VOLVO GROUP INDIA PVT. LTD VS. DCIT (ITAT BANGALORE)
SP NOS.267 TO 270 & 272/BANG/2019, DATED: OCTOBER 14,
2019
Summarised Judgement (Scroll for Complete Judgement)
Introduction
Assessee is manufacturer and dealer of bus chassis, road
laying machineries and trader in construction equipments and is also engaged in
providing software development services.
Observation of AO:
The Ld A.R submitted that the payments made by the assessee
till date works out to more than 50% of the tax portion of the outstanding
demand in AY 2010-11 to 2012-13 and to 35.48% of the tax portion of the
outstanding demand in AY 2013-14.
The Ld A.R further submitted that the financial position of
the assessee is very tight due to recession in the automobile industry. He
further submitted that though the assessee is having balance of about Rs.50.00
crores in its bank accounts, yet the requirement of cash in the .SP Nos.267 to
270 & 272/Bang/2019 subsequent month is more than Rs.58.00 crores. He
further submitted that the sizeable amount of about Rs.646 crores out of
working capital fund is outstanding with GST department, which could only be
adjusted against future GST liability and hence the same could not be realised.
Observation of Court
We have given careful consideration to the rival submissions.
The facts brought to our notice show the existence of a prima facie case in
favour of the assessee. The facts also show that the balance of convenience is
in favour of the assessee, considering the facts brought to our notice on the
financial hardship. If an order of stay is not granted, we are of the view that
the assessee may be put to hardship.
Judgement
All the appeals of the assessee, referred above, are fixed on
out of turn basis for hearing on 27.01.2020. We make it clear that the assessee
should not seek adjournment without reasonable cause, failing which the present
stay order is liable to be vacated. Notice of hearing is dispensed with since
the date of hearing of appeals is given in this order.
The stay applications are allowed in the terms indicated
above.
Citation : Recovery of Tax u/s 220(6)/ 245: (i) The term
“recovery” is comprehensive and includes adjustment thereby reducing the
demand; (ii) 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 (iii) The decisions of CIT(A)
& Tribunal in favour of the assessee should not be ignored, (iv) Income-tax
officials 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 (Maruti Suzuki Ltd 347 ITR 47 (Del) followed).
======================================
IN THE INCOME TAX
APPELLATE TRIBUNAL
“C” BENCH : BANGALORE
“C” BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT
AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
SP Nos.267 to 270
& 272/Bang/2019 [in IT(TP)A Nos.2919/B/17, 679 & 700/B/2016,
733/B/2017 & 433/B/2015]
|
Assessment years : 2013-14, 2011-12, 2011-12, 2012-13 & 2010-11
M/s. Volvo Group India Pvt. Ltd. [formerly Volvo India Pvt.
Ltd.], 65/2, Bagmane Tech Park, Block-A, 5th Floor, Parin Building, C V Raman
Nagar, Bengaluru - 560 093.
PAN: AAACV 6747N
|
Vs.
|
The Deputy Commissioner of Income Tax, LTU,
Circle 1,
Bangalore.
|
APPLICANT
|
RESPONDENT
|
Applicant by
|
:
|
S/Shri Neeraj Jain & & Bharath
Janarthanan, Advocates;
|
Ramit Katyal, CA
|
||
Respondent by
|
:
|
Smt. R. Premi, Jt.CIT(DR)ITAT), Bengaluru.
|
Date of hearing
|
:
|
11.10.2019
|
Date of onouncement
|
:
|
14.10.2019
|
O R D E R
Per N V Vasudevan, Vice President
The assessee has filed the above stay applications seeking stay of
outstanding demand relating to assessment years 2010-11 to 2013-14.
