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2011 (12) TMI 179 - HC - Income TaxDemand for A.Y. 2003-04 was raised on the petitioner by A.O. in reassessment proceedings A.O. declined to follow the ITAT order in the petitioner s own case for A.Y. 2004-05 with respect to the computation of benefit u/s 10A - adjustment of demand against refund due of A.Y. 2010-11without issuing notice u/s 245 appeal questioning validity of initiating re-assessment proceedings decided in favor of assessee Held that - Such a recovery of demand relating to an issue covered by the judgment in favour of the petitioner is directly contrary to CBDT Circular No.1914 of 1993 which provides that a stay of demand could be granted in such situations. Thus, demand made by the A.O. on re-assessment itself becomes invalid and, therefore, no question of adjustment thereof arises. A.O. is directed to release the aforesaid amount. - Decided in favor of assessee.
Issues:
1. Validity of adjustment of demand against refund without notice under Section 245 of the Act. 2. Compliance with mandatory requirements under Section 245 of the Act. 3. Applicability of CBDT Circular No.1914 of 1993 regarding recovery of demand. 4. Contradiction in recovery of demand against settled issues in favor of the petitioner. Issue 1: Validity of adjustment of demand against refund without notice under Section 245 of the Act: The assessing officer adjusted a demand of Rs.17.98 crores against the refund due to the petitioner for the assessment year 2010-2011 without issuing any notice under Section 245 of the Act. The petitioner contended that this adjustment was illegal as it was done without affording any opportunity of hearing, which is a mandatory requirement under Section 245 of the Act. Issue 2: Compliance with mandatory requirements under Section 245 of the Act: It was acknowledged that no notice under Section 245 of the Act was issued before the adjustment was made. The court emphasized that the procedure prescribed under Section 245, including advance intimation and an opportunity of hearing, is mandatory. Consequently, the adjustment made without following this procedure was deemed to be in violation of the Act and was required to be quashed. Issue 3: Applicability of CBDT Circular No.1914 of 1993 regarding recovery of demand: The recovery of demand against the petitioner, relating to an issue already decided in their favor by the ITAT and the High Court, was found to be directly contrary to CBDT Circular No.1914 of 1993. The Circular stipulates that a stay of demand can be granted in situations where the demand relates to issues decided in favor of the assessee by an appellate authority or court earlier. The court highlighted that the recovery was inconsistent with established legal principles and judgments. Issue 4: Contradiction in recovery of demand against settled issues in favor of the petitioner: The court noted that the recovery of demand in this case, which pertained to an issue already resolved in favor of the petitioner by the ITAT and the High Court, was contrary to established legal precedents. The recovery of demand on an issue covered by judgments in favor of the petitioner was deemed invalid. The court cited relevant judgments, including those of the Supreme Court, to support its decision. In conclusion, the court allowed the writ petition, directing the assessing officer to release the amount to the petitioner within a specified period. The court emphasized that the recovery of demand on issues already settled in favor of the petitioner was invalid, and no purpose would be served by remitting the case back to the assessing officer. The decision highlighted the importance of following procedural requirements and legal principles in tax assessments and adjustments.
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