Kerala High Court
Satwashil Vasant Mane vs Assistant Commissioner Of Income Tax on 7 January, 2025
Author: Bechu Kurian Thomas
Bench: Bechu Kurian Thomas
W.P.(C) No.21868/24 1
2025:KER:417
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
TUESDAY, THE 7TH DAY OF JANUARY 2025 / 17TH POUSHA, 1946
WP(C) NO. 21868 OF 2024
PETITIONER:
SATWASHIL VASANT MANE,
AGED 30 YEARS, S/O. VASANT RAMCHANDRA MANE,
RESIDING AT 1527,
CHOVVA P.O., CHOVVA,
KANNUR DISTRICT, PIN - 670006
BY ADVS.
SRI.S.SAJU
SRI.A.V.SAJAN
SMT.SWETHA S.
SMT.SAHDHA K.U.
RESPONDENTS:
1 ASSISTANT COMMISSIONER OF INCOME TAX,
OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX,
CENTRAL CIRCLE-1, KOZHIKODE,
7TH FLOOR, AAYAKAR BHAVAN,
NORTH BLOCK, NEW ANNEXE BUILDING,
MANANCHIRA, KOZHIKODE, PIN - 673001
2 THE PRINCIPAL COMMISSIONER OF INCOME TAX,
(CENTRAL), KOCHI,
OFFICE OF THE PRINCIPAL CHIEF COMMISSIONER OF
INCOME TAX, KERALA,
CENTRAL REVENUE BUILDING,
I.S. PRESS ROAD, KOCHI, PIN - 682018
BY SMT.SUSIE B. VARGHESE, SR.SC
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
17.12.2024, THE COURT ON 07.01.2025 DELIVERED THE FOLLOWING:
W.P.(C) No.21868/24 2
2025:KER:417
"C.R."
BECHU KURIAN THOMAS, J.
--------------------------------
W.P.(C) No.21868 of 2024
---------------------------------
Dated this the 7th day of January, 2025
JUDGMENT
As per an order issued under the Vivad Se Vishwas Scheme, the petitioner was found eligible for a refund of Rs.28,81,185/-. Despite the order, the amount was paid only after a 23-month delay. The petitioner's claim for interest on the refund so ordered was declined, and hence, he has approached this Court under Article 226 of the Constitution of India.
2. On 04.08.2015, the police intercepted a vehicle, which, on search, was found to contain currency notes to the tune of Rs.1,10,00,000/- apart from 3 kilograms of gold bars, valued at Rs.75,00,000/-. The currency notes and the gold so seized were handed over to the jurisdictional Magistrate, pursuant to the registration of a crime. After due procedure, the income tax department declared the currency notes and the seized gold as income in the hands of the petitioner under the provisions of the Income Tax Act, 1961, (for short 'the Act'). Thereafter, a claim petition was filed before the Magistrate's Court and custody of the currency notes was granted to the Income Tax Department on 04.11.2015 in view of orders issued under section 132A of the Income Tax Act, 1961. Subsequently, an order of assessment dated W.P.(C) No.21868/24 3 2025:KER:417 08.12.2017 was issued assessing the total income of the petitioner at Rs.1,86,80,000/- for the assessment year 2016-17.
3. Consequent to the enactment of the Direct Tax Vivad Se Vishwas Act, 2020 (for short 'VSV Act') petitioner had, on 08.01.2021, filed a declaration under section 4 of the said Act which was accepted and the amount payable by the petitioner was determined. Thereafter, a certificate dated 24.11.2021, in Form 5, stating the amount of penalty due from the petitioner was issued. Since out of the currency notes seized from the petitioner, an amount of Rs.42,82,185/- was retained by the respondents, by a proceeding dated 29.11.2023, an order was issued, giving effect to Form 5 certificate and directed refund of Rs.28,81,185/-.
