Telangana High Court directs decision on Section 154 rectification within 45 days in Hitachi refund matter

Overview

The Telangana High Court, in Hitachi Digital Services India Private Limited Vs DCIT, examined a writ petition under Article 226 of the Constitution concerning a long-pending income-tax refund issue for Assessment Year (AY) 2006-07. The assessee claimed a refund of ₹1,36,42,938 and questioned its adjustment against refund for AY 2022-23.

While the initial writ petition sought multiple directions on refund, interest under Section 244A and verification of the legality of adjustment, the matter ultimately narrowed down before the Court to a limited prayer: a direction to the Income Tax Department to examine and dispose of the assessee’s rectification application filed under Section 154 of the Income-tax Act, 1961, relating to order dated 03.07.2023 for AY 2006-07.

The Division Bench of the Telangana High Court, comprising Acting Chief Justice P. Sam Koshy and Justice Narsing Rao Nandikonda, disposed of the writ petition by issuing a time-bound direction to the Department to verify the pendency of the Section 154 application and, if pending, to decide it within 45 days, after providing a reasonable opportunity of hearing to the assessee.

Importantly, the Court did not decide whether the refund adjustment was right or wrong, nor did it determine entitlement to refund or interest. Its intervention was confined to ensuring that the pending rectification application is examined and disposed of expeditiously.

Background of the dispute

Origin of the refund claim

  • The assessee, M/s. Hitachi Digital Services India Private Limited, approached the Telangana High Court under Article 226 of the Constitution of India.
  • The dispute centres around a refund claim of ₹1,36,42,938 relating to AY 2006-07.
  • According to the assessee, this amount was either not properly refunded or was adjusted against refund for AY 2022-23 in a manner that required verification and correction.

Application dated 03.07.2023

The assessee filed an application dated 03.07.2023, wherein it requested the Income Tax Department to:

  • Consider its claim for refund of ₹1,36,42,938 in respect of AY 2006-07.
  • Examine the correctness and legality of the adjustment of ₹1,36,42,938 against the refund determined for AY 2022-23.
  • If the amount was found to have been wrongly adjusted or recovered, issue a refund of ₹1,36,42,938 together with applicable interest under Section 244A of the Income-tax Act, 1961.
  • Pass a reasoned and speaking order after granting an opportunity of hearing.

Parallelly, a rectification application under Section 154 was also filed in relation to the order dated 03.07.2023 covering AY 2006-07, seeking correction of what was asserted to be an apparent mistake in the order, especially in connection with the refund and its adjustment.

Reliefs initially sought in the writ petition

The writ petition prayed for issuance of a writ of mandamus directing Respondent No.1 (Income Tax Department) to:

  • Consider and dispose of the assessee’s application dated 03.07.2023.
  • Examine the legality of the adjustment of ₹1,36,42,938 made against AY 2022-23 refund.
  • If on verification the Department concluded that the adjustment was incorrect, refund ₹1,36,42,938 with due interest under Section 244A within four weeks.
  • Pass a reasoned and speaking order after providing the assessee an opportunity of hearing.

Thus, the original challenge before the Court was both procedural (non-disposal of application) and substantive (validity of refund adjustment).

Narrowing of the controversy before the Court

Limited prayer by assessee’s counsel

When the matter came up for hearing, learned counsel for the assessee refined the scope of the relief. Instead of pressing for a direct adjudication on refund entitlement or immediate release of the sum with interest, counsel confined the prayer to a more restricted relief, namely:

  • A direction to Respondent No.1 to consider and decide the assessee’s application filed under Section 154 of the Income-tax Act, 1961, seeking rectification of the order dated 03.07.2023 for AY 2006-07.

In other words, the assessee primarily wanted the Court to ensure that the Department took a decision on the pending Section 154 rectification application within a defined timeframe.

Stand of the Income Tax Department

On behalf of the Income Tax Department, **Ms. J.