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Judgment
A. P. SHAH, J. :
By this petition under Art. 226, the petitioner takes exception to the order dt. 18th July, 1996, passed by the Dy. CIT, Special Range 46. Briefly, the facts are that the petitioner is a registered partnership firm which owned certain lands situate at Powai. The assessment year relevant to this petition is the asst. yr. 1983-84 having previous year ending on 31st March, 1983. During the relevant previous year certain land belonging to the petitioner was acquired by the Special Land Acquisition Officer, Bombay, and Bombay Suburban District. The total compensation received by the petitioner amounted to Rs. 26,78,392. While computing capital gains on the aforesaid acquisition, the petitioner had taken the cost of acquisition of the said land as on 1st Jan., 1984 at Rs. 30,93,264 taking the rate of Rs. 18 per sq. yard for 1,71,848 sq. yards of land. Accordingly, the petitioner computed a capital loss of Rs. 4,32,762 on the transaction of acquisition of the land and filed a return declaring a loss of Rs. 4,52,420 for the relevant assessment year.
In the assessment order made by the AO on 27th March, 1986, he did not agree with the contention of the petitioner and adopted the cost of acquisition of the land at Rs. 2,70,000 only. He computed the taxable capital gain arising out of the above transaction at Rs. 14,16,859. By making certain addition, the AO computed the total income of the petitioner at Rs. 14,66,460.
The CIT, thereafter, issued a notice under s. 263 of the IT Act, 1961 ("Act" for short) for the revision of the assessment order as according to him it appeared to be erroneous and prejudicial to the interest of the Revenue. The CIT set aside the assessment and directed the AO to make a fresh assessment after due verification and after hearing the petitioner. It is required to be mentioned at this stage that in the meanwhile pursuant to the assessment order dt. 27th March, 1986, the IT Department had recovered a sum of Rs. 4,20,347 on 31st March, 1987 from the petitioners bank account with State Bank of India, IIT, Powai Branch, Bombay.
In accordance with the provisions of s. 153(2)(a), the fresh assessment was to be completed on 31st March, 1990. It seems that the petitioner received notices of hearing under ss. 142(1) and 143(2) both dt. 16th May, 1990 fixing the hearing on 29th May, 1990. In response to the said notices, the petitioners representative addressed a letter dt. 5th June, 1990 to the concerned officer, requesting that the proceedings be closed since the same had become time-barred. However, an assessment order dt. 30th March, 1990 was served on the petitioner on 30th Nov., 1990. As per the said order, the income of the petitioner was computed at Rs. 29,33,520 and demand of Rs. 19,19,152 was raised. The Dy. CIT levied a penalty of Rs. 19,13,932 under s. 271(1)(c) for the alleged concealment of income. This order was said to be passed on 28th Sept., 1990, just two days prior to the expiry of limitation period which would have expired on 30th Sept., 1990.
Against the impugned order of assessment passed under s. 143(3) r/w s. 263 and the penalty order passed under s. 271(1)(c), the petitioner preferred appeals before the CIT(A). The CIT(A) came to the conclusion that the assessment order was passed by 31st March, 1990, but could have been served only after 29th May, 1990, the date of hearing fixed by notice dt. 16th May, 1990, issued under ss. 143(2) and 142(1) of the Act. The CIT(A) held that the limitation period for passing the order had expired. Similarly, he held that there is strong evidence to indicate that the penalty order was not passed by 30th Sept., 1990 and further that it was not legally sustainable in view of violation of provisions of s. 274(1) of the Act. In that view of the matter, the CIT(A) cancelled both the orders of assessment and penalty and allowed the appeals filed by the petitioner.
It is admitted position that the Department has not challenged the order of the CIT(A). In fact, after the appellate order passed by the CIT(A), the AO passed two orders both dt. 27th Nov., 1991 giving effect to the order passed by the CIT(A). He cancelled the assessment order as well as the penalty order and consequently remitted the demand from the "D and C" Register.