4. The proceeding under the Vivad Se Vishwas Scheme was initiated at a time when the order levying a penalty of Rs.56,04,000/- was pending consideration before the CIT Appeals. Subsequently, on 29.11.2023, a recomputation was done and an amount of Rs.28,81,185/- was ordered to be refunded to the petitioner. By the time the refund was made, a delay of almost two years occurred. Hence petitioner raised his grievance stating that the order giving effect to Form 5 certificate was issued belatedly without payment of any interest. Again, on 01.02.2024, petitioner requested for grant of interest on the amount refunded. Despite two representations, when there was no response, petitioner has approached this Court through this writ petition, claiming interest on the delayed refund.
5. A statement has been filed on behalf of respondents 1 and 2 stating that as per section 7 of the VSV Act, interest is not payable and therefore the W.P.(C) No.21868/24 4 2025:KER:417 respondents are justified in refusing to grant interest on the refund. It was also stated that the denial of interest on refund issued under the VSV Act is in accordance with the provisions of the statute and the statutory scheme does not contemplate any grant of interest on the refund.
6. Sri. Saju S., the learned counsel for the petitioner vehemently contended that the quantum of refund was ordered as per Form 5, as early as on 24.11.2021 while it was actually paid only on 29.11.2023. After the refund crystallised, the respondents could not have sat on it and delayed granting the refund so ordered and hence it was submitted that interest was liable to be paid for the period of delay. The learned Counsel relied upon the judgment of the Division Bench of Bombay High Court in UPS Freight Services India Pvt. Ltd. v. Deputy Commissioner of Income Tax, Central Circle [2023 SCC OnLine Bom 2960] in support of his contentions.
7. Smt. Susie B. Varghese, the learned Senior Standing Counsel for the Income Tax Department, on the other hand, contended that petitioner was a non-filer of income tax returns all along and hence he is not entitled to any lenient consideration. It was also submitted that the scheme under the VSV Act does not contemplate the grant of interest on refunds, as is evident from Explanation to section 7 of the VSV Act and therefore petitioner's claim for interest on refund is without any merit. The learned counsel further pointed out that petitioner's reliance upon the judgment of the Bombay High Court is not correct as the said judgment related to the amount due under the IT Act while the petitioner had not paid any amount under the IT Act and instead the issue arose out of the seizure of currency notes.
W.P.(C) No.21868/24 5
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8. I have considered the rival contentions.
9. Pursuant to the seizure of currency notes and gold from the petitioner, an assessment for the year 2016-2017 was completed under section 143(3) of the IT Act, determining a total income of Rs.1,86,18,000/- and a demand of Rs.24,65,540/- was raised towards tax due from the petitioner. A penalty of Rs.56,04,000/- was also imposed on the petitioner under section 271AAB of the IT Act. The penalty order was challenged by the petitioner before the Appellate Authority.
10. While the aforesaid appeal was pending, the VSV Act, was enacted providing for resolution of disputed tax and for connected matters. The said statute contemplates a declaration to be submitted under section 4, before the date prescribed, by the declarant, offering to pay a particular amount to obtain the benefit under the Act. Thereafter, the Designated Authority shall as per section 5, determine the amount payable by the declarant and issue a Form 5 certificate containing details of the amount payable under the VSV Act. The statute also contemplates that, pursuant to such a declaration all challenges against the assessment of disputed income, interest, penalty or tax arrears shall be deemed to have been withdrawn from the date on which the certificate under section 5(1) of VSV Act was issued by the designated authority. For the purpose of easier comprehension, section 5 of the VSV Act is extracted as below:
"S.5. Time and manner of payment.--(1) The designated authority shall, within a period of fifteen days from the date of receipt of the declaration, by order, determine the amount payable by the declarant in accordance with the provisions of this Act and grant a certificate to the W.P.(C) No.21868/24 6 2025:KER:417 declarant containing particulars of the tax arrear and the amount payable after such determination, in such form as may be prescribed.
(2) The declarant shall pay the amount determined under sub-
section (1) within fifteen days of the date of receipt of the certificate and intimate the details of such payment to the designated authority in the prescribed form and thereupon the designated authority shall pass an order stating that the declarant has paid the amount.
(3) Every order passed under sub-section (1), determining the amount payable under this Act, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the Income-tax Act or under any other law for the time being in force or under any agreement, whether for protection of investment or otherwise, entered into by India with any other country or territory outside India.