2. The Ld A.R submitted that the assessee is manufacturer and
dealer of bus chassis, road laying machineries and trader in construction equipments
and is also engaged in providing software development services. The assessments
of the assessment years AY 2010-11 to 2013- 14 were completed u/s 143(3) of the
Income Tax Act, 1961 (Act), wherein various additions including addition
relating to Transfer pricing adjustments were made. He submitted that the
assessee has already made payment of substantial amount of outstanding demand
and, in this regard, he submitted following table highlighting the position of
outstanding demand in each of the years:-
A. As per last order
S No
|
Particulars
|
AY 2010-11
|
AY 2011-12
|
AY 2012-13
|
AY 2013-1
|
|||
1.
|
Tax payable after TDS
and Self assessment tax
|
33,21,47,203 |
36,58,59,992 |
37,36,30,568 |
38,61,19,079 |
|||
2.
|
Total demand outstanding including interest
|
47,23,56,951 |
55,85,86,885 |
50,05,25,305
|
67,22,32,594
|
|||
3.
|
Pre-deposit (Post final asst order)
|
17,89,00,000
|
20,50,00,000
|
19,50,00,000
|
13,70,00,000
|
|||
4.
|
Balance demand outstanding (2)-(3)
|
29,34,56,961
|
35,35,86,885
|
30,55,25,305
|
53,52,32,594
|
|||
5.
|
% of pre-deposit out
of total demand (3)/(2)
|
37.87% |
37.87% |
38.96% |
20.38% |
|||
6.
|
% of pre-deposit out
of total demand (Average)
|
33.48% |
||||||
7.
|
% of pre-deposit on
tax component of total demand (3)/(1)
|
53.86% |
56.03% |
52.19% |
35.48% |
|||
8.
|
% of pre-deposit on
tax component of total demand (Average)
|
49.39% |
||||||
Note : TDS to the tune of Rs. 66,59,674 and
Rs.11,19,969 were not allowed as credit by the Assessing Officer for AYs 2011-12
and 2013-14 respectively.
3.The Ld A.R submitted that the payments made by
the assessee till date works out to more than 50% of the tax portion of the
outstanding demand in AY 2010-11 to 2012-13 and to 35.48%
of the tax portion of the outstanding demand in AY 2013-14.
4. The Ld A.R further submitted that the
financial position of the assessee is very tight due to recession in the
automobile industry. He further submitted that though the assessee is having
balance of about Rs.50.00 crores in its bank accounts, yet the requirement of
cash in the subsequent month is more than Rs.58.00 crores. He further submitted
that the sizeable amount of about Rs.646 crores out of working capital fund is
outstanding with GST department, which could only be adjusted against future
GST liability and hence the same could not be realised. Due to recession in the
industry, there is delay in collection of receivables also. In this regard, it
was submitted that the India's automobile industry is currently reeling under
massive sales downturn mainly due to the overall sentiment for investment on
new vehicles is down. It was also submitted that there is a Liquidity crunch
across Non Banking Finance Companies (NBFC's) which has led to virtually
stoppage of funding for commercial vehicles and construction equipment. It was
submitted that the sales of the Assessee in automobile segment fell
andYear-to-date sales as on August 2019 fell less to Rs.1952.8 crore
compared to Rs.2,328.5 crore in August 2018. There was a dip in sale of 16%. As
a result, the Year-to-date operating income as on August 2019 was
Rs.86.80 crore when compared to Rs.179.1 crore in August 2018. It was pointed
out that the dip in operating income of 51% due to reduction in sales and the
present quantities are being sold by giving additional discounts. To tackle the
liquidity crunch in working capital, inventory level were reduced from
Rs.1,038.9 crore in December 2018 to Rs.887.7 crore in August 2019 Working
capital loan as on 30th September 2019 was Rs.605 crore from banks and other
group companies. It was submitted that the Monthly interest payout on account
of the borrowings is approximately Rs.5.5 crore every month. It was submitted
that the Crisis in the CV industry is expected to continue in the upcoming
quarters as well and the liquidity crunch of Volvo is expected to worsen
further.
