|COURT:||Delhi High Court|
|CORAM:||S. Muralidhar J, Vibhu Bakhru J|
|CATCH WORDS:||adjustment, refund, stay of demand|
|DATE:||April 25, 2016 (Date of pronouncement)|
|DATE:||April 27, 2016 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|S. 245: Approach of the department of setting off / adjusting refund against demand without serving a prior s. 245 intimation to the assessee and without providing opportunity of hearing to assessee & without arriving at a satisfaction to the effect that such adjustment of refund can only be the mode of recovery of demand is bad in law. Dept directed to refund the amount set off / adjusted together with interest|
The Petitioner was furnished with a defaced refund adjustment voucher. Inter alia it reveals that the net refund amount payable is shown as Rs. 1,65,35,770. In another portion thereunder titled “adjustments – regular refunds payable to income tax”, under a column titled “amount to be adjusted” a demand of Rs. 20,68,392 (under Section 144A of the Act), penalty of Rs. 15,200 (Under Section 271(1)(b) of the Act) and Rs. 15,48,222 (under Section 271 (1) (c) of the Act‟) have been shown. The aggregate amount ‘to be adjusted’ worked out to Rs. 36,34,267 which, according to the Petitioner, was in fact adjusted against the total refund amount resulting in the Petitioner being issued a demand draft only for a sum of Rs. 1,29,01,503. The Petitioner’s contention was that such adjustment of demand pertaining to AY 2008-09, without prior intimation to the Petitioner or affording him an opportunity of being heard was in gross violation of Section 245 of the Act. Further, the Petitioner states that against the demand raised for AY 2008-09 by the AO, the Petitioner had already filed an appeal before the CIT (A) together with an application for stay which is still pending disposal by the CIT (A). HELD by the High Court upholding the plea:
(i) The mandate of Section 245 of the Act is clear. It states that where a refund is found to be due to any person, then in lieu of payment of the refund, it would be in the discretion of the AO, the Deputy Commissioner (Appeals), Commissioner (Appeals) or the Chief Commissioner or the Commissioner to set off the amount to be refunded, against the sum amount found payable “after giving an intimation in writing to such person of the action proposed to be taken under this Section.” In Glaxo Smith Kline Asia (P) Ltd. v. CIT (2007) 290 ITR 35 (Del) this Court analyzed Section 245 of the Act in some detail and observed as under: “26. In our view, the power under Section 245 of the Act, is a discretionary power given to each of the tax officers in the higher echelons to “set off the amount to be refunded or any part of that amount against the same, if any, remaining payable under this Act by the person to whom the refund is due.‟ That this power is discretionary and not mandatory is indicated by the word “may”. Secondly, the set off is in lieu of payment of refund. Thirdly, before invoking the power, the officer is expected to give an intimation in writing to the Assessee to whom the refund is due informing him of the action proposed to be taken under this Section. Further, it was reiterated in para 38 of the decision in Glaxo Smith Kline Asia P. Ltd. v. Commissioner of Income Tax (supra): “38……. Unless there are sound reasons justifying the formation of an opinion that the tax that has become payable cannot be recovered from the Assessee as and when the issues are ultimately decided, the power under Section 245 should not lightly be invoked.” The above decision was followed by this Court in The Oriental Insurance Company Limited v. DCIT (supra). There the Court too reiterated that the adjustment which was sought to be made contrary to Section 245 of the Act, without affording an opportunity of hearing to the Petitioner “before the adjustment was made” would vitiate the action of adjusting the demand against such refund.
(ii) In the present case although the refund voucher uses the word “adjustment to be made” as far as the Petitioner is concerned, the refund issued was after the adjustment was made. The explanation offered by the Revenue that it was merely ‘withholding’ Rs. 36,34,267 pending verification and not ‘adjusting’ it is not acceptable. The Revenue is fully aware that the demand raised for AY 2008-09 had been challenged by the Petitioner before the CIT (A) and an application for stay of recovery of the demand had also been filed. The Revenue in fact does not dispute that both the appeal and the application are pending for disposal before the CIT (A). Therefore, it cannot be said that the withholding of the above amount was pending “verification” of the demand for AY 2008-09 or AY 2010-11.
(iii) Incidentally the show cause now issued to the Assessee under Section 245 of the Act is dated 21st March 2016, i.e., two months after notice had been issued by this Court in the present petition. Whatever the demand may be for the AYs 2008-09 and 2010-11, the fact remains that prior making the adjustment of such demand against the refund due to the Petitioner, no notice was issued to the Petitioner as mandatorily required under Section 245 of the Act. By issuing a notice on 21st March 2016 under Section 245 of the Act, two months after the notice was issued in the present petition, the Revenue cannot seek to correct the fatal error arising from the clear violation of the mandatory requirement under Section 245 of the Act.