2006 (6) TMI 73 - HC - Income Tax

Refund adjustment against demand - intimation in terms of section 245 - This writ petition has been filed challenging the intimation issued by the first respondent under section 143(1), adjusting the amount of refund against the demand - Since there has been no intimation in terms of section 245 of the Act, therefore, the petitioner has been deprived of his right to raise any objections to the order of adjustment. Therefore, the intimation to the extent of adjusting the amount, is quashed. - Since the respondents had failed to give intimation in terms of section 245 of the Act to the petitioner, the part of the communication contained in the intimation under section 143(1) regarding adjustment, is quashed. However, the respondents are at liberty to issue intimation prior to adjustment in terms of section 245 - writ petition is allowed

Summary

Issues:
Challenge to adjustment of refund against demand under section 143(1) of the Income-tax Act, 1961 without prior intimation as required under section 245 of the Act.

Analysis:
The judgment of the court, delivered by Bilal Nazki J., pertained to a writ petition challenging the adjustment of a refund against a demand under section 143(1) of the Income-tax Act, 1961. The petitioner, an assessee-company, had filed a return for the assessment year 2003-04, showing a total income of Rs. 25,63,380. However, the Deputy Commissioner of Income-tax determined the total income as Rs. 1,21,14,010 and the net tax payable at Rs. 45,14,870. A notice of demand was issued for this amount, which the petitioner appealed. For the assessment year 2005-06, the company filed a return disclosing taxable income of Rs. 11,69,051 and paid excess tax of Rs. 35,31,400. The Assessing Officer accepted the return and issued an intimation of refund of Rs. 32,58,795, which was adjusted against the demand of Rs. 45,14,870 for the previous assessment year.

The main contention raised was the lack of prior intimation as required under section 245 of the Act before adjusting the refund. The Department argued that the notice of demand was served, and the adjustment could be made within thirty days of the assessment order. However, the court noted that section 245 required a written intimation before such adjustment could be made. The court analyzed section 245 of the Act, which allows setting off a refund against any remaining payable amount under the Act, after giving written intimation to the taxpayer. The court found that the intimation under section 143(1) regarding the adjustment did not fulfill the requirements of section 245, as it did not provide prior written intimation of the proposed adjustment.

The court referred to various judgments and concluded that due to the absence of the required intimation under section 245, the petitioner was deprived of the right to object to the adjustment. Therefore, the court quashed the intimation regarding the adjustment of the refund. The court allowed the writ petition, directing the respondents to issue proper intimation before any future adjustment under section 245.

In summary, the judgment highlighted the importance of complying with the procedural requirements under the Income-tax Act, specifically regarding the adjustment of refunds against demands. The court emphasized the necessity of providing written intimation to the taxpayer before making such adjustments, as mandated by section 245 of the Act.