S. 275(1A): Assessee's claim for refund of penalty with interest cannot be defeated by inaction of revenue
(i) What is provided by Section 275(1A) is that the order imposing or enhancing or reducing or cancelling the penalty may be passed on the basis of the assessment as revised by giving effect to the order in appeal. The concerned authority was thus required to make specific order for cancelling the penalty by giving effect to the order in appeal made in favour of the petitioner. However, failure of assessing officer or concerned authority to pass such order would not mean that the assessee has no right of refund on his becoming successful in appeal against the order of assessment. Further, if there is failure to exercise power under Section 275(1A) within outer limit of six months, the assessee would be justified in approaching before this Court under Article 226 of the Constitution. In our view, word ‘MAY’ should be construed to create an obligation upon the authority to pass consequential order upon conclusion of the litigation.
(ii) Though time limit of six month is provided for the order contemplated to be passed of imposing, enhancing, reducing, cancelling penalty or dropping the proceedings for imposition of penalty for giving effect to any order passed in appeal, but when such order is to be passed in favour of the assessee, time limit for passing such order by the concerned officer should not come in the way of the assessee for cancelling the penalty on his getting success before the higher forum in appeal merely because the concerned officials failed to discharge his duty of giving effect to the order made in the appeal in favour of the assessee.
(iii) A “tax refund” is a refund of taxes when the tax liability is less than the tax paid. As held by the Courts while awarding interest, it is a kind of compensation of use and retention of the money collected unauthorizedly by the Department. When the collection is illegal, there is corresponding obligation on the revenue to refund such amount with interest in as much as they have retained and enjoyed the money deposited.