Annexure P-3, withholding the amount of refund due to it, arising out of the order of the CIT(A), Jalandhar, dt. 2nd May, 1996. Further prayer made is for directing the respondents to refund the amount due to the petitioner along with interest under s. 244(1) of the IT Act, 1961 (hereinafter referred to as the Act).
2. Petitioner is a company incorporated under the Companies Act, 1956, with Head Office at Jalandhar and is assessed to income tax under the jurisdiction of the Asstt. CIT, Circle 1(2), Jalandhar, respondent No. 2. It is engaged in the business of manufacture and sale of sports goods. Assessment of the petitioner for the asst. yr. 1981-82 was annulled by the Tribunal, Amritsar Bench, Amritsar, on 28th October, 1994. Respondent No. 2 gave effect to the order of the Tribunal and determined a sum of Rs. 10,30,171 as the refundable amount after adjusting an outstanding amount of Rs. 35,370 against the petitioner. A sum of Rs. 9,94,801 was refunded vide refund voucher dt. 15th February, 1995. Since credit for prepaid taxes had not been fully given, a further refund of Rs. 38,200.00 was issued on 28th June, 1995. Amount of interest on the refunded amount was not paid. Claiming that the respondents were bound to refund the sum of Rs. 10,68,371 (Rs. 19,30,171 + Rs. 38,200) with interest under s. 214(2) and 244(1A) of CIT(A), Jalandhar, against the order of respondent No. 2. CIT(A), Jalandhar, vide its order dt. 2nd May, 1996, accepted the plea of the petitioner and directed respondent No. 2 to allow interest under ss. 214/244(IA) of the Act to the petitioner. This direction was given by following the decision of this Court in Deep Chand Jain vs. ITO & Ors. (1984) 145 ITR 676 (P&H)
3. Under s. 240 of the Act, respondent No. 2 was bound to issue the refund arising as a result of the order of the CIT(A) without the petitioner having to make a claim in this behalf. Under s. 214/244(1A), respondent No. 2 ought to have issued the refund by 31st August, 1996 i.e. within three months from the end of the month in which such order was passed i.e. 2nd May, 1996. As the petitioner did not receive the refund issued to it as a result of the order of the CIT(A) even after the expiry of four months, it sent a letter dt. 17th September, 1996, Annexure P-1, to respondent No. 2 who did not respond to the letter, annexure P-1. Petitioner sent a reminder on 27th November, 1996, Annexure P-2.
Respondent No. 2 vide order, Annexure P-3, dt. 4th December, 1996, informed the petitioner that the refund of interest on the principal amount which had already been refunded has been withheld by him with the approval of respondent No. 1 as the Department had filed a reference application in the High Court against the order of the Tribunal. Refund of the amount of interest was ordered to be withheld till the decision of the High Court in the reference application.
Present petition has been filed challenging the impugned order, Annexure P-3, on the ground that the respondents were not justified in withholding the refund due to the petitioner under s. 241 of the Act merely on the ground that the Department had filed a Reference Application before the High Court against the order of the Tribunal annulling the assessment.
4. Stand taken by the respondents in their written statement is that the Department has not accepted the decision of the CIT(A), Jalandhar, and has filed an appeal before the Tribunal at Amritsar which is pending adjudication; that Deep Chand Jains case (supra) on the basis of which the CIT(A) had accepted the plea of the petitioner thereby directing the respondents to allow interest under ss. 214 and 244 (1A) of the Act stands referred to a larger bench in CWP 5809 of 1986 vide order dt. 13th March, 1997, in view of the contrary decision rendered by the Full Bench of the Gujarat High Court in Saurashtra Cement & Chemical Industries Ltd. vs. ITO (1992) 194 ITR 659 (Guj) (FB) 06. It has further been submitted that the Asstt. CIT, respondent No. 2, in his report dt. 2nd March, 1996 submitted to the CIT through the Addl. CIT, Range-I, Jalandhar, after detailing the circumstances under which interest could not be refunded to the petitioner, expressed his opinion that the refunding of interest would adversely affect the interests of Revenue inasmuch as the petitioner was not doing well in business and had filed a loss return of Rs. 1,55,273 for the asst. yr. 1994-95 and a nil return of income for the asst. yr. 1995-96. Addl. CIT vide letter dt. 16th September, 1996 addressed to the CIT, endorsed the opinion expressed by respondent No. 2 for withholding of the refund of interest. Thereafter, CIT after applying his mind to the opinion expressed by respondent No. 2 and the Addl. CIT, approved the proposal for withholding of the refund of interest under s. 241 of the Act. Petitioner has not been refunded the interest because of the following reasons :
"(i) Income-tax reference of the Department against the order of the Tribunal, annulling the assessment of the petitioner is pending final decision before this Honble Court.
(ii) The appeal of the Department directed against the order of the CIT(A) whereby interest on the refund had been ordered to be paid to the petitioner is pending final decision before the Tribunal, Amritsar Bench, Amritsar.