5. The following details of position regarding
availability of funds was given:-
Details of bank balances as on 30th September
2019:
Bank Name
|
Amount
|
Standard Chartered Bank Ltd
|
7,10,21,372
|
SBI Air Cargo Complex - Current account
|
1,57,21,116
|
Banque Nationale de Paris- Current account
|
5,75,95,072
|
ICICI Banking Corporation Ltd. Current Account
|
10,83,82,987
|
HDFC Bank - Bangalore, Current account
|
27,98,60,793
|
Hongkong and Shanghai Banking Corp
|
(5,97,59,061)
|
State Bank of India, Residency Road
|
1,02,682
|
Citibank
|
71,76,152
|
HSBC - USD EEFC account
|
5,01,43,394
|
HSBC SEK EEFC A/c
|
10,58,094
|
Standard Chartered Bank-ECB Account
|
(8,67,775)
|
Total
|
53,04,34,825
|
Total demand outstanding (inc. interest)
for AYs 2010-11 to 2013-14 - Rs.138.82 crore
Total demand outstanding (inc. interest)
for AYs 2010-11 to 2013-14 if relief is
given for covered issues - Rs.100.61 crore
Fixed financial commitments for next four months
Rs. in Crore
| |||||
Oct - 19
|
Nov-19
|
Dec-19
|
Jan-20
| ||
Salary
|
42
|
42
|
42
|
42
| |
Rent
|
5
|
5
|
5
|
5
| |
Funding of gratuity
|
5
|
5
|
5
|
5
| |
Finance cost
|
5.5
|
5.5
|
5.5
|
5
| |
Repayment of ECB
|
60
| ||||
Total
|
57.5
|
57.5
|
57.5
|
117
| |
Working capital position as on August 2019
Inventory
|
887.70
|
Accounts Receivables
|
524.90
|
Other Current Assets
|
646.20
|
Cash and Bank
|
50.70
|
Total Current Assets
|
2,109.50
|
Accounts Payable
|
464.40
|
Other Current Liabilities
|
651.00
|
Total Current Liabilities
|
1,115.40
|
The Ld A.R filed before us a chart, setting out the various issues
that arise for consideration in the appeals in AY 2010-11 to 2013-14. The chart
also explains as to how each of the issues set out in the chart was already subject
matter of dispute before the Tribunal in the earlier assessment years and as to
how the issues were decided in favour of the assessee. The chart so filed is
placed on record and is not disputed by the parties that the issues have
already been decided. It was submitted that in respect of issues that are
already decided by the Tribunal in the earlier Assessment years in Assessee’s
own case, no demand for recovery of taxes can be enforced. The chart so filed
is reproduced below:-
CHART OF ISSUES FOR STAY
S.No.
|
Particulars
|
AY 2010-11
|
AY 2011-12
|
AY 2012-13
|
AY 2013-14
|
|
Re: Transfer Pricing issues
|
||||||
1.
|
Transfer pricing
adjustment in
Manufacturing
Segment
|
57,14,67,743
|
29,37,99,626
|
24,70,87,519
|
138,89,26,903
|
|
GIST OF ARGUMENTS
Transfer Pricing adjustment in Manufacturing Segment
• Difference in Import
Content of Raw Materials.
It was submitted that during the years under
consideration, the applicant has import significant amount of raw material as
against very low content of raw material in the case of the comparable
companies selected by the TPO.
It was submitted that the transfer pricing
adjustment was deleted after making comparability adjustment on account of
difference in the value of import contents in the following cases:. [ Skoda
Auto India (P) Ltd. v. ACIT (30 SOT 319) (Pune), Toyota Kirloskar Motors Pvt.
Ltd. v. ACIT, Bangalore (ITA No. 828/Bang/2010), Doowon Automotive Systems
India Private Limited vs. DCIT (ITA No. 692/Mds/2016), Demag Cranes &
Components (India) Pvt. Ltd. v. DCIT, Pune in ITA No.120/PN/201 1, Putzmeister
Concrete Machines Pvt. Ltd. v. DCIT, Panaji - ITA No. 107/PNJ/2012]
•
Applicant engaged in low value added assembly function
It is submitted that the applicant imports
components from Volvo Group for its assembly function under manufacturing
segment. It is pertinent to note that the applicant carries out very minimal
value addition and most of the components are imported from Volvo Group and the
applicant carries out very minimal value addition. It is evident that main
activity for both assembly and distribution is import and resale with minimal value
addition Hence the assembly and distribution segment ought to be aggregated
while benchmarking the transaction.
