MALHOTRA STEEL CO. vs. DEPUTY COMMISSIONER OF INCOME TAX

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SCA/10429/2000HC GujaratGJHC24018099200026 December 2000Author: HONOURABLE THE CHIEF JUSTICE MR. JUSTICE D.M.DHARMADHIKARI,HONOURABLE MR. JUSTICE MOHIT S. SHAH4 pages
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What did the High Court hold?

The High Court directed a two-fold approach to resolve the issue. Firstly, the assessee was directed to cooperate with the Commissioner for the completion of the Section 263 proceedings by January 31, 2001, with the Commissioner to serve the order by February 15, 2001. If the order favored the petitioner, the refund was to be processed by February 28, 2001. Secondly, if the Section 263 proceedings were not decided by February 15, 2001, for reasons other than the petitioner's non-cooperation, the respondents were directed to consider the petitioner's application for refund upon the petitioner furnishing adequate security for the refund amount, to the satisfaction of the assessing officer. This security arrangement was to be completed within one month of the petitioner furnishing it. The rule was made absolute to this extent, with no order as to costs.

What were the facts?

The petitioner, Malhotra Steel Co., is challenging the withholding of a refund of Rs. 40,81,557/- for assessment year 1989-90. An earlier assessment order for Rs. 61,33,470/- was set aside and remanded by the Tribunal. The assessing officer subsequently passed a revised order on March 6, 2000, assessing the total income at Rs. 4,25,115/-, entitling the petitioner to a refund. Despite applications for refund, the department initiated proceedings under Section 263 of the Income Tax Act, 1961, on October 4, 2000, citing concerns about the assessment order being prejudicial to the revenue. The petitioner filed a writ petition seeking a mandamus to refund the amount with interest.

What were the issues?

1. Whether the respondents can withhold the refund amount of Rs. 40,81,557/-, as per the assessment order dated March 6, 2000, on the ground that proceedings under Section 263 of the Income Tax Act, 1961, are pending. Assessee's contention: The petitioner argued that since the assessment order dated March 6, 2000, is still in effect, the refund cannot be withheld. They further submitted that the interests of the revenue would not be adversely affected, as one of the partners of the dissolved firm is prepared to provide adequate security, including agricultural land, for the refund amount. Revenue's contention: The revenue contended that the department is justified in withholding the refund amount due to the possibility of a substantial demand being raised after a fresh assessment following the Section 263 proceedings.

Which sections of the Income-tax Act were involved?

Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

SPECIAL CIVIL APPLICATION No 10429 of 2000

For Approval and Signature:

Hon'ble CHIEF JUSTICE MR DM DHARMADHIKARI and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- MALHOTRA STEEL CO. Versus DEPUTY COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: MR SN SOPARKAR for Petitioner MR Mihir Joshi with Mr MANISH R BHATT for Respondent No. 1

--------------------------------------------------------------

CORAM : CHIEF JUSTICE MR DM DHARMADHIKARI and MR.JUSTICE M.S.SHAH

Date of decision: 26/12/2000

ORAL JUDGEMENT (Per : MR.JUSTICE M.S.SHAH)

1.

In respect of assessment year 1989-90. huge additions were made to the petitioner's returned income and the petitioner was assessed at Rs. 61,33,470/-. The petitioner carried the matter in appeal before the Commissioner (appeals) and thereafter before the Income tax Appellate Tribunal. The Tribunal set aside the assessment and remanded the matter to the assessing officer for examination of certain issues. The assessing officer passed the order on 6.3.2000 assessing the petitioner's total income at Rs. 4,25,115/-. In the meantime, the petitioner had paid the whole of the tax liability raised against it because of additions . For the assessment year 1989-90, the order dated 6.3.2000 came to be passed after remand. The petitioner contended that as per the said order, the petitioner is entitled to refund of Rs. 40,81,557/- as per the refund order prepared by the assessing officer. The petitioner made an application dated 22.5.2000 followed by reminders in July, 2000 but the same were not paid any heed to. Therefore, the petitioner has filed this petition for a writ of mandamus to direct the respondents to refund the amount of Rs. 40,81,557/with interest thereon.

2.

In response to the notice, the Deputy Commissioner of Income tax has filed an affidavit in reply contending that it was considered that the assessment order dated 6.3.2000 passed by the assessing officer was not in consonance with law and on facts and was apparently prejudicial to the interest of revenue. Therefore, on 4.10.2000, the Commissioner has initiated action under section 263 of the Income tax Act , 1961. We are informed that the aforesaid proceedings under section 263 are still pending before the Commissioner of Income tax.

3.

Learned counsel for the petitioner has submitted that when the petitioner is entitled to refund of the aforesaid amount as per the assessment order dated 6.3.2000 and the same is still holding the field, the respondents cannot be permitted to withhold the refund amount on the ground that proceedings under section 263 are still pending.

4.

On the other hand, Mr. Joshi for the revenue submits that when there is possibility of substantial demand being raised after fresh assessment, the department is justified in withholding the refund amount.

5.

In rejoinder, Mr. Soparkar for the petitioner submits that each of the partners of the dissolved firm

is having taxable income and that one of the partners is prepared to give security including agricultural land belonging to him. Mr.Soparkar further submits that no interest of revenue would be adversely affected by releasing the amount when one of the partners of the dissolved firm is prepared to give adequate security for the amount which is ordered to be released.

6.

Having heard the learned counsel for the parties, we find that while the petitioner had earlier made applications before the department for refund of Rs. 40 lacs and odd amount as per the order dated 6.3.2000, it was after filing of the present petition on 29.9.2000 and after issuance of notice by this court on 4.10.2000 that the petitioner came to be served with the show cause notice under Section 263 of the Act. Hence, the interests of justice require two fold directions to be issued .

7.

We accordingly direct as under:

(A) In the first place, the assessee shall cooperate with the Commissioner for completion of hearing under section 263 of the Act by 31.1.2001 and the Commissioner shall get the order under section 263 served on the petitioner by 15.2.2001. If the order is in favour of the petitioner, obviously, the department will have to refund the tax amount in question and that shall be done by 28.2.2001. (B) In case for any reason other than non-cooperation from the petitioner, the Commissioner does not decide the proceedings under section 263 of the Act by 15.2.2001, the respondents shall consider the petitioner's application for refund of the amount due as per the assessment year dated 6.3.2000 upon the petitioner furnishing adequate security for the amount of refund, to the satisfaction of the assessing officer. This exercise shall be completed within one month from the date on which the petitioner furnishes security.

8.

Rule is made absolute to the aforesaid extent only. There shall be no order as to costs.

(D. M. Dharmadhikari, C.J.)

( M. S. Shah, J.)

parekh

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