2021 (4) TMI 922 - HC - Income Tax

Set off of refund against oustanding demand u/s 245 - non receipt of notice u/s 245 - It was pointed out that the outstanding demands stated were stayed by orders of the high court and the Income Tax Appellate Tribunal (ITAT) - HELD THAT - Respondents had admitted that certain amount of refund is due to the petitioner for AY 2019-20 and in the next paragraph, it has been directed to release the due refund within a period of two weeks. The observations about admission of refund amount due and its release are in tandem. Although it is referred to that on 21st January, 2021, petitioner was communicated about adjustment and was acknowledged under e-mail dated 22nd January, 2021, perusal of the e-mail annexed to the reply refers to status of outstanding demands and intimation under section 143 (1) and not to under section 245 - It also emerges that there is no record made available by the respondents about any separate intimation being issued to the petitioner under section 245 of the Act for adjustment of demands from the refund from AY 2019-20 as referred to under note in intimation pursuant to section 143 (1) of the Act. The affidavit in reply is silent over the same. It is not the case of the respondents that revenue officer had passed an order, inter alia, with regard to contention that there is no receipt of intimation under section 245 of the Act at the end of the petitioner and reasons were recorded as to why those are not sustainable and that it was communicated to the petitioner before adjusting the refund. Although the respondents purport to contend that proper procedure had been followed, record does not bear that there had been any communication made to the petitioner as to its submissions being not acceptable before or at the time of making the adjustment. Decisions in the cases of A. N. Shaikh 1986 (3) TMI 15 - BOMBAY HIGH COURT , Hindustan Unilever Ltd. 2015 (7) TMI 366 - BOMBAY HIGH COURT , and Milestone Real Estate Fund 2019 (4) TMI 863 - BOMBAY HIGH COURT relied on, on behalf of the petitioner have not been met with by the respondents nor it is the case of the respondents that any other course could be adopted for adjustment of refund. There is stark absence of material showing compliance of requirements viz application of mind to contentions on behalf of the petitioner, reasoned order and its communication to the assessee. The facts and circumstances lend lot of substance to submissions advanced on behalf of the petitioner that there is absence of compliance of requirements under section 245 of the Act, coupled with observations of high court in the decisions relied upon on behalf of the petitioners. The order specifically refers to that same is applicable to interim orders of courts, tribunals and authorities over which the court has power of superintendence. All the subsequent orders are also made available whereunder there does not appear that their operation is limited to the extent of eviction / dispossession of persons / tenants. Having regard to aforesaid extract of the order of this court and the order passed from time to time, as have been annexed by the petitioner to the writ petition, it would be discernible that interim orders passed by the tribunal were to be operative till 31st January, 2021. In the scenario, it is difficult to go by the explanation and submission that there had hardly been any interim relief granted by the tribunal operating in respect of demands for AYs 2007-8 and 2008-09. It is difficult to appreciate the stand of the respondents that the order passed by the high court would not cover/operate over the matters and orders passed by the ITAT, Union of India being not a party to the matter. Such a justification from and the approach of, the respondent authorities is difficult to be approved of which is not in fitness of stature, especially of the state department, which is supposed to act like a model litigant. We, therefore, consider in the circumstances of the case and emerging position, it would not be said that the action of the respondents of adjusting the amount is sustainable.

Summary

Issues Involved:
1. Delay in processing and release of income tax refund.
2. Adjustment of tax refund against outstanding demands without proper intimation under Section 245 of the Income Tax Act, 1961.
3. Compliance with previous court orders and interim orders during the COVID-19 pandemic.

Detailed Analysis:

1. Delay in Processing and Release of Income Tax Refund:
The petitioner, a telecommunications company, filed its return of income for AY 2019-20, claiming a refund of ?205,21,46,330/-. The processing of this return was delayed by the respondents, leading the petitioner to approach the court. The court had previously directed the respondents to release the due refund with interest within two weeks from the date of the order (11th January 2021). Despite forwarding the court's order to the respondents, the refund was not released, prompting the petitioner to seek further judicial intervention.

2. Adjustment of Tax Refund Against Outstanding Demands Without Proper Intimation:
The respondents issued an intimation under Section 143(1) of the Income Tax Act on 17th January 2021, determining a refund of ?227.27 crore but proposed to adjust this refund against outstanding demands for AYs 2007-08 and 2008-09. The petitioner contended that no notice under Section 245 of the Act was received, which is a prerequisite for such adjustments. The petitioner argued that the demands for these years were stayed by the High Court and ITAT, and thus, could not be adjusted against the refund. The respondents, however, claimed that proper procedure under Section 245 was followed, and the petitioner was given an opportunity to be heard, which the petitioner disputed.

3. Compliance with Previous Court Orders and Interim Orders During the COVID-19 Pandemic:
The petitioner highlighted that various interim orders by the High Court extended the stay on demands due to the COVID-19 pandemic until 31st January 2021. The respondents' adjustment of the refund was claimed to be in violation of these interim orders. The court noted that the respondents did not provide any separate intimation under Section 245 to the petitioner and did not record reasons for rejecting the petitioner's objections before making the adjustment. The court emphasized that compliance with Section 245 is mandatory and requires prior intimation and consideration of the taxpayer's objections.

Court's Conclusion:
The court found that the respondents failed to comply with the mandatory requirements of Section 245, as there was no proper intimation or reasoned order communicated to the petitioner before adjusting the refund. The court also rejected the respondents' contention that the interim orders during the pandemic did not apply to the ITAT's stay orders. The court concluded that the respondents' action of adjusting the refund was unsustainable and directed them to refund the amount for AY 2019-20 with interest within four weeks.

Judgment:
The writ petition was allowed in terms of prayer clause b(i), directing the respondents to refund the amount determined under intimation dated 17th January 2021, with applicable interest, within four weeks.