It is the case of the petitioner that the natural corollary of the appellate order of the CIT(A) is that any tax collected by the Department as a result of the assessment order becomes bad in law and the same is required to be refunded to the petitioner along with interest as provided under the provisions of s. 240 r/w s. 244(1A). It appears that in spite of the petitioners repeated requests in that behalf to the AO, refund was not granted. However, on 22nd July, 1996, the AO by his letter dt. 18th July, 1996, informed the petitioner that the claim for refund is rejected in accordance with the opinion received from the Law Ministry. Aggrieved by the order of rejection, the petitioner has filed the present petition under Art. 226.
There is hardly any controversy about the factual position. The CIT(A) has quashed the assessment and penalty orders passed by the respondent No. 1 as time-barred and against the statutory provisions of the Act. The AO has given effect to the order by cancelling the assessment and penalty order. He also remitted the demand from "D and C" register. The Department has not preferred any appeal against the appellate order of the CIT(A) and the same has, therefore, become final. In these circumstances, the tax already recovered by the Department is refundable at once. In this regard only two provisions are required to be noted. Sec. 240 of the Act provides for refund of amount becoming due to an assessee as a result of any order passed in appeal or other proceedings without his having to make any claim in that behalf. Then s. 244(1A) provides that where the tax having been collected after 31st of March, 1975, in pursuance of an order of assessment and such amount having been found to be not payable in appeal, the Central Government is required to pay to the petitioner simple interest at 15% per annum from the date on which such amount was paid to the date on which the refund is granted except for a period of one month.
This Court in Chandabai Daga Vs. Income Tax Appellate Tribunal and another, has held that where the assessment of the executor has been found to be invalid, the tax was collected without the authority of law and was liable to be refunded. While so holding, this Court relied upon the decision of the Supreme Court in Salonah Tea Co. Ltd. and Others Vs. Superintendent of Taxes, Nowgong and Others, .
In view of the legal position stated above, the petitioner is entitled to refund of tax with interest at 15% per annum in accordance with s. 244(1A) of the Act. However, the claim of the petitioner appears to have been rejected on the basis of the opinion expressed by the Law Ministry through its letter dt. 29th March, 1996. On a careful perusal of the opinion of the Law Ministry, it is clearly seen that the opinion proceeded on an erroneous assumption that the tax recovered from the petitioner is as per the original return filed by the petitioner. In fact, the facts of the present case are otherwise. The return filed by the petitioner showed a loss of Rs. 4,52,420 for the relevant assessment year. Thus, the opinion expressed by the Law Ministry was factually misconceived. Similarly, reference to the decision of the Gujarat High Court in the case of Saurashtra Cement and Chemical Industries Ltd. Vs. Income Tax Officer, was also misconceived. In that case, the Gujarat High Court came to the conclusion that on failure of a regular assessment being made within the time prescribed or in the event of annulment of the assessment order pursuant to which any further demand is required to be made under s. 156, no consequence of refund of the tax paid according to the total income shown in the return filed by the assessee can ensue and such tax which is collected on the basis of the return filed by the assessee remains valid and legal recovery in accordance with the provisions of the Act. There cannot be any two opinions on the position of law stated by Gujarat High Court. If the return filed by the assessee disclosed income, there will be no question of refund of tax as per the decision of the Gujarat High Court. But in the present case the assessee had showed a loss of Rs. 4,52,420 for the relevant assessment year. Therefore, the decision of the Gujarat High Court has no application to the facts of the present case.
There is one more error in the opinion of the Law Ministry. It is noted in the opinion that the claim is time-barred. The noting is clearly contrary to the express provisions of s. 240 of the Act which provides that in the event of the original order being set aside in appeal, it is the duty of the Department to refund the amount recovered pursuant to the original order. Hence, the question of limitation does not arise. In these circumstances, the petitioner is entitled to refund of the amount of Rs. 4,52,420 with simple interest at the rate of 15% per annum in accordance with the provisions of s. 244(1A) of the Act.
Before parting with, it is required to be stated that Mr. Balasubramaniam, learned counsel for the respondents made a statement that the AO is yet to pass the assessment order and, therefore, the petitioner should be directed to furnish security before releasing the amount in favour of the petitioner. The contention is required to be stated only to be rejected. As already indicated, the limitation for passing the assessment order has expired long back and, therefore, the question of passing the assessment order does not arise.
In the result, the petition succeeds. Rule is made absolute in terms of prayers (a) and (b). The respondents shall make the payment within four weeks from today.