(iii) The petitioner is not doing well in business and has filed a loss return of Rs. 1,55,273 for the asst. yr. 1994-95 and has returned nil income for the asst. yr. 1995-96".
Replying to the written statement by way of replication has been filed by the petitioner controverting the facts stated in the written statement. It has been stated that the pleas taken in written statement are misleading. It has been denied that the petitioner is not doing well. For the asst. yr. 1995-96, there were substantial profits even after wiping out the loss for the asst. yr. 1994-95. If any of the respondents had cared to even look into the record, it would have been absolutely clear that in the asst. yr. 1995-96, petitioner had earned a net profit of Rs. 3,05,170 on total sales of Rs. 1,01,16,557. The nil income was the result of set off of the earlier years loss of Rs. 1,55,273 and also the deduction available under s. 80HHC of the Act against export profits. A copy of the computation of income filed with the return for the asst. yr. 1995-96 has been attached as Annexure PR-1. It has further been submitted that the reference made to a Larger Bench in CWP 5809 of 1986 vide order dt. 13th March, 1997 is of no consequence as the issue involved in the aforesaid writ petition was different than the point of law canvassed in this petition.
5. Counsel for the parties have been heard.
6. After annulment of the assessment of the petitioner by the Tribunal, respondent No. 2 gave effect to the order of the Tribunal and refunded the principal amount of tax which had been deposited by the petitioner. Interest payable on that amount was withheld. Under ss. 214(2) and 244(1A) of the Act, respondent No. 2 was bound to refund the amount along with interest which he failed to do. The CIT(A) accepted the appeal of the petitioner and directed respondent No. 2 to allow interest under s. 214/244(1A) of the Act to the petitioner. Simple 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. Sec. 240 of the Act provides that where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the AO shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf.
7. Power to withhold the refund is governed by s. 241 of the Act, which reads as under :-
"241. 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 a 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) a 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) any other proceeding 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".
Sec. 241 of the Act authorises the AO to withhold the refund with the approval of the CIT for such time as may be determined by the CIT during the pendency of the proceedings under the Act where the grant of refund is likely to adversely affect the Revenue. Pendency of proceedings by way of reference application in the High Court against the order of the Tribunal and the pendency of appeal before the Tribunal against the order of CIT(A) ordering refund, stand established on the record. Refund of the amount of interest on the principal amount of tax has been withheld as it was likely to adversely affect the Revenue because the petitioner had not been doing well in the business and had filed a loss return of Rs. 1,55,273 for the asst. yr. 1994-95 and a nil return of income for the asst. yr. 1995-96.
8. Under s. 240(1) power to withhold the refund cannot be exercised merely because some proceedings under the Act are pending. The ITO has also to form an opinion that the grant of refund is likely to affect the Revenue adversely. It does not mean that whenever the proceedings are pending the Revenue can withhold the refund. Whether the grant of refund during the pendency of the proceedings would adversely affect the interests of Revenue, would depend upon the facts and circumstances of each case.
It seems that the respondents have withheld the payment of the amount of interest only because the reference proceedings initiated by the Revenue questioning the validity of the order of the Tribunal and the appeal filed before the Tribunal against the order of the CIT(A) were pending. It has been held by this Court in Leader Valves (P) Ltd. vs. CIT & Anr. (1987) 167 ITR 542 (P&H), Suri Sons vs. CIT & Anr. (1988) 169 ITR 320 (P&H) and Hansa Agencies Pvt. Ltd. vs. CIT & Anr. (1988) 169 ITR 322 (P&H), that mere pendency of the proceedings initiated by the Revenue questioning the validity of the order under which the refund had become due is not a sufficient ground for withholding the interest on the refund.
After wiping out the loss for the previous year and deductions made in computing the total income as provided under Chapter VI-A of the Act, a nil return was filed for the asst. yr. 1995-96. Petitioner had a reasonably good turnover for the asst. yr. 1995-96 on which profits had been earned. Facts on the basis of which the CIT had formed the opinion that it would adversely affect the interests of Revenue if the refund of interest is made do not stand scrutiny judged from reasonableness or fairness.
9. Department charges interest on late deposit of tax and has a right to levy penalty as well. In fairness to the assessee, the legislature has enacted ss. 214 and 244 (1A) to pay interest on the amount of tax deposited in case levy of tax is set aside in appeal or in further proceedings. In the present case, as observed earlier, we do not find the justification for withholding the interest on the amount of refund. If the refund of the amount of tax deposited did not adversely affect the Revenue, we fail to understand as to how the payment of interest on the said amount would adversely affect the interests of the Revenue especially when the petitioner is a running concern with reasonable good turnover and earning profits.
10. For the reasons stated above, we accept this petition and quash the impugned order, Annexure P-3, withholding the amount of interest. Respondents are directed to pay interest on the amount already refunded within two months of the receipt/production of a certified copy of this order. The amount of interest be calculated in accordance with the statutory provisions. No costs.
Copy of this order be given dasti on payment.