•
Adjustment to be restricted to international transaction.
It is submitted that the TPO ought to have
restricted the adjustment to the value of international transaction undertaken
by the applicant in the manufacturing segment. [ref: CIT vs. Hindustan Unilever
Limited 394 ITR 73 (approved by the Hon'ble Supreme Court in 259 Taxman 218);
CIT vs. Kehin Panalfa Limited (ITA no. 11/2015); CIT vs. Tara Jewel Exports (P)
Ltd. 129 DTR 410 (Born); CIT vs. Thyssen Krupp Industries India Pvt. Ltd. 129
DTR 412; CIT vs. Goldstar Jewellery design Pvt. Ltd. (ITA No. 2237 of 2013)
(Born); CIT vs. Becharlal & Sons. (1906 of 2013) (Bom)]
It
is further submitted that for AY 2013-14 the TPO selected functionally
dissimilar companies as comparable for the purpose of benchmarking analysis.
CHART
OF ISSUES FOR STAY
S.No.
|
Particulars
|
AY 2010-11
|
AY 2011-12
|
AY 2012-13
|
AY 2013-14
|
2.
|
TP adjustment
on account of
provision of IT
enabled services
|
6,99,85,529
|
5,02,42,947
|
13,16,21,551
|
-
|
GIST
OF ARGUMENTS
Inappropriate selection of comparables
It is submitted that the comparable companies
selected by the TPO are not comparable to a captive ITES Service provider.
CHART
OF ISSUES FOR STAY
S.No.
|
Particulars
|
AY 2010
|
11 AY 2011
|
12 AY 2012
|
13 AY 2013
|
3.
|
TP Adjustment
on account of
provision of
Engineering
Design services
|
-
|
13,36,81,280
|
-
|
-
|
GIST
OF ARGUMENTS
Inappropriate selection of comparables
It is submitted that the comparable companies
selected by the TPO are not comparable to a captive Service provider.
Re: Corporate-tax issues
4.
|
Disallowance Of depreciation
on goodwill
|
5,81,96,805
[Correct fig –
6,10,43,906]
|
4,57,82,916
|
3,27,35,703
|
2,45,51,777 |
GIST OF ARGUMENTS
Covered in favour of the Petitioner by the decision of Hon' ble
ITAT for AY 2008-09 [Para No.60 to 68 from Pg.39 to 46 of case laws paper book
- 1] and AY 2009-10 [Para 4 to 4.1 from Pg.67 to 68 of Case laws paper book –
1].
5.
|
Double disallowance
of
depreciation
on goodwill
|
5,81,96,805
|
-
|
-
|
-
|
The above claim of depreciation on
goodwill was disallowed by the AO on the ground that the same was not claimed
in the return of income. Having held so, he proceeded to make a separate
disallowance in the computation of income even though the same was not claimed
in the return of income [Page No. 5 of
stay paper book - 1]. It is submitted that as no claim was made by the
Petitioner in the return of income, separate disallowance cannot be made and
any such action is tantamount to double disallowance.
It is brought to the attention of the
Hon'ble Tribunal a rectification application in this regard was filed before
the AO dated 16.02.2015 [Page No. 150 to
151 of stay paper book - 1] and the same is still pending.
6.
|
Disallowance
of depreciation on assets acquired from Ingersoll Rand
|
12,46,88,907 |
7,91,28,750 |
6,05,23,354 |
4,64,66,019
|
GIST OF
ARGUMENTS
Covered
in favour of the Petitioner by the decision of Hon'ble ITAT for AY 2008-09 [ Para 47 to 51 from Pg.32 to 35 of case
laws paper book - 1].
S.No.
|
Particulars
AY
|
2010-11 AY
|
2011-12 AY
|
2012-13 AY
|
2013-14
|
7.
|
Addition of
Special Additional
Duty of Customs /refund of Countervailing
Duty credited
to P & L account
but not accrued in the year
|
12,63,29,715
|
10,54,04,678
|
3,81,85,122
|
3,08,65,112
|
GIST
OF ARGUMENTS
Covered in favour of the
Petitioner by the decision of Hon' ble ITAT for AY 2008-09 [Para No.25 to 27
from Pg. 18 to 20 of case laws paper book - 1].