Explanation.--For the removal of doubts, it is hereby clarified that making a declaration under this Act shall not amount to conceding the tax position and it shall not be lawful for the income-tax authority or the declarant being a party in appeal or writ petition or special leave petition to contend that the declarant or the income-tax authority, as the case may be, has acquiesced in the decision on the disputed issue by settling the dispute."
11. In this context, it is necessary to mention that the Central Board of Direct Taxes, Ministry of Finance had issued a Central Action Plan for 2021-22, which stipulated in clause 9 that, consequential orders pursuant to Form 5 issued upto 30.06.2021 should be issued latest by 31.07.2021 and for all subsequent issue of Form 5, i.e., from 01.07.2021 onwards, the consequential orders must be issued by Jurisdictional Assessing Officers within 30 days. The said plan is binding upon the Officers of the Department.
12. In the instant case, since Form 5 certificate was issued to the petitioner on 24.11.2021, the consequential order granting a refund ought to W.P.(C) No.21868/24 7 2025:KER:417 have been issued by 23.12.2021. However, as seen from Ext.P4, the consequential order was issued only on 29.11.2023, i.e., almost after 23 months.
13. Section 7 of VSV Act stipulates that no interest is payable on the amount of refund. The said provision is relied upon by the department to deny petitioner's claim for interest. For the purpose of comprehension, the said provision is extracted as below:
"S.7. No refund of amount paid.--Any amount paid in pursuance of a declaration made under section 4 shall not be refundable under any circumstances.
Explanation.--For the removal of doubts, it is hereby clarified that where the declarant had, before filing the declaration under sub-section (1) of section 4, paid any amount under the Income-tax Act in respect of his tax arrear which exceeds the amount payable under section 3, he shall be entitled to a refund of such excess amount, but shall not be entitled to interest on such excess amount under section 244A of the Income-tax Act."
14. A reading of the above provision and its explanation indicates that if the declarant had paid any amount in excess of tax found payable under section 3, he will be entitled only to refund of the excess amount paid, but without interest. According to me, the said provision cannot enable the department to deny interest due to the petitioner in the instant case as the situation is different.
15. True that the aforenoted provision interdicts the grant of interest on payments made prior to the submission of the declaration by the declarant. However, after the declaration is made by the department in Form 5, identifying the amount of arrears due from the declarant, the delay thereafter, W.P.(C) No.21868/24 8 2025:KER:417 in refunding any excess amount paid earlier, cannot be protected by the explanation in section 7 of VSV Act. The above view is fortified by the decision in Anjul v. Office of Principal Commissioner of Income Tax and Others (2022 SCC OnLine Del 4939) wherein it was held that there is no provision in the VSV Act prohibiting award of interest on delayed refund. Further, as observed in Om Gems and Jewellery v. Principal Commissioner (2023 SCC OnLine Del 7932) interest is a necessary corollary to a wrong retention of capital. The said wrong retention must hence be duly compensated in the form of interest.
16. In other words, though the petitioner is not entitled to interest for any excess amounts paid earlier until the declaration was issued, the delay caused in issuing the consequential order and payment of refund is not immune from the interest component, by recourse to section 7 of VSV Act. Once the Form 5 certificate was issued, respondents were bound to pass consequential orders within 30 days. Failure to issue the consequential order and grant refund is a default on the part of the respondents. After determining that refund is due to an assessee, it remains a debt payable by the revenue. Retention of the said debt without authority renders the person in possession of the amount liable to compensate the other. Thus, the period from 24.11.2021, (i.e. expiry of 30 days from the date of issue of Form 5), till 29.11.2023, (the date of order of refund), cannot be protected by the explanation in section 7 of VSV Act.
17. In the decision in Union of India v. Tata Chemicals Limited (2014) 6 SCC 335 the Supreme Court had observed that even in the absence W.P.(C) No.21868/24 9 2025:KER:417 of express statutory provision for payment of interest on the refund of excess amount, the Government cannot shrug off its obligation to reimburse lawful money with accrued interest for the period of undue retention of such money. It was further observed that the State having received the money without right and having retained and used it, is bound to make the party good just as an individual would be under like circumstances and the obligation to refund the money received and retained without right implies and carries with it the right to obtain interest.
