2013 (5) TMI 335 - HC - Income Tax

Refund claim adjustment against tax dues - Held that - Had the petitioner s claim for refund crystallized into an indefeasible right, such contention was perhaps possible to be accepted. In the present case, neither the computation of the refund payable to the petitioner under the return filed for the AY 2008-09 nor its right to seek such refund had been crystallized. The return for the A.Y 2008-09 was not yet processed. Till this exercise was completed, there was no question of accepting the petitioner s offer for adjusting the refund payable against the tax due - petition dismissed.

Summary

Issues:
Challenge to order under Section 220(2) of the Income-tax Act, 1961 and demand notice for interest; Adjustment of refund against tax demand for Assessment Year 2006-07; Levy of interest on principal tax payable; Interpretation of Section 245 of the Act regarding adjustment of refund.

Analysis:
The petitioner challenged an order dated 23rd June 2010 under Section 220(2) of the Income-tax Act, 1961, and a demand notice for interest amounting to Rs. 2,22,468 towards the tax demand. The petitioner, a private limited company, filed its return of income for the Assessment Year 2006-07 declaring nil income. The Assessing Officer raised a tax demand of Rs. 44,49,365, which the petitioner sought to adjust against a refund of Rs. 2,28,14,850 for the Assessment Year 2008-09. The Income Tax Officer adjusted the refund against the tax liability for 2006-07 after a delay of five months, leading to the interest demand. The petitioner contended that the interest levy was illegal as the adjustment offer was made within thirty days of receiving the assessment order, preventing default status.

The Department argued that the petitioner's right to seek refund had not crystallized when the adjustment offer was made, as verification processes were pending. The Department justified the interest charge due to the substantial refund amount and the need for verification. The Court held that the Department correctly raised the interest demand for the period in question. The petitioner's offer for adjustment was premature as the refund for 2008-09 had not been processed or crystallized as a right. The authorities required time to verify details, including TDS certificates, before accepting the adjustment offer. The Court found no unreasonable delay on the Department's part in processing the refund claim.

The petitioner relied on Section 245 of the Act, which permits the adjustment of refunds towards tax demands. However, the Court noted that the petitioner's claim for refund had not yet become an indefeasible right at the time of the adjustment offer. Therefore, the Court dismissed the petition, upholding the Department's decision to levy interest on the principal tax payable for the Assessment Year 2006-07.