It is further submitted that the
difference between the amounts credited to P&L a/c which is excluded for
tax purpose in the return of income and the amounts offered to tax on eceipt
basis from AYs 2008-09 to 2014-15 were cumulatively offered to tax in AY
2015-16 [Page No. 156, 163 to 165 of stay paper book – 1] and the same has been
accepted by the Department vide Asst order dated 29.01.2019 for AY 2015-16
[Page No. 172 of stay paper book - 1].
8.
|
Disallowance of
Expenditure under section 37 of the Act
|
-
|
25,43,83,525
|
27,36,57,949
|
-
|
GIST OF ARGUMENTS
It is submitted
that the Petitioner, during the previous assessment year 2010-11 and 2011-12,
made provisions of Rs.25,43,83,525 and Rs.27,36,57,949 towards the expenses
that were not crystallized during those years but for which services were received
in those years. Such expenses. after the reversal of the provision at the beginning
of the year, were claimed as deductions in the years under consideration i.e subsequent
assessment year, on incurring of the expenses after the same are crystallised
and after appropriate tax was deducted at source, wherever applicable.
In other words,
the Petitioner creates a provision for expenses at the time of closing the books
which were not crystallised but for which services were received and the expense
is debited to P&L account. For tax purpose, the same is added back / disallowed
in the return of income filed by the applicant as the expenses were not crystallised
and also made disallowance under sec.40(a)(ia) of the Act as no tax were deducted
at source while making the payment [Page
No. 2,176 of stay paper book -1]. In the subsequent financial year, such
provision is reversed at the beginning of the year and as and when expenses are
incurred after they are crystallised, appropriate entries are passed in the
books of accounts and the same are claimed as expenditure after deduction of
tax at source, wherever applicable [Pg.176
of stay paper book - 1 and Pg 366 of stay paper book - II]. The Petitioner
makes the claim of such expenditures in the year in which the liability is
crystallised (i.e on receipt of bills) and payments are made to the respective
parties after deduction of tax at source [Submission
before the AO along with sample bills and sample journal entries from Page No.
342 to 359 of stay paper book - 1 and Pg 511 to 515 of stay paper book - II].
However, the
Assessing Officer disallowed the entire expenditure in the years under consideration
when payments were made inter-alia for the reason that (i) once the provision
is reversed at the beginning of the year, the same ceases to be for the purpose
of business and therefore, cannot be allowed under section 37 of the Act; (ii)
the application of section 40(a)(ia) of the Act is only upon an expenditure
falling in the ambit of business expenditure and since these expenditure are
not business expenditure. provisions of section 40(a)(ia) of the Act would not
be applicable; and (iii) the same are prior period expenses which cannot be
allowed in the year under consideration.
It is submitted
that the contentions of the Assessing Officer cannot be upheld for the following
reasons:
a. The claim of
expenditures were disallowed suo-moto by the Petitioner in the AY 2010-11 and
2011-12 for the reason that the same were not crystallised in those years.
Having accepted the same in those years, the AO ought to have allowed the same
in the years in which the liability was crystallised and payments were made after
deduction of tax at source. Disallowing the same in the year of creation of provision
and also in the year of incurrence of expenditure is contrary to the scheme of
the Act and if the contention of the AO is to be accepted, then the expenditure
cannot be allowed as expenditure at all despite the same being incurred for the
purpose of the business and appropriate tax having been deducted.
b. The
contention of the AO that the expenditure ceases to be for the purpose of the business
once the provision is reversed in the year under consideration is without any
basis. It is submitted that the provision created at the end of the previous assessment
year is reversed at the beginning of the year under consideration only to recognize
the expense and record the same as and when the liability to pay arises [i.e.
after receipt of bills] and the payment is made. It is submitted that the
expenses incurred are routine business expenses in the nature of rent,
commission, contractor's payments etc and the same were disallowed by the
Petitioner in the year of creation of provision under section 40(a)(ia) of the Act [ Details of expenses at Pg Nos.14 and
27, 184 and 199 of stay paper book - 1].