18. Further, in a similar situation, the Bombay High Court had, in UPS Freight Services India Private Limited v. Deputy Commissioner of Income Tax [2023 SCC OnLine Bom 2960], held that the refund ought to have been processed in that case by 31.7.2021 but was paid only on 26.5.2023. It was therefore held that the assessee was eligible for interest at the rate of 6% per annum, which is the rate prescribed under section 244A of the Act.
19. The contention of the department that the aforenoted decision does not apply to the facts of the case since in the instant case, the petitioner was a non-filer of returns and had not paid any tax and instead the amount was seized from him is not acceptable. The decision in UPS Freight Service's case (supra) is wholly applicable since the said contention does not bring in any apparent distinction. In the present case, assessment proceedings were initiated against the petitioner and he was assessed to tax and a penalty was imposed for non-payment of tax. After all the aforesaid exercise and in view of the VSV Act, he was found eligible to be refunded a particular amount. After W.P.(C) No.21868/24 10 2025:KER:417 finding him eligible for a refund, the respondents are not entitled to deny him the right to get the refund. If the interest component is not imposed upon the respondents, they would be able to delay the payment indefinitely and there will not be any recompense for the assessee. The requirement of imposing interest on delayed refunds is a matter of accountability of the Department and a measure of recompense for the person who was deprived of the money.
20. In view of the above, Ext.P6 and Ext.P8 are set aside and the competent amongst respondents 1 and 2 are directed to issue orders granting interest on the amount refunded as per Ext.P3 calculated at the rate of 6% per annum from 24.11.2021 till 29.11.2023. The interest shall be quantified and be paid within thirty days from the date of receipt of a copy of this judgment.
The writ petition is allowed as above.
Sd/-
BECHU KURIAN THOMAS JUDGE vps W.P.(C) No.21868/24 11 2025:KER:417 APPENDIX OF WP(C) 21868/2024 PETITIONER'S/S' EXHIBITS Exhibit P1 THE TRUE COPY OF THE ASSESSMENT ORDER U/S. 143(3) OF THE INCOME TAX ACT DATED 08.12.2017 PASSED BY THE 1ST RESPONDENT- ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, KOZHIKODE Exhibit P2 TRUE COPY OF THE CERTIFICATE IN FORM NO.3 FILED BY THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-1 KOZHIKODE DATED 08.01.2021 Exhibit P3 TRUE COPY OF FORM NO.5 ISSUED BY THE PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) KOCHI DATED 24.11.2021 Exhibit P4 TRUE COPY OF ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1 KOZHIKODE DATED 29.11.2023 Exhibit P5 TRUE TYPED COPY OF THE GRIEVANCE APPLICATION SUBMITTED BY THE PETITIONER ON CENTRALISED PUBLIC GRIEVANCE REDRESS AND MONITORING SYSTEM (CPGRAMS) PORTAL DATED 08.01.2024 Exhibit P6 THE TRUE TYPED COPY OF THE REPLY RECEIVED BY THE PETITIONER IN THE CENTRALISED PUBLIC GRIEVANCE REDRESS AND MONITORING SYSTEM (CPGRAMS) PORTAL DATED 01.02.2024 Exhibit P7 TRUE COPY OF COMMUNICATION DATED 12.03.2024 ISSUED FROM THE OFFICE OF PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, KOCHI Exhibit P8 TRUE COPY OF THE REPLY DATED 10.04.2024 RECEIVED BY THE PETITIONER FROM THE 1ST RESPONDENT IN RESPONSE TO THE LETTER ISSUED BY THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, KOCHI DATED 12.03.2024 AND RTI APPLICATION DATED 10.04.2024 W.P.(C) No.21868/24 12 2025:KER:417 Exhibit P9 TRUE COPY OF THE JUDGMENT PASSED BY THE HON'BLE HIGH COURT OF JUDICATURE AT BOMBAY IN WRIT PETITION (L) NO. 10314 OF 2023 DATED 28.08.2023 IN THE CASE OF UPS FREIGHT SERVICES INDIA PRIVATE LIMITED VS. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-3-2