2016 (6) TMI 217 - HC - Income Tax

Grant of refund due to the deceased Assessee - Adjustment of demand with the refund - Held that - 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 ₹ 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. 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. - Refund allowed with directions to CIT(A) - Decided in favor of assessee.

Summary

Issues:
Non-compliance with court directions for refund to deceased Assessee's legal heir for AY 2006-07.

Analysis:
The deceased Assessee filed a return for AY 2006-07, claiming tax exemption on long term capital gains from the sale of agricultural land. The Assessing Officer passed an assessment order assessing total income at a higher amount, denying the claimed exemption. The Assessee's appeal was partly allowed by the CIT (A), and both parties appealed to the ITAT. The ITAT later allowed the Assessee's appeal, entitling the Assessee to a refund of the excess tax paid. Following the Assessee's death, the legal heir pursued the matter, requesting the refund with statutory interest. Despite court directions, the Revenue delayed the refund, citing adjustments against demands for other assessment years.

The legal heir contended that the adjustment without prior intimation or opportunity to be heard was a violation of Section 245 of the Income Tax Act. The court referenced previous judgments emphasizing the discretionary nature of set-off under Section 245, requiring intimation to the Assessee before adjustment. The Revenue's explanation of withholding pending verification was deemed unacceptable, especially since the demands were under appeal with a stay application. Issuing a notice under Section 245 after court notice did not rectify the violation.

Consequently, the court directed the Revenue to issue the balance refund with interest promptly, without delay. Additionally, the CIT (A) was instructed to decide on the stay application related to the demand for another assessment year within a specified timeframe. Coercive steps for recovery were prohibited until the CIT (A) decision. Any non-compliance with the court's directions allowed the Petitioner to seek redress from the court. The writ petition was disposed of accordingly, with no costs imposed.