c. Even if the
expenditure is held to be a prior period expense, the same is to be allowed in
the year in which the liability is crystallised as held in the following decisions:
• Saurashtra
Cement & Chemical Industries: 213 ITR 523 (Guj)
• Nathum al
Tularam: 88 ITR 234 (Gauhati)
• Goetze India
Ltd:112 TTJ 1 (Del)
• CIT v. Exxon
Mobil Lubricants P. Ltd: 328 ITR 17 (Del.)
• CIT v. Modi
Pon Ltd.: 334 ITR 102 (Guj.)
• CIT v. Triveni
Engineering & Industries Ltd: 336 ITR 374 (Del.)
• CIT v. Shri
Ram Pistons and Rings Ltd.: 174 Taxman 147(Del)
• AC IT v. Birla
Soft Ltd.: 46 SOT 437 (Del.)
d. Without
prejudice, even if it is assumed that the liability was crystallised in the year
in which provisions were created, the same are to be allowed in the year in which
the payments are made and the tax is deducted at source. As per the 1st
proviso to section 40(a)(ia) as was applicable for the years under
consideration, if the tax is not deducted at source in the year in which the
expenditure was incurred but is deducted in the subsequent assessment year,
then such expenditure shall be allowed as a deduction in computing the income
of the previous year in which the tax has been paid. Even in the instant case,
as the expenditure was not claimed in the year in which the services were
received, but in the subsequent AY where tax was deducted at source. then the
same is to be allowed in the years under consideration. For ready reference,
the 1st proviso to section 40(a)(ia) as was applicable for the years under
consideration reads as under:
"Provided that where in respect of any such
sum, tax has been deducted in any subsequent year, or has been deducted during
the previous year but paid after the due date specified in sub-section (1) of
section 139, such sum shall be allowed as a deduction in computing the income
of the previous year in which such tax has been paid."
e. Reliance in
this regard is also placed upon the decision of the Bangalore Bench of the Tribunal
in the case of IKA India Pvt Ltd vs ACIT: 101 taxmann.com 276 (Bang ITAT) [Page No.722
to 723 of case laws paper book - IV] wherein it was held that even if the
crystallisation of the expenses is in the earlier assessment year, the expense
is to be allowed in the year in which tax is deducted at source and the same is
deposited.
S.No.
|
Particulars
|
AY 2010-11
|
AY 2011-12
|
AY 2012-13
|
AY 2013-14
|
9.
|
Short credit
of TDS
|
66,59,674
|
11,19,969
|
GIST OF ARGUMENTS
AY 2011-12:
On certain
payments received by the Petitioner from the parties, tax was deducted and the
e-TDS return was uploaded belatedly by the deductor. The credit of the TDS was not
given by the AO and upheld by the DRP despite the fact that the same was reflected
in Form 26AS for the reason that the Petitioner ought to approach CBDT to claim
relief in the matter.
It is submitted
that the TDS, once deducted by the deductor, ought to be allowed as credit by
the AO. There is no dispute with regard to the non-furnishing of any TDS certificate
[Page No. 360 to 364 of stay paper book
- 1] nor the sum not being reflected in Form 26AS.
AY 2013-14:
The TDS credit
claimed by the applicant in its return of income amounted to Rs. 1,58,29,023
and the same was substantiated with the latest downloaded Form 26AS [Page No. 741 of stay paper book - II].
The AO, in his order, has given TDS credit only to the extent of Rs.
1,47,09,054 instead of Rs. 1,58,29,023, and no reason was given for granting
such short credit. It is submitted that the TDS, to the extent of the shortfall
for Rs.11,19,969 ought to be allowed as credit.
