2025 (4) TMI 294 - HC - Income Tax

Adjusting the refund due to the petitioner against an outstanding demand u/s 245 - HELD THAT - Section 245 permits the Revenue to set off any demand from the amount to be refunded subject to the only condition of intimation in writing to such person against whom action is proposed to be taken. In the present case the Revenue has complied with the said provision. This Court does not find any jurisdictional error in issuing the subject intimation or taking action by the Revenue u/s 245 of the Act. However considering the fact that an appeal has been preferred against the outstanding amount and disallowance has been accepted for the relevant Assessment Years in an identical issue as submitted by learned counsel for the petitioner this Court is of the view that a good case is made out in favour of the assessee for issuance of a direction to the Appellate Authority that till adjudication of stay application pre-deposit of 20% of the disputed amount be not insisted upon. This Court deems it appropriate to direct the Appellate Authority to decide the stay application without insisting upon pre-deposit of 20% of the outstanding demand. The petitioner is also directed to demonstrate before the Appellate Authority that the identical issue has already been covered up in the earlier Assessment Years.

2011 (11) TMI 312 - HC

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the Revenue's action of adjusting the refund due to the petitioner against an outstanding demand under Section 245 of the Income Tax Act, 1961, was legally justified.
Whether the petitioner is entitled to a stay on the demand without depositing 20% of the disputed amount, considering the pending appeal and previous favorable decisions by the Income Tax Appellate Tribunal for similar issues in earlier assessment years.
Whether the Revenue's refusal to accept the petitioner's proposal to adjust 20% of the demand and release the balance refund was appropriate.

ISSUE-WISE DETAILED ANALYSIS

1. Legality of Adjustment under Section 245 of the Income Tax Act

Relevant Legal Framework and Precedents: Section 245 of the Income Tax Act allows the Revenue to set off any demand against a refund due, provided an intimation is given in writing to the concerned person.
Court's Interpretation and Reasoning: The Court noted that the Revenue complied with the statutory requirement of providing written intimation before making the adjustment, thereby satisfying the condition under Section 245.
Application of Law to Facts: The Revenue's issuance of intimation before adjusting the refund was found to be in accordance with the legal framework, thus no jurisdictional error was identified in the Revenue's action.
Conclusions: The Court concluded that the Revenue's action under Section 245 was legally justified as the procedural requirement of intimation was fulfilled.

2. Entitlement to Stay on Demand without Pre-deposit

Relevant Legal Framework and Precedents: The petitioner cited precedents where appellate authorities had decided similar issues in favor of the petitioner, arguing that this should preclude the need for a pre-deposit.
Court's Interpretation and Reasoning: The Court acknowledged the petitioner's argument regarding the previous favorable decisions by the Income Tax Appellate Tribunal for similar issues in earlier assessment years.
Application of Law to Facts: Given the pending appeal and the previous decisions, the Court found merit in the petitioner's request for a stay on the demand without insisting on a 20% pre-deposit.
Treatment of Competing Arguments: The Revenue argued that the adjustment was permissible under the law and that the issue had not attained finality due to pending appeals. However, the Court prioritized the petitioner's position based on previous favorable rulings.
Conclusions: The Court directed the Appellate Authority to decide the stay application without requiring a pre-deposit, acknowledging the petitioner's argument that the issue was covered by earlier favorable decisions.

3. Refusal to Accept Proposal for Partial Adjustment

Relevant Legal Framework and Precedents: The Office Memorandum guiding the adjustment of disputed demands suggests that ordinarily not more than 20% should be adjusted when an appeal is pending.
Court's Interpretation and Reasoning: The Court noted that the petitioner's proposal was reasonable given the pending appeal and previous favorable decisions.
Application of Law to Facts: The Court found the Revenue's refusal to accept the petitioner's proposal for partial adjustment and release of the remaining refund to be unjustified.
Conclusions: The Court's directive to the Appellate Authority implicitly criticized the Revenue's refusal to accept the petitioner's proposal, favoring a more balanced approach considering the pending appeal.

SIGNIFICANT HOLDINGS

Core Principles Established: The Court reaffirmed that procedural compliance with Section 245 is essential for the legality of adjustments against refunds. Additionally, it underscored the importance of considering previous appellate decisions when dealing with similar issues in subsequent assessment years.
Final Determinations on Each Issue: The Court upheld the legality of the Revenue's adjustment under Section 245 but directed the Appellate Authority to consider the stay application without insisting on a pre-deposit of 20%, highlighting the relevance of previous favorable decisions.
Verbatim Quotes: The Court noted, "this Court does not find any jurisdictional error in issuing the subject intimation or taking action by the Revenue under Section 245 of the Act," and further directed, "till adjudication of stay application, pre-deposit of 20% of the disputed amount be not insisted upon."

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