The Delhi High Court recently, in the case of Nokia Solutions and Networks India Pvt Ltd, upheld the CBDT guidelines declaring the actions of the Revenue arbitrary. The petitioner, Nokia Solutions and Networks Pvt Ltd manufactures and trades telecommunication network equipment and network design.
The petitioner had filed its return of income for the Assessment Year(AY) 2015-16, declaring an income of ₹1076 Cr. This return of income was picked up for scrutiny in which the total revenue of the petitioner was assessed to be ₹1166 Cr, and an addition of ₹43Crores was made by the assessing officer (AO).
The petitioner appealed this assessment and secured a stay on the proceedings by complying with the Central Board of Central Taxes guidelines. The petitioner was to deposit 20% of the outstanding demand to ensure a stay. The Petitioner complied with this order by depositing ₹7.5 Cr, which exceeded the required amount.
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The revenue department adjusted refunds grated to the petitioner against the demand of tax that was stayed, following the order to which the revenue justified, stating that the stay was not unconditional. The counsel for revenue held that the stay was subject to certain conditions to which the department reserved the right to adjust the refunds arising against the demand.
The petitioner argued that per the instructions issued by the CBDT, the stay must be granted to the assessee for the disputed demands on the condition that the assessee deposits an amount equal to 20% of the outstanding tax demand. The petitioner further argued that the effect of the revenue adjusting refunds against the stayed demand would place the petitioner entitled to such refund in a disadvantageous position. The Petitioner asserted that there is no allegation against it for alienating its assets to frustrate the recovery of any demand or that it would be unable to pay the disputed demand.
On hearing both sides, the court held that they found merits in the contention that the Revenue’s decision to adjust the refund due to the petitioner for the AY 2008-09 and 2017-18 is arbitrary. The court held that an earlier decision of the court in Eko India Financial Services Ltd v. Assistant Commissioner of Income Tax held that an order under Section 245 of the Act for adjustments of refunds as well as an order on stay of demand under Section 220(6) of the Act do not give any special reason as to why any amount above 20% of the demand should be recovered from the petitioner as per the CBDT circular.
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The two-judge bench consisting of Justice Vibhu Bakhru and Justice Swarana Kanta Sharma directed the revenue to refund the amount adjusted along with the interest that is applicable on such sum for the 2008-09 and 2017-18 AY within eight weeks from the date of the order. As a result, the court allowed the petition.
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