Case Law Details
Danieli India Limited Vs Union of India (Calcutta High Court)
The Calcutta High Court, in the case of Danieli India Limited Vs Union of India, addressed the issue of whether a taxpayer is automatically entitled to interest under Section 244A of the Income Tax Act, 1961, on a refund amount that was released pursuant to a specific direction by the High Court, particularly when the underlying tax demand is still subject to appeal.
Background and Issue
The petitioner, Danieli India Limited, was entitled to refunds for the assessment years 2010-11 and 2017-18. However, the Income Tax Department adjusted this admitted refund amount to recover outstanding demands for assessment years 2011-12, 2012-13, and 2013-14, against which appeals were pending before the CIT (Appeals).
In a prior writ petition (WPO/2294/2022), a Coordinate Bench of the Calcutta High Court, relying on the precedent set in Graphite India Ltd. vs. Deputy Commissioner of Income Tax & Ors., held that the Income Tax Authority’s action of recovering an amount in excess of 20% of the demand (where appeals were pending) by way of adjustment was arbitrary and unsustainable. Consequently, the Court, by order dated September 1, 2023, directed the Department to refund the excess amount recovered, subject to verification, within four weeks. This earlier order, however, did not specifically direct the payment of interest.
The petitioner subsequently approached the Court again, arguing that even though the principal refund amount had been disbursed following the September 2023 order, the Department failed to pay the statutory interest due under Section 244A. The petitioner insisted that the interest should be directed forthwith.
High Court’s Holding and Rationale
The Calcutta High Court refused to grant the relief sought by the petitioner for immediate interest disbursement under Section 244A.
The Court’s reasoning was based on two primary factors:
1. Scope of the Previous Order: The Court observed that the earlier order dated September 1, 2023, was explicit in directing the refund of the amount recovered in excess of 20% of the demand but made no direction for the payment of interest on that amount.
2. Premature Relief and Pendency of Appeal: The Court noted that the very demands for assessment years 2011-12, 2012-13, and 2013-14, which had led to the excess recovery and subsequent refund, were still pending resolution before the CIT (Appeals).
The Court held that because the ultimate tax liability was not yet finalized—as the appeals were pending—it was premature to grant any further relief, including interest under Section 244A. The Court clarified that the right to the refund was granted only because the recovery exceeded the permissible 20% threshold while the demand was sub judice. If the petitioner ultimately succeeds in the pending appeals, the Court affirmed that “all consequences of such appellate order shall follow,” implicitly including the right to statutory interest at that later, final stage.
The judgment clarifies that an interim court direction to release an amount (which was forcibly recovered beyond a threshold limit) does not automatically mature the right to interest under Section 244A unless the court specifically directs it, or until the underlying tax demand against which the adjustment was made is finally annulled or reduced by the appellate authority.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
The Court: 1. All the three matters raised identical question and as such are taken up together.
2. The petitioner claims that the Income Tax Department should be directed to disburse interest in favour of the petitioners on the amount which has been refunded pursuant to the order dated 1st September 2023.
3. According to Mr. Bag, learned advocate representing the petitioner, the petitioner had preferred a writ petition being WPO/2294/2022, inter alia, challenging the action of the Income Tax Authority in denying the admitted refund to the petitioner in respect of the assessment years 2010-11 and 2017-18 by making adjustment under section 245 of the Income Tax Act, 1961 (hereinafter referred to as “the said Act”) for recovery of demand arising out of the assessment orders relating to the assessment years 2011-12, 2012-13 and 2013-14 without compliance of mandatory formality of making prior intimation to the petitioner before making such adjustment of demands, against which admittedly appeals are pending before the CIT (Appeals). By order dated 1st September 2023 a Coordinate Bench of this Court was, inter alia, pleased to dispose of the said writ petition by observing as under:
“Considering the facts and circumstances of the case as appears from record annexed to the writ petition, undisputed and admitted fact which emerge are as follows :
1. That admittedly petitioner is entitled for refund in respect of assessment years 2010-11 and 2017-18;
2. Admittedly statutory appeals before the CIT (Appeals) are pending against the assessment orders relating to assessment years 2011-12, 2012-13 and 2013-14 out of which demand has arisen and for recovery of the same by way of adjustment has been made from the refund relating to assessment years 2010-11 and 2017-18 ;
3. Admittedly the amount recovered by way of adjustment from the admitted refund in respect of assessment year 2010-11 and 2017-18, for the demand relating to assessment years 2011-12, 201213 and 2013-14 are in excess of 20% of the demand.
The legal issue which petitioner has raised in this writ petition is that if at all the respondent Income Tax Authority can recover, can he recover more than 20% of the demand arising out of the relevant assessment orders against which appeals are pending, by way of making adjustment from the refund in respect of any other assessment years and petitioner submits that in this case admittedly the assessing officer has recovered more than 20% of the demand relating to assessment orders against which appeals are pending from the admitted refund in respect of other assessment years and such action of the assessing officer is not sustainable in law.
Petitioner in support of its contention has relied on a decision of this Court in the case of Graphite India Ltd. vs. Deputy Commissioner of Income Tax & Ors. reported in (2022) 448 ITR 292 (Cal) and submits that the aforesaid issue is directly covered in favour of the petitioner, by the aforesaid reported decision of this Court.
Considering the facts and circumstances of this case which appears from record and submission of the parties and the decision in the case of Graphite India Ltd. (supra), this writ petition being WPO 2294 of 2022 is disposed of by holding that the action of the assessing officer recovering amount in excess of 20% of the demand arising out of relevant assessment orders against which Appeals are pending before CIT (Appeals) by way of adjustment from the admitted refund relating to other assessment years are arbitrary and not sustainable in law. Accordingly, the respondent Income Tax Authority concerned is directed to refund the amount in excess of 20% which has been recovered from the refund of assessment years 201011 and 2017-18 for recovery of the demand arising out of the assessment orders relating to assessment years 2011-12, 2012-13 and 2013-14 against which appeals are pending before the CIT (Appeals), within a period of four weeks from the date of communication of this order subject to verification of the actual amount recovered and for this purpose respondent Income Tax Authority concerned shall afford an opportunity of hearing to the petitioner if required for clarification in support of such claim.
With these observations and directions, this writ petition stands disposed of.
Affidavit in reply filed in Court be kept with the records.”
4. Bag would submit that though, pursuant to the aforesaid order the Department has disbursed the refundable amount which had been adjusted in excess of the 20% of the demand, however, no interest, as is required to be paid in terms of section 244A of the said Act, has been disbursed in favour of the petitioner. Mr. Bag insists that this Court should direct the Department to disburse the said interest which the petitioners are entitled to in accordance with law.
5. Having heard the learned advocates representing the respective parties, I am of the view that the right of the petitioner to be entitled to the refund was considered by the Coordinate Bench of this Court by its order dated 1st September 2023. No direction for refund of the amount in excess of the 20% of the demand for the relevant assessment years alongwith the interest was made. What was directed was refund of the amount in excess of the 20% of the demand recovered from the petitioner from the refund of the assessment years 2010-11 and 2017-18. I have been able to ascertain from the learned advocates for the parties that the appeal filed before the CIT (Appeals) is still pending. No decision has been taken thereon. As such, at this stage, I am of the view that it is premature to grant any further relief to the petitioner apart from what have been granted by the order dated 1st September 2023. If the petitioner succeeds in the appeal, all consequences of such appellate order shall follow.
6. The writ petitioner is accordingly disposed of.
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