2019 (10) TMI 263 - HC - Income Tax

Refusal of refund of excess paid as income tax - HELD THAT - What the Petitioner seeks to convey, as urged by the Petitioner, is that if the amount is refunded, they have no objection for adjustment of ₹ 82 Crores. Second, the sentence does not convey that any time in future the amount can be adjusted without notice depriving the Petitioner of opportunity to point out changed circumstances if any. By bare perusal of the letter, we are of the opinion that both the submissions of the Petitioner are correct. The Respondents have relied on the above-underlined sentence. However, the Respondents have noted only the first part regarding the adjustment of refund of 82 crores. It does not acknowledge the subsequent part of the sentence regarding the release of the due balance. Request for return of long overdue refunds is reiterated in the subsequent sentence. That the Petitioner earlier did not object does not mean that the Respondents can make this sentence as a foundation to deviate from the mandate of prior notice under Section 245 of the Act all time to come. Almost one and a half years had passed, and there were subsequent events that could be pointed out. Since no prior notice was issued to the Petitioner before adjusting the refund, there was a breach of the requirement under section 245. The letter dated 19 February 2018 cannot be made the basis of deviating from the mandate under section 245. The sequitur is that the impugned communication adjusting the amount must be quashed and set aside. So also the notice dated 31 July 2019 under Section 245is set aside with liberty to the Deputy Commissioner of Income Tax to issue a fresh notice under Section 245 of the Act.

Summary

Issues Involved:
1. Refusal to refund excess paid as income tax.
2. Adjustment of refund without prior intimation.
3. Validity and interpretation of the letter dated 19 February 2018.
4. Compliance with Section 245 of the Income Tax Act.

Detailed Analysis:

1. Refusal to refund excess paid as income tax:
The Petitioner, a telecommunication services provider, filed its return of income for the Assessment Year 2016-17, claiming a refund of ?126,84,10,950, later revised to ?1,22,68,37,550, along with interest. The return was not processed, leading the Petitioner to file a Writ Petition, which was disposed of with the Respondents' commitment to process the return within four weeks. Despite this, the refund was not issued within the stipulated time, prompting the Petitioner to file another Writ Petition seeking the refund amount of ?147,22,04,945.

2. Adjustment of refund without prior intimation:
The Petitioner received a notice of demand under Section 156 of the Income Tax Act, determining a refund of ?147,22,04,945, including interest. However, the Respondent adjusted ?58,07,58,796 against an outstanding demand for Assessment Year 2013-14 without prior intimation, which the Petitioner challenged as contrary to the law laid down in Hindustan Unilever Ltd. vs Deputy Commissioner of Income-tax-1(1) 377 ITR 281 (Bombay). The Petitioner argued that the adjustment without prior notice violated the mandatory provisions of Section 245 of the Act.

3. Validity and interpretation of the letter dated 19 February 2018:
The Respondents contended that a letter dated 19 February 2018 from the Petitioner permitted the adjustment of refunds, negating the need for prior intimation. The Petitioner countered that the letter did not grant blanket permission for future adjustments without notice and that an assessee cannot waive the mandatory provisions of Section 245. The Court examined the letter, concluding that it could not be construed as an all-encompassing permission for future adjustments without notice, especially given the significant time lapse and subsequent events.

4. Compliance with Section 245 of the Income Tax Act:
Section 245 mandates prior intimation before adjusting any refund against outstanding demands. The Court reiterated the discretionary nature of this power, emphasizing the necessity of prior notice to allow the assessee to address any factual errors or to argue against the adjustment. The Central Board of Direct Taxes' Instruction No.1989 also underscores the requirement of written intimation before any adjustment. The Court found that the Respondents failed to comply with this mandate, rendering the adjustment of ?58,07,58,796 illegal.

Conclusion:
The Court quashed the impugned communication adjusting ?58,07,58,796 and set aside the notice dated 31 July 2019 under Section 245, granting the Deputy Commissioner of Income Tax the liberty to issue a fresh notice under Section 245. The Petition succeeded, and the Rule was made absolute with no costs.