2021 (11) TMI 1158 - HC - Income Tax

Refund claim - adjustment of refund amount against the demand that it has against Petitioner - No intimation u/s 245 of the Act was given before making any adjustment - HELD THAT - As per this notice dated 01/01/2021 and reminder dated 17/01/2021, it does not relate to any of the 15 refunds mentioned by Petitioner in the Petition. These notices issued by Respondent pertain to Kochi Refineries Limited before Kochi Refineries Limited was merged with Petitioner. Even the outstanding demand table annexed to the said notice dated 01/01/2021 does not pertain to any of the 15 refunds to be given to Petitioner as stated in the Petition. Therefore, our answer to Issue No.(i) is in negative, the notice as required under Section 245 of the Act has not been given. Effect of failure to give such notice , it is settled law that non-giving of intimation in writing prior to setting off of the amount payable against the amount to be refunded is fatal. This Court, in Jet Privilege Private Limited 2021 (8) TMI 593 - BOMBAY HIGH COURT has held that the requirement of prior intimation under Section 245 of the Act was a mandatory requirement and failure to comply with this mandatory requirement of prior intimation would make the entire adjustment as wholly illegal and therefore Respondents could not have made the adjustment as they wanted to. Thus answering Issue Petitioner will be entitled to the refund of the entire amount together with accumulated interest, if any, in accordance with law. This refund shall be given within 6 weeks from today.

Summary

Issues:
1. Whether Respondent provided the mandatory intimation under Section 245 of the Income Tax Act before adjusting the refund against the demand.
2. The effect of the failure to provide such intimation.
3. The consequence of the outstanding demand on the refund to be made to the Petitioner.

Issue 1:
The petitioner, an oil corporation, claimed a refund of ?306,70,93,992 from the Income Tax department, which the Respondent had not refunded, stating their right to adjust it against a demand. The petitioner argued that no mandatory intimation under Section 245 of the Income Tax Act was provided before the adjustment. Respondent No.1 did not deny this claim. Respondent No.2 stated that notices for adjustment were issued, but they pertained to a different entity before a merger, not the petitioner's refunds.

Issue 2:
The judgment cited the case of Jet Privilege Private Limited, emphasizing the mandatory requirement of prior intimation under Section 245 of the Act before setting off any payable amount against the refund. Failure to comply with this requirement renders the adjustment illegal. The court held that the adjustment made by the Respondents without proper intimation was wholly illegal, entitling the Petitioner to the full refund within six weeks.

Issue 3:
Regarding the outstanding demand against the petitioner for three assessment years, the petitioner had paid 20% of the demand for a stay, as per the relevant Office Memorandum. This payment extended the time for making the full payment and prevented the petitioner from being considered in default. The court directed Respondent No.2 to provide a personal hearing to the petitioner regarding a separate refund issue, ensuring compliance with the law.

In conclusion, the court ruled in favor of the petitioner, ordering the refund of the full amount claimed, highlighting the importance of following the mandatory procedures under the Income Tax Act for adjustments and stays of demand.