2022 (3) TMI 1040 - HC - Income Tax

Set off of refunds against tax remaining payable - issuance of statutory intimation required under Section 245 of I.T Act - whether adjustment for those refunds due to the petitioner could be made against the relevant years on merits? - HELD THAT - As an offshoot of the aforesaid discussions, it is clear that adjustments have been made by the department for assessment years 2014-15, 2015-16 without any intimation and that too within 30 days of the intimation for the assessment year 2016-17. There has been no intimation for adjustment of refund due for the assessment year 2005-06, 2006- 07 and 2007-08 against outstanding demand of the year 2014-15. We have consciously refrained from commenting upon merits of the case of the parties as regards to what extent such adjustments would be made even after intimation. The case is being decided only on the narrow point of lack of intimation under Section 245 of the I.T. Act. The respondents are not empowered to adjust the refund amount automatically without complying the provisions of Section 245 of the Act. Adjustment made against the refund due to the petitioner for the relevant year therefore have to be set aside. Accordingly, they are set aside. However, department is at liberty to act in accordance with law after due intimation and opportunity to file response, as contemplated under Section 245 of the I.T. Act for undertaking adjustment against any refund admissible to the petitioner for any assessment year against the outstanding demand for relevant assessment years. Accordingly, the writ petitions are allowed in the manner and to the extent indicated hereinabove.

Issues Involved:
1. Whether, in the absence of intimation under Section 245 of the Income Tax Act, 1961, adjustment of refund can be made against outstanding demand for different Assessment Years.

Detailed Analysis:

Section 245 of the Income Tax Act:
Section 245 mandates that before adjusting any refund against outstanding tax demand, the taxpayer must be given prior intimation in writing. This section ensures that the taxpayer is aware of the proposed action and can respond accordingly.

CPC Instruction No. 1 and Standard Operating Procedure (SOP):
The CPC Instruction No. 1 dated 27th November 2012, and the SOP emphasize that:
1. Prior intimation must be issued to the assessee.
2. The assessee should be given an opportunity to file a reply.
3. The Assessing Officer must examine the reply before making any adjustment.
4. The final adjustment must be communicated to the assessee.

W.P. (T) No. 2073 of 2021:
The petitioner contested the adjustment of a refund amounting to ?22,85,16,240/- for the Assessment Year 2020-21 against outstanding liabilities for the Assessment Years 2014-15, 2015-16, and 2016-17. The petitioner argued that:
1. No intimation was provided for adjustments against the demands for 2014-15 and 2015-16.
2. Even for the 2016-17 demand, the petitioner was not given the 30-day period to respond before the adjustment was made.

The respondents admitted that adjustments were made without the mandatory 30-day period and that no intimation was provided for the demands of 2014-15 and 2015-16. They also acknowledged that the intimation language used was incorrect.

W.P. (T) No. 2851 of 2021:
The petitioner challenged the adjustment of refunds due for the Assessment Years 2005-06, 2006-07, and 2007-08 against the outstanding liability for 2014-15 without any intimation under Section 245. The petitioner had already deposited 31.28% of the outstanding demand for 2014-15 and argued that any further adjustment beyond 20% was against the CBDT instructions.

The respondents did not dispute the lack of intimation for the adjustments against the refunds for 2005-06, 2006-07, and 2007-08.

Legal Precedents:
The court referred to several judgments from the Bombay High Court, including Tata Communications Ltd. and Jet Privilege Private Ltd., which held that adjustments without prior intimation under Section 245 are illegal. The court emphasized that the statutory requirement of prior intimation must be strictly followed.

Conclusion:
The court concluded that:
1. Adjustments made without prior intimation under Section 245 are illegal.
2. The respondents must follow the statutory mandate of issuing prior intimation and providing an opportunity for the taxpayer to respond before making any adjustments.
3. The adjustments made in both writ petitions were set aside, but the department was given liberty to reissue intimation and proceed according to law.

Final Judgment:
The court allowed the writ petitions, setting aside the adjustments made without prior intimation under Section 245, while permitting the department to act in accordance with the law after due intimation and opportunity to respond.

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