2024 (1) TMI 1431 - HC - Income Tax

Adjustments of the refund amount due to the petitioners by resorting to the provisions in Section 245 w/o prior intimation to the petitioners - HELD THAT - The affidavit filed on behalf of the respondents admits that no intimation as contemplated by Section 245 was given to the petitioners before making the adjustments. It explains that notice was prepared but remained to be issued to the petitioners. Considering the above admission and the law laid down by this Court in Hindustan Unilever Ltd. 2015 (7) TMI 366 - BOMBAY HIGH COURT Jet Privilege (P) Ltd. 2021 (8) TMI 593 - BOMBAY HIGH COURT and Greatship (India) Ltd. 2022 (7) TMI 905 - BOMBAY HIGH COURT the impugned order of adjustments is set aside. We think that interest of justice would be met if the respondents are directed to deposit the amount otherwise refundable to the petitioners as a consequence of setting aside the order in this Court within two weeks from today.

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in these petitions was whether the adjustments of refund amounts due to the petitioners, as executed by the respondents under Section 245 of the Income Tax Act, 1961, were validly made without prior intimation to the petitioners. The Court examined whether the statutory requirement of notifying the petitioners before making such adjustments was fulfilled.

ISSUE-WISE DETAILED ANALYSIS

1. Compliance with Section 245 of the Income Tax Act

Relevant legal framework and precedents: Section 245 of the Income Tax Act mandates that before making any adjustment of refund due to a taxpayer against any outstanding demand, the taxpayer must be given an intimation and an opportunity to respond. This requirement was reinforced by precedents such as Hindustan Unilever Ltd. Vs. DCIT, Jet Privilege (P) Ltd. Vs. DCIT, and Greatship (India) Ltd. Vs. ACIT, which emphasized the necessity of serving intimation to the taxpayer.

Court's interpretation and reasoning: The Court interpreted Section 245 as necessitating strict compliance with the requirement of prior intimation. The absence of such intimation was deemed a violation of the statutory mandate, thereby invalidating the adjustments made by the respondents.

Key evidence and findings: In Writ Petition No. 4892 of 2024, the respondents admitted that no intimation was given to the petitioners before making the adjustments. In the other petitions, the respondents claimed that a communication was sent but failed to provide proof of service, citing technical issues with the Centralized Processing Cell (CPC) systems.

Application of law to facts: The Court applied the legal requirement of prior intimation to the facts of each petition. In the absence of evidence proving that such intimation was served, the Court found in favor of the petitioners, setting aside the impugned orders.

Treatment of competing arguments: The respondents argued that they had a case for making adjustments, while the petitioners disputed this, emphasizing the lack of intimation. The Court sided with the petitioners due to the respondents' failure to provide proof of service.

Conclusions: The Court concluded that the adjustments made without prior intimation were invalid. The impugned orders were set aside, and the respondents were directed to deposit the refundable amounts in the Court, pending fresh proceedings under Section 245.

SIGNIFICANT HOLDINGS

The Court established the core principle that compliance with Section 245 of the Income Tax Act is mandatory, and any adjustment of refunds without prior intimation to the taxpayer is invalid. The Court held that:

"The orders under Section 245 of the Income Tax Act must be made having due regard to the above decisions of this Court, including, the decision in Hindustan Unilever Ltd. (supra)." This emphasizes the necessity of adhering to the procedural requirements laid down in the statute and reinforced by judicial precedents.

The Court determined that the respondents must deposit the refundable amounts in a nationalized bank within two weeks, and any subsequent orders under Section 245 must be made within two months, following the law and relevant judicial decisions. If no orders are made within the stipulated period, the petitioners are entitled to apply for withdrawal of the deposited amounts with accrued interest.

The Court's final determination on each issue was to set aside the impugned orders due to non-compliance with Section 245 and to direct the respondents to proceed in accordance with the law, ensuring the petitioners' rights are protected.

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