2000 (2) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Legality of the rejection of the petitioner's declarations under the Kar Vivad Samadhan Scheme (KVSS).
2. Validity of tax refund adjustments towards wealth-tax liabilities.
3. Impact of the appellate order on the outstanding tax demand.
4. Compliance with procedural requirements under Section 245 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the rejection of the petitioner's declarations under the Kar Vivad Samadhan Scheme (KVSS):
The petitioner challenged the rejection of their declarations under the KVSS by the Designated Authority (CIT(A), Meerut) on the grounds that there were no arrears of tax due on the date of declaration (31st Dec., 1998). The court observed that under Section 88 of the Finance (No. 2) Act, 1998, only an assessee with tax arrears could approach for settlement. The term "tax arrear" is defined in Section 87 to mean the amount of tax, penalty, or interest determined before 31st March, 1998, but remaining unpaid on the date of declaration. The Designated Authority rejected the declarations because the petitioner had no outstanding tax arrears on the relevant date.

2. Validity of tax refund adjustments towards wealth-tax liabilities:
The petitioner argued that adjustments of income-tax refunds towards wealth-tax liabilities were incorrect and made without proper notice. The court noted that the petitioner had not objected to these adjustments for several years and only raised the issue after the KVSS was introduced. The court found that the adjustments were legally made and final, as the petitioner had tacitly consented by not objecting earlier and by ceasing payments after 1996, indicating that they were aware of the adjustments.

3. Impact of the appellate order on the outstanding tax demand:
The petitioner contended that the appellate order by the CIT(A), which canceled the adjustments, should relate back to the date of the original rejection of their application under Section 154 (30th Dec., 1998), thus making the tax demand outstanding on the declaration date. The court disagreed, stating that the scheme required the tax to be actually in arrears on the date of the declaration. Since the appellate order was not in existence on 31st Dec., 1998, the tax was not in arrears on that date, and the petitioner's attempt to create arrears was seen as a fraudulent device.

4. Compliance with procedural requirements under Section 245 of the Income Tax Act:
The petitioner claimed that the adjustments were made without the required intimation under Section 245 of the Income Tax Act. The court held that while Section 245 requires an intimation, the lack of it is an irregularity, not a jurisdictional defect. The court emphasized that the petitioner suffered no prejudice from the adjustments, as they involved the petitioner's own refunds being set off against their own liabilities. The court also noted that the petitioner did not initially claim the lack of intimation in their applications under Section 154, indicating awareness of the adjustments.

Conclusion:
The court found no merit in the petitioner's claims and dismissed the petition with costs, emphasizing that the adjustments were legally made and final, and the petitioner's actions were an attempt to fraudulently benefit from the KVSS. The court underscored the importance of strict compliance with the scheme's provisions and rejected the petitioner's arguments regarding procedural irregularities and the impact of the appellate order.