Facts of the Case

The petitioner, Philco Exports Private Limited, filed a writ petition under Article 226 of the Constitution of India complaining that the Income Tax Department had recovered an amount of ₹11,14,660 by adjusting refunds of subsequent assessment years against an alleged outstanding demand for Assessment Year 2001–02. The recoveries were made on various dates between 2010 and 2017.

Despite repeated representations and applications under the Right to Information Act, 2005, the Department failed to provide the petitioner with a copy of the assessment order or demand notice under Section 156 of the Income-tax Act, 1961, on the basis of which the alleged demand was raised. Even during the pendency of the writ petition, and despite directions of the Court, the Department was unable to place on record the assessment order for AY 2001–02.

Issues Involved

Whether recovery of tax demand by adjustment of refunds is permissible without service of the assessment order and demand notice, whether such recovery violates the requirement of authority of law, and whether the petitioner is entitled to refund of amounts recovered along with interest.

Petitioner’s Arguments

The petitioner contended that in the absence of service of the assessment order and statutory demand notice under Section 156, no legally enforceable tax liability came into existence. It was argued that adjustment of refunds against an uncommunicated and untraceable demand amounted to recovery without authority of law and violated principles of natural justice. The petitioner submitted that despite persistent efforts, including RTI applications, the Department failed to furnish the foundational assessment order.

Respondent’s Arguments

The Revenue submitted that the assessment proceedings pertained to AY 2001–02 and that due to digitisation of records over the years, the assessment order was not readily traceable. It was also argued that the petitioner had failed to update its address in the PAN database, which contributed to non-service of the assessment order. However, the Department acknowledged that it had not been able to supply a copy of the assessment order to the petitioner till date.

Court Order / Findings

The Delhi High Court held that even if the Department’s explanation regarding non-service of the assessment order were to be accepted, once recovery was effected from the petitioner and the petitioner specifically sought a copy of the assessment order, it was incumbent upon the Department to provide the same. The Court observed that recovery of tax without furnishing the assessment order and demand notice amounted to recovery without authority of law.

The Court noted that despite repeated opportunities and even directions of the Court, the Department failed to trace or produce the assessment order for AY 2001–02. In such circumstances, the Court held that the recovery of ₹11,14,660 could not be sustained.

At the same time, the Court balanced equities by granting the Department an opportunity to trace and serve the assessment order within a specified time, in which event the refund direction would not operate.

Important Clarification

The High Court clarified that if the assessment order for AY 2001–02 is traced and duly served upon the petitioner, the petitioner would be entitled to challenge the same by filing an appeal under Section 246A of the Income-tax Act within thirty days, and the appellate authority shall not reject such appeal on the ground of limitation. The Court also restrained further recovery till the stipulated date.

Final Outcome

The writ petition was allowed. The Court directed the respondent to refund ₹11,14,660 along with interest in accordance with law on or before 31.03.2026, unless the assessment order raising the said demand is traced and duly served upon the petitioner by that date. Until 31.03.2026, the Department and CPC were restrained from making any further recovery in respect of the alleged demand for AY 2001–02, and appropriate entries were directed to be made treating the demand as non-recoverable in terms of the Court’s order.

 

Link to download order https://www.mytaxexpert.co.in/uploads/1769504073_PHILCOEXPORTSPRIVATELIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXORS..pdf

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