Levy of interest
u/s. 234B / 234D
|
12,23,22,522
|
18,72,86,283
|
5,64,58,876
|
18,65,02,901
|
GIST OF ARGUMENTS
Consequential
7. The Ld A.R
furnished copies of two intimations dated 28-08-2019 given by the AO u/s 245 of
the Act and submitted that the AO has proposed to adjust the refund arising to
the assessee in AY 2006-07 and 2007-08 against the outstanding demands
pertaining to AY 2005-06, 2009-10, 2010-11 and 2012-13. He submitted that, if
such adjustment is done, then the assessee shall be put to hardship badly
affecting its working capital position. The Ld A.R also placed a copy of
decision rendered by Hon’ble Delhi High Court in the case of Maruti Suzuki Ltd
(347 ITR 47)(Delhi). In the above said case, the facts were that 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. The
Hon’ble High Court laid down the following principles to be followed in such
cases:-
(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.
8. The above
decision lays down two propositions which are relevant in the present case,
viz., (i) The term “recovery” is comprehensive and includes adjustment thereby
reducing the demand; (ii) 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.
9. The Ld A.R
thus submitted that the assessee has a prima facie case, the balance of
convenience is in favour of granting the stay. Otherwise the assessee would be
put to great hardship. He, therefore, prayed that the recovery of outstanding
demand for assessment years
2010-11 to
2013-14, which are subject matter of appeals before the Tribunal should be
stayed.
10. The Ld D.R
submitted that the assessee should be directed to pay atleast 50% of the
outstanding demand as a condition for granting stay and that there cannot be
any stay on adjustment of refund against outstanding demand as it is a
statutory right conferred on the revenue u/s.245 of the Act.
11. We have
given careful consideration to the rival submissions. The facts brought to our
notice show the existence of a prima facie case in favour of the assessee. The
facts also show that the balance of convenience is in favour of the assessee,
considering the facts brought to our notice on the financial hardship. If an
order of stay is not granted, we are of the view that the assessee may be put
to hardship. Even if adjustment of refund due to the assessee for earlier
assessment years is against the outstanding demand for the aforesaid assessment
years, which are subject matter of appeals before the Tribunal, that would also
amount to recovery of outstanding demand as held by Hon’ble Delhi High Court in
the case of Maruti Suzuki Ltd (supra). In coming to the conclusion that the
assessee has a prima facie case, we have also kept in mind the observations of
Hon’ble Delhi High Court that outstanding demand arising out of issues already
decided in favour of the assessee by the Tribunal in the earlier assessment
years cannot be recovered. We also notice from the chart of outstanding demand
filed by the assessee before us, which has been extracted in the earlier part
of the order, that more than 50% of the tax portion of the outstanding demand
has been paid by the assessee in AY 2010-11 to 2012-13. We therefore grant stay
of recovery of outstanding demand for these years for a period of six months
from the date of this order; or till the disposal of appeals of these years,
whichever period expires earlier.
12. As far as AY
2013-14 is concerned, we find that only 35.48% of the outstanding tax portion
has been paid by the assessee till date. We are of the view that it would meet
the ends of justice, if the revenue is permitted to adjust a sum of Rs.5.00
crores towards outstanding demand for AY 2013-14 out of the refund arising to
the assessee. Subject to the payment of tax by way of adjustment as aforesaid,
there will be stay of recovery of outstanding demand for AY 2013-14 for a
period of six months from the date of this order; or till the disposal of
appeals of the Assessee, whichever period expires earlier. We order
accordingly.
13. All the
appeals of the assessee, referred above, are fixed on out of turn basis for
hearing on 27.01.2020. We make it clear that the assessee should not seek
adjournment without reasonable cause, failing which the present stay order is
liable to be vacated. Notice of hearing is dispensed
with since the
date of hearing of appeals is given in this order.
14. The stay applications are
allowed in the terms indicated above.
Pronounced in
the open court on this 14th day of October, 2019.
Sd/-
|
Sd/-
|
( B R BASKARAN
)
ACCOUNTANT MEMBER |
(
N V VASUDEVAN )
VICE PRESIDENT |
Bangalore,
Dated, the 14th
October, 2019.
/ Desai Smurthy
/
Copy to:
1. Applicant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT,
Bangalore.
6. Guard file
By order
Assistant
Registrar,ITAT, Bangalore.
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