2013 (5) TMI 685 - HC - Income Tax

Adjustment of the refund against sum payable by an assessee - whether the respondent is empowered to adjust the refund amount automatically without complying with the provisions of Section 245 - Held that - It is crystal clear that the AO Deputy Commissioner (Appeals) Commissioner (Appeals) or Chief Commissioner or Commissioner Vin lieu of payment of the refund set-off the amount to be refunded or any part of that amount against the sum if any remaining payable under the Act by the person to whom the refund is due after giving an intimation in writing to such person of the action proposed to be taken under that Section. On a perusal of the entire material documents including the impugned order it is clearly evident that there is no intimation in writing to the petitioner-assessee before making such an adjustment of refund. No doubt the respondent is empowered to make the adjustment of refund but the same can be done only in the manner as contemplated under the provisions of the Act. It is conspicuous from the records that there is no intimation in writing to the petitioner before making such adjustment of refund. As the respondent has not followed the procedures prescribed under the provisions of the Act while adjusting the refund amount with the outstanding amount the impugned order is vitiated in law and is liable to be set aside. The impugned order is set aside - Writ Petition is allowed and the matter is remanded back to the respondent for compliance of Section 245.

Summary

Issues Involved:
1. Adjustment of refund against outstanding tax demand without prior intimation.
2. Jurisdiction of the respondent to make such adjustments.
3. Compliance with Section 245 of the Income Tax Act.
4. Impact of non-compliance on the petitioner's rights and remedies.

Issue-wise Detailed Analysis:

1. Adjustment of Refund Against Outstanding Tax Demand Without Prior Intimation:
The petitioner challenged the adjustment of a refund amount of Rs.103,09,77,260/- against an outstanding tax demand for the assessment year 2009-10 without prior intimation. The petitioner argued that under Section 245 of the Income Tax Act, the respondent can set-off the refund amount only after giving a written intimation to the assessee. The court noted that no such intimation was given before making the adjustment, which is a mandatory requirement under the Act. The court emphasized that while the respondent has the authority to make such adjustments, it must be done in compliance with the statutory provisions.

2. Jurisdiction of the Respondent to Make Such Adjustments:
The petitioner contended that the respondent, who was not the assessing officer, lacked the jurisdiction to make the adjustment of the refund. The respondent countered this by stating that they were the assessing officer for the petitioner and had the jurisdiction to make the adjustment. The court found that the respondent was indeed the assessing officer and had the jurisdiction to adjust the refund, but reiterated that the adjustment must comply with Section 245 of the Act.

3. Compliance with Section 245 of the Income Tax Act:
The crux of the matter was the compliance with Section 245, which mandates giving prior written intimation to the assessee before adjusting any refund against outstanding tax demands. The court found that the respondent failed to provide such intimation, thus violating the statutory requirement. The court highlighted that the procedural lapse of not intimating the petitioner in writing before making the adjustment rendered the impugned order legally unsustainable.

4. Impact of Non-compliance on the Petitioner's Rights and Remedies:
The petitioner argued that the premature adjustment of the refund amount deprived them of the opportunity to seek a stay on the demand and violated their fundamental rights under Article 19(1)(g) of the Constitution of India. The court acknowledged the petitioner's right to be informed and to contest the demand before any adjustment is made. The court concluded that the respondent's action without prior intimation not only contravened the statutory provisions but also prejudiced the petitioner's legal remedies.

Conclusion:
The court set aside the impugned order due to non-compliance with Section 245 of the Income Tax Act. The matter was remanded back to the respondent for compliance with the statutory provisions, allowing the respondent to adjust the refund amount after giving proper intimation to the petitioner. The court directed the respondent to complete this exercise within four weeks from the receipt of the order.