2012 (12) TMI 904 - HC - Income Tax

Refund adjusted against demand Adjustment of refund without prior notice or intimation - Demand stayed by order of High Court Violation of Stay order Later on Revenue, in respect of a later period, sought to adjust the amounts due to the writ petitioner, by way of refund - Held that - When an order of stay of recovery in simplistic and absolute terms is passed, it would be improper and inappropriate on the part of the Revenue to recover the demand by way of adjustment. Revenue s contention is insubstantial & over-reach and circumvent the stay order. Therefore, the impugned adjustment sought to be made by it, was contrary to the Court s order. Violation of provision of Section 245 - Procedure to set off amounts due to an assessee from the demands pending against him Held that - Section 245 is clear in its mandate regarding the requirement of prior intimation in writing to the assessee whose refunds are being adjusted against amounts payable to the Revenue; the assessee has to be given notice, and heard. The revenue clearly did not follow the provision, and give any notice or hearing before making adjustments. Appeal decides in favour of assessee

Summary

Issues:
Challenge to adjustment of refund amounts by revenue against demand, Violation of court order staying enforcement of demand, Interpretation of Section 245 of the Income Tax Act.

Analysis:

Issue 1: Challenge to adjustment of refund amounts by revenue against demand
The petitioner challenged the adjustment of refund amounts by the revenue against the demand raised due to reassessment proceedings. The petitioner argued that the reassessment proceedings were without jurisdiction and in violation of the court order staying the enforcement of the demand. Citing legal precedents, the petitioner contended that the enforcement of the demand through adjustment of refunds was not permissible under the law, especially without fulfilling the conditions of prior intimation to the assessee.

Issue 2: Violation of court order staying enforcement of demand
The petitioner emphasized that the court order dated 24.12.2010 directed that the assessment proceedings initiated on the basis of Section 148 should not be given effect without the leave of the court. The petitioner argued that the adjustment of refunds by the revenue against the demand was in direct violation of this court order, as the demand had not been enforced coercively. The petitioner relied on legal interpretations to assert that the revenue's actions were contrary to the court's directive and the provisions of the Income Tax Act.

Issue 3: Interpretation of Section 245 of the Income Tax Act
The court analyzed Section 245 of the Income Tax Act, which allows the revenue to set off amounts due to an assessee from pending demands. The court noted that this provision mandates prior written intimation to the assessee before such set off can be made. Citing various legal judgments, the court emphasized that the revenue's actions in adjusting refunds without providing prior notice to the assessee were in violation of Section 245. The court concluded that the impugned adjustment made by the revenue was unsustainable and set it aside, while reiterating that the revenue must follow proper procedures in accordance with the law.

This detailed analysis of the judgment highlights the legal arguments, interpretations of relevant provisions, and the court's conclusions on each issue involved in the case.