2025 (1) TMI 1414 - HC - Income Tax

Inaction of Respondents in not passing any order on the Rectification Applications - Respondents have issued an intimation u/s 245 for adjusting the refund against the demand of other years for which Rectification Applications are pending since 2021 - HELD THAT - Respondents to first adjudicate and pass orders on the Rectification Applications filed for the Assessment Year 2017-2018 to 2020-2021 and thereafter proceed further if required for adjusting the refund of Assessment Year 2021-2022 against the refund in accordance with law. As informed that for the Assessment Year 2021-2022 Respondent No. 1 has disposed of the Rectification Application filed by the Petitioner by order dated 26 November 2024. However the said order is also impugned in the present proceeding. We do not wish to adjudicate upon the said order since there is an Appeal provided under Section 246A of the Act against the order rejecting the Rectification Application. The Petitioner is at liberty to file an Appeal against the said order and if such an Appeal is filed within a period of four weeks from the date of uploading of the present order then the Commissioner (Appeal) would adjudicate the same on its merits without going into the limitation since the Petitioner was bona fide pursuing the said matter before this Court in the present Petition.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issue considered by the Court was the inaction of the Respondents in failing to pass orders on the Rectification Applications filed by the Petitioner for the Assessment Years 2017-2018 to 2020-2021. Additionally, the Court considered the implications of the Respondents issuing an intimation under Section 245 of the Income Tax Act for the Assessment Year 2021-2022, proposing to adjust refunds against demands for years where Rectification Applications were pending.

ISSUE-WISE DETAILED ANALYSIS

1. Inaction on Rectification Applications

- Relevant Legal Framework and Precedents: Section 154(8) of the Income Tax Act mandates that rectification applications should be disposed of within six months from the date of filing. The Court emphasized this statutory requirement, noting the Respondents' failure to adhere to it.

- Court's Interpretation and Reasoning: The Court expressed its inability to understand the delay in disposing of the applications, given the clear directive of Section 154(8). The Court highlighted the necessity for the Respondents to act in accordance with the law, especially when statutory timelines are explicitly provided.

- Key Evidence and Findings: The Petitioner had filed multiple rectification applications across several assessment years, none of which had been addressed by the Respondents within the stipulated time frame. This inaction was undisputed and formed the basis of the Court's directive.

- Application of Law to Facts: The Court applied Section 154(8) to the facts, determining that the Respondents were in breach of their statutory duty by not disposing of the rectification applications within the required period.

- Treatment of Competing Arguments: The Respondents did not provide any justification for their inaction, and the Court did not entertain any competing arguments on this issue, focusing solely on the statutory obligation.

- Conclusions: The Court concluded that the Respondents were required to adjudicate the pending rectification applications promptly and directed them to do so within two weeks from the date of the order.

2. Intimation under Section 245 of the IT Act

- Relevant Legal Framework and Precedents: Section 245 of the Income Tax Act allows for the adjustment of refunds against any outstanding demand. However, such adjustments should be made only after the resolution of pending rectification applications that could potentially nullify the demand.

- Court's Interpretation and Reasoning: The Court reasoned that it was necessary for the Respondents to first resolve the rectification applications before proceeding with any adjustments under Section 245, as the outcome of these applications could impact the legitimacy of the demands.

- Key Evidence and Findings: The Respondents had issued an intimation for the Assessment Year 2021-2022 to adjust refunds, despite pending rectification applications for earlier years. The Petitioner argued that allowing the applications could eliminate the demand, thus affecting the proposed adjustment.

- Application of Law to Facts: The Court applied the principles of Section 245, underscoring that the Respondents should not proceed with adjustments until the rectification applications were decided, as these decisions could alter the financial obligations.

- Treatment of Competing Arguments: The Court acknowledged the Petitioner's argument regarding the potential impact of the rectification applications on the demand and agreed that resolving these applications was a prerequisite to any adjustments.

- Conclusions: The Court directed the Respondents to first adjudicate the rectification applications and then consider any adjustments under Section 245, ensuring that the Petitioner's rights were not prejudiced by premature adjustments.

SIGNIFICANT HOLDINGS

- The Court held that the Respondents must decide on the pending rectification applications within two weeks, emphasizing the statutory obligation under Section 154(8) of the Income Tax Act.

- The Court directed that any action under Section 245 of the IT Act should only be taken after the rectification applications are resolved, ensuring that the Petitioner's potential entitlements are not adversely affected.

- The Court provided the Petitioner with the liberty to appeal against the order dated 26 November 2024, related to the Assessment Year 2021-2022, under Section 246A of the Act, without being constrained by the limitation period, due to the bona fide pursuit of the matter in the present petition.

- The Court emphasized the need for a "speaking order" by the Respondents on the Petitioner's response to the intimation under Section 245, ensuring that the Petitioner is given an opportunity of hearing.

- The Court concluded the proceedings by disposing of the writ petition in the specified terms, without any order as to costs.