2022 (7) TMI 905 - HC - Income Tax

Adjustment of refund against outstanding demand - mandation of prior intimation under section 245 - HELD THAT - Section 245 of the Act, 1961 envisages that when a refund is found to be due to any person under any of the provisions of the Act, 1961, the Revenue can set off/adjust the amount to be refunded or any part of that amount, against the sum which remains payable under the Act, 1961 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 this section. In the present case, it can be seen that the allegation that there was no prior intimation under section 245 of the Act has remained unrebutted as no proof of any such prior intimation was placed on record by the Revenue - thus the impugned action of respondent No.2 in making, adjustments of the amount for assessment year 2008-09 against the alleged outstanding, demands for assessment years 2014-15 and 2015-16 is bad and illegal and is accordingly quashed. Notwithstanding, what has been observed hereinabove, it would be open to respondent No.2 to exercise its discretion of making, an adjustment in terms of section 245 after giving, prior intimation and considering, all the issues and objections which the petitioner may raise pursuant to such an intimation. Needful may be done in eight weeks failing, which the case of the petitioner will be processed for ,rant of refund as determined for the assessment year 2008-09.

Summary

Issues involved:
Challenge to the adjustment of refund for assessment years 2008-09 against outstanding demands for assessment years 2014-15 and 2015-16 without prior intimation under section 245 of the Income Tax Act, 1961.

Analysis:

1. The petitioner challenged the adjustment of refunds for the assessment year 2008-09 against alleged outstanding demands for the assessment years 2014-15 and 2015-16. The petitioner contended that the adjustments were made without providing prior intimation as required under section 245 of the Income Tax Act, 1961.

2. The petitioner discovered the adjustments when reviewing Form 26AS for the relevant assessment years. The adjustments were made without informing the petitioner, leading to the petitioner filing a petition to challenge the legality of the adjustments.

3. The petitioner argued that the adjustments made by respondent No.2 were illegal as they were not preceded by the necessary intimation to the petitioner, as mandated by section 245 of the Income Tax Act, 1961. The petitioner relied on previous court judgments emphasizing the mandatory nature of providing prior intimation before making such adjustments.

4. The Court referred to the provisions of section 245 of the Income Tax Act, 1961, which require the Revenue to inform the taxpayer in writing before adjusting any refund against outstanding dues. The Court cited previous judgments highlighting the importance of prior intimation to allow the taxpayer an opportunity to raise objections or point out errors in the proposed adjustments.

5. The Court noted that the respondent failed to provide any proof of prior intimation to the petitioner before making the adjustments. In line with previous court decisions, the Court held that the adjustments made without prior intimation were illegal and quashed the actions of respondent No.2 in adjusting the refunds against outstanding demands.

6. However, the Court allowed respondent No.2 to reconsider the adjustments in compliance with section 245 of the Act. The Court emphasized the importance of providing prior intimation and considering any objections raised by the petitioner before making adjustments. The Court directed respondent No.2 to process the petitioner's refund for the assessment year 2008-09 if no action was taken within eight weeks.

7. The petition was disposed of with the above observations, highlighting the significance of adhering to the legal requirements of providing prior intimation before adjusting refunds against outstanding demands under the Income Tax Act, 1961.