No Further Recovery Of Demand Can Be Made When A Fresh Assessment Is Barred: Karnataka High Court Directs Rs.87 Crore Refund To United Spirits

The Karnataka High Court has held that no further demand can be made for recovery of the balance amount since a fresh assessment is barred. In other words, the tax paid by the assessee must be accepted as it is, and in the event of the tax paid being in excess of the tax liability duly computed on the basis of the return furnished and the rates applicable, the excess shall be refunded to the assessee.

The bench of Justice B. M. Shyam Prasad, while quashing the demand notice issued in the name of United Spirits (assessee), observed that the time for the AO to consider the question of disallowance of the claims of bad debts and advances written off under Section 14A stood lapsed as of March 31, 2017, and must consider the petitioner’s representation dated November 29, 2020, for refund.

The petitioner/assessee, United Spirits, is a public limited company.

The assessee filed a return of income for the years 2007–08 to 2009–10, which was scrutinised. Several additions were made, and these were contested in front of the CIT (A) and ITAT afterwards. By ruling dated March 31, 2015, the ITAT instructed the department to give the assessee's claim about the rejection of bad debts or advances wiped off under Section 14A another chance after holding a hearing.

The assessee submitted a request for a refund on October 29, 2020, arguing that there was insufficient time to pass the ruling in accordance with the ITAT order. The government then sent letters to the assessee in November 2020 asking for information in an effort to implement the ITAT's directives from March 31, 2015.

The department argued that under the terms of Section 153 prior to substitution, processes to give effect to orders and to give effect to findings or directions that were still outstanding as of March 31, 2017, could be completed at any time.

The court held that with the AO’s failure to close the assessment after the ITAT’s common order within the timeline permitted and with such proceedings having lapsed, the AO cannot make a fresh consideration of the questions restored by the ITAT, and consequentially, the petitioner’s declaration of bad debts/advances written off and allowance claimed under Section 14A of the Income Tax Act are restored. As such, the petitioner will be entitled to a refund along with the interest.

Case Title: United Spirits Limited Versus Assistant Commissioner Of Income-Tax

Case No.: Writ Petition No. 13953 Of 2020

Date: 17/08/2023

Counsel For Petitioner: Percy Pardiwala

Counsel For Respondent: E. I. Sanmathi

Click Here To Read The Order