Whether mere fact that sister concerns of assessee firm had paid tax in excess of their liability, it would enable AO to make adjustment of some tax paid in excess by another assessee as Income Tax Act simply does not recognize any such inter-assessee adjustments – NO: HC

THE issue is – Whether the mere fact that the sister concerns of the assessee firm, had paid tax in excess of their liability, it would enable the AO to make adjustment of some tax paid in excess by another assessee as the Income Tax Act simply does not recognize any such inter-assessee adjustments. NO is the answer.

Facts of the case
The assessee is a company. Searches were conducted in the premises of three sister concerns including the assessee-company. During such search, all the three firms made further disclosures of their income. It was found that the assessees had not paid tax on self assessment u/s 140A. During the course of the assessment, however, the assessee contended that in case of other two firms, excess tax has been paid and that, therefore, the same was required to be refunded. The assessee, therefore, requested AO to adjust such refund in respect of the other two assesses against the shortfall of the tax of the assessee and the same as having been paid in terms of Section 140A. AO refused to grant such prayer. On appeal, CIT(A) observed that refund is created only when the assessment is completed and only thereafter the refund can be adjusted against any demand on the request of the party. Thus AO could not have acceded to the appellant’s request for treating the amount of refund in other cases as payment by the assessee firm u/s. 140A. However, if the overall facts of the group cases are considered in a proper perspective, it would be clear that as a result of search substantial income was disclosed by the 3 concerns of the same group and tax payable on such income was duly paid. Thereafter, on the basis of the relevant information collected from the seized documents, there were inter se verification in the disclosed income between the 3 concerns with the result that in 2 concerns the tax has been paid in excess whereas in one concern there was shortfall. Ultimately in the two concerns refunds were created. In my view, having regard to the overall facts the refunds ultimately created in the other group cases and claimed to have been actually adjusted against the demand in the case of the appellant firm, should be treated as payment u/s. 140A for the purpose of charging interest. On further appeal, Tribunal also confirmed CIT(A)’s finding.
Held that,
++ excess tax paid by one assessee cannot be offset against shortfall of tax of another assessee in order to curtail the interest liability of the debtor. The CIT(A) was conscious that the statute would not permit this. He, however, taking into account peculiar facts of the case granted such relief. In our opinion, the same was wholly impermissible in law. In case of Commissioner of Income Tax vs. Anjum M.H.Ghaswala and ors. 2002-TIOL-73-SC-IT-CB, Constitution Bench of Supreme Court held that charging of interest under Section 234A, 234B and 234C is mandatory. The Court opined that the word “shall” in the said section cannot be construed as “may”. Earlier, expression used “may” was substituted by the word “shall” giving clear indication of the intention of the legislature to make the collection of statutory interest mandatory by a peculiar device. CIT (A) as well as the Tribunal, in the present case, made such mandatory requirement otios. The assessee had not paid the self assessed tax. To the extent of shortfall, it was liable to pay interest. Such interest liability could not have been waived by making adjustment of any possible refund in cases of assessments of other assesses. The reference is, therefore, answered in the affirmative, in favour of the Revenue and reference is disposed of accordingly.