National Association of Software and Services Companies Vs DCIT (Exemption) (Delhi High Court)
Introduction: The National Association of Software and Services Companies contested an adjustment of a disputed tax demand against refunds due to them. This adjustment occurred despite pending rectification applications and a stay application. The Delhi High Court examined the legality of this action.
Analysis: The petitioner argued that the adjustment was arbitrary and illegal because their stay application wasn’t considered. The respondents claimed the adjustment was justified as the petitioner hadn’t deposited 20% of the demand as per an office memorandum (OM).
The court noted that the OM didn’t mandate a 20% deposit as a precondition for a stay. It emphasized the discretionary power of the Assessing Officer (AO) under Section 220(6) of the Income Tax Act. The court cited precedents to highlight that the 20% deposit wasn’t an inflexible rule, and each case should be examined based on factors like prima facie case and financial hardship.
It rejected the respondents’ argument that a 20% deposit was necessary, emphasizing that such a requirement wasn’t absolute. The court criticized the respondents’ arbitrary adjustment without considering the stay application.
Conclusion: The Delhi High Court ruled in favor of the petitioner, declaring the adjustment arbitrary and unfair. It directed the respondents to consider the petitioner’s stay application without insisting on a 20% pre-deposit. The court emphasized the need for a balanced approach between the rights of the taxpayer and the interests of the revenue authorities.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The writ petitioner has approached this Court aggrieved by the adjustment of a disputed tax demand pertaining to Assessment Year1 2018-19 against refunds which were due to it for AYs’ 2010-11, 2011- 12 and 2020-21. The challenge is principally raised in the backdrop of the aforesaid adjustment having been made despite the petitioner having moved a rectification application pertaining to the final assessment which was framed for AY 2018-19 and an admitted failure on the part of the respondents to consider and dispose of the stay application which was moved and was referable to Section 220(6) of the Income Tax Act, 19612 . It is in the aforesaid backdrop that the petitioner has prayed for the refund being processed after adjustment of 20% of the disputed demand for AY 2018-19. For the purposes of examining the reliefs which are claimed, we deem it apposite to notice the following facts.
2. The petitioner filed its Return of Income 3 for AY 2018-19 on 29 September 2018 claiming a refund of INR 6,45,65,160/- on account of excess Taxes Deducted at Source4 which was deducted during the course of the said year. In the course of processing of that ROI, notices under Section 143(2) and 142(1) of the Act came to be issued on 22 September 2019 and 09 January 2020 respectively. On 16 November 2019, the petitioner received an intimation, referable to Section 143(1) of the Act, apprising it of an amount of INR 6,42,30,413/- being refundable along with interest. However, when the assessment was ultimately framed and a formal order was passed under Section 143(3) read with Section 144B of the Act, various additions came to be made to the income disclosed in the ROI and leading to the creation of a demand of INR 10,26,85,633/-.
3. Aggrieved by the aforesaid, the petitioner preferred an appeal before the Commissioner of Income Tax(Appeals), National Faceless Appeal Centre 5 , which is stated to be pending. Simultaneously, it also moved an application purporting to be under Section 154 of the Act for correction of rectifiable mistakes which according to it were apparent on the face of the record. Along with the rectification application, the petitioner on 28 May 2021 also filed a stay application in respect of the demand so raised. The rectification application however came to be perfunctorily rejected in terms of an order dated 07 June 2021 which is reproduced hereinbelow:
“Sub: Rectification in case of National Association of Software and Service Companies for A.Y. 2018-19 – Reg.
1. In this connection, it is stated while finalizing the assessment u/s 143(3), the FAO had denied exemption u/s 11 of the I.T. Act and has also made some other addition on the account of interest income, donation, TDS etc. and assessed at a taxable income of 24,65,40,625/-.
2. The order of the FAO is a speaking order on each additions made by him/her. This order u/s 143(3) cannot be rectified u/s 154 as the additions made are not mistakes apparent from the ”
4. It would appear that during the pendency of the appeal before CIT(A), NFAC, and without attending to the stay application which had been moved, the respondents proceeded to adjust the demand that stood created by virtue of the assessment order dated 29 April 2021 on 04 March 2022, 07 March 2022 and 30 March 2022 against various refunds which were payable to the petitioner for AYs’ 2010-11, 2011- 12 and 2020-21. According to the writ petitioner it was entitled to receive the following refunds for the aforenoted AYs:
