|DATE:||(Date of pronouncement)|
|DATE:||November 30, 2011 (Date of publication)|
|Click here to download the judgement (maruti_stay_recovery_refund_adjustment.pdf)|
S. 245: Refund arising in earlier year on issue cannot be adjusted against demand on same issue in subsequent year
Against an order passed u/s 144C/143(3), the assessee filed a stay application before the AO u/s 220(6) and also filed a stay application before the Tribunal. The Tribunal passed an interim order directing “status quo”. Despite the interim order, the AO passed an order u/s 245 (without giving prior notice) and adjusted refunds against the demand. Before the Tribunal, the department accepted that the 245 refund adjustment was not proper and said a proper order would be passed. The AO then passed an order u/s 220(6) in which he held that the adjustment of refunds was in order on the ground that (i) an adjustment of refunds was not a “recovery” and (ii) though some issues were covered in favour of the assessee, the decision had not become final as the department was in appeal. The Tribunal then passed a stay order in which it accepted the AO’s stand that an adjustment of refund was not a “recovery”. It was also held that action u/s 245 was not “mala fide”. The assessee filed a writ petition to challenge the adjustment of refunds. HELD allowing the Petition:
(i) S. 220(6) has no application to a case where an appeal is filed before the Tribunal though the Tribunal has inherent power to grant stay. The order passed u/s 220(6) is null and void. The Tribunal should have decided the stay application instead of calling upon the AO to dispose of the application u/s 220(6);
(ii) It is wrong to say that an adjustment of refund u/s 245 is not a “recovery” only on the ground that s. 245 is placed in the Chapter of “Refunds”. The term “recovery” is comprehensive and includes adjustment thereby reducing the demand. In Circular No. 1914 dated 2.12.1993, even the CBDT did not regard ‘recovery’ as excluding ‘adjustment’ u/s 245. However, different parameters may apply in considering a request for stay against coercive measures to recover the demand and a stay against refund adjustment. It is permissible for the authority to direct stay of recovery by coercive methods but not grant stay of adjustment of refund. However, when a simple & absolute order of stay of recovery is passed, it bars recover of the demand by way of adjustment of demand. The revenue must be obedient and respect the stay order and not over-reach or circumvent the stay order. No deviancy or breach should be made;
(iii) It will be specious & illogical for the Revenue to contend that if an issue is decided in favour of the assessee giving rise to a refund in an earlier year, that refund can be adjusted u/s 245, on account of the demand on the same issue in a subsequent year. While the AO can made an addition on the ground that the appellate order for an earlier year has not been accepted, he cannot make an adjustment towards a demand on an issue decided in favour of the assessee.
(iv) The argument that as the assessment order has been passed u/s 144C after reference to the DRP, the orders passed by the CIT(A) and Tribunal in favour of the assessee have lost significance and do not justify stay of demand in covered matters is not acceptable. The decisions of the CIT (A) & Tribunal in favour of the assessee should not be ignored and have not become inconsequential. This is not a valid ground to ignore the decisions of the appellate authorities and is also not a good ground to not to stay demand or to allow adjustment u/s 245;
(v) The respondents are officers of the State and the Law requires that they perform their duties with utmost objectivity and fairness, while keeping in mind the sanctity of the role and function assigned to them which at times requires tough steps. On facts, the conduct and action of the Revenue in recovering the disputed tax in respect of additions on issues which are already covered against them by the earlier orders of the ITAT or CIT (A) is unjustified and contrary to law. Directions issued to refund the tax.