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TMI Blog2015 (10) TMI 1770X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which should guide the authority. It is for the authority concerned to look into all these aspects and, firstly, decide whether it should invoke the power under Section 245 of the Act. If it is of the view that the power should be invoked; then alone, in view of the requirement of giving prior intimation, which we have held entails compliance with natural justice, appellants must issue a notice indicating the proposal to invoke Section 245. A decision should be taken within a period of 10 days from today and, if the competent authority, actually, decides to invoke Section 245, then, notice should be issued to the writ petitioner and, after giving an opportunity of being heard to the assessee, a decision shall be taken in accordance with law. If the authority finds, in the facts of this case, that no case is made out for invoking Section 245 on the basis of the assessment completed in 2015-2016 within a period of 10 days from today, then, the amount due by way of refund, along with due interest, shall be paid to the writ petitioner at the earliest. If, on the other hand, it decides to invoke Section 245, then the proceedings must be completed within a period of two weeks from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranch Manager State Bank of India Tel Bhawan, Dehradun. Sir, Subject: Adjustment of Refund of ₹ 46,14,03,993/- for the AY 2013-14 against the demand of ₹ 97,85,38,937/- outstanding for the AY 2014-15 U/s 245 - Regarding. Kindly refer to the above mentioned subject. In this connection, the demand of ₹ 88,73,15,372/- for the AY 2013-14 was created on 12/12/2013. The said demand become nil after giving appeal effect U/s 251 dated 01/12/2014 and a refund of ₹ 46,14,03,993/- is payable to you for the AY 2013-14. The demand of ₹ 97,85,38,937/- for the AY 2014-15 is still pending. The refund of ₹ 46,14,03,993/- is therefore being adjusted U/s 245 against the demand due of ₹ 97,85,38,937/- for the AY 2014-15. Yours faithfully Sd./- (A.K. Sonkar) Dy. Commissioner of Income Tax (TDS) Dehradun 3. It is, on these facts, that the writ petition was filed. 4. The learned Single Judge allowed the writ petition. From the judgment of the learned Single Judge, we find that he notes the argument of the writ petitioner that the Commissioner of Income Tax (Appeals) has directed to delete the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97,85,38,937/- for the Assessment Year 2014-2015 has been set aside by the Commissioner of Income Tax (Appeals), as was contended by the writ petitioner; but, he would take exception to the direction of the learned Single Judge that, if the said assessment was indeed cancelled, as was the case of the writ petitioner, then, the amount should be refunded. Equally, he would take objection to the statement that, as long as the order passed by the Income Tax Appellate Tribunal has not been stayed or set aside by the higher forum, refund should not be denied to the writ petitioner. He would submit that, in fact, assessment has been completed for the year 2015-2016 and it is pointed out that the same was done by order dated 12.05.2015 and a total demand of ₹ 105,68,13,294/- has been raised. No doubt, he does not dispute that the writ petitioner has preferred an appeal before the Commissioner of Income Tax (Appeals), Dehradun, and it is pending. It is, in fact, pointed out by Mr. Hari Mohan Bhatia that this fact, which was well-known to the writ petitioner, was not brought to the notice of the learned Single Judge. The counsel was also not aware of the said assessment and the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch was set aside in appeal by order dated 03.03.2015. He would submit that it is absolutely necessary for the upkeep of the rule of law that the decisions taken by the superior forums in a hierarchy of authorities must be followed by the authority at the bottom of the pyramid. It is contrary to the same that, however, the Assessing Officer, on an issue which stood concluded, again sought to assess the writ petitioner by assessing him for the Assessment Year 2014-2015 and this has finally resulted in the impugned order being passed, by which, even without complying with the mandatory requirement of prior intimation under Section 245 of the Act, the amount, which became payable by way of refund, came to be adjusted against the illegal demand raised for the Assessment Year 2014-2015. The learned Senior Counsel would submit the following case law in support of his contentions: i. Union of India others vs. Ramlakshi Finance Corporation Ltd., reported in 1992 Supp (1) SCC 443; ii. Glaxo Smith Kline Asia P. Ltd. vs. Commissioner of Income Tax others, reported in (2007) 290 ITR 35 (Delhi); iii. Maruti Suzuki India Ltd. vs. Deputy Commissioner of Income Tax, reported in (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is directed to be made, the refund, if any, shall become due only on the making of such fresh assessment; (b) the assessment is annulled, the refund shall become due only of the amount, if any, of the tax paid in excess of the tax chargeable on the total income returned by the assessee. 11. Section 241, though it figures in a number of cases relied on by the writ petitioner, has been repealed by the Finance Act of 2001 with effect from 01.06.2001; but, we will advert to the same when we advert to the case law based on the Section as it stood prior to the repeal. 12. Section 242 of the Act provides as follows: 242. Correctness of assessment not to be questioned. - In a claim under this Chapter, it shall not be open to the assessee to question the correctness of any assessment or other matter decided which has become final and conclusive or ask for a review of the same, and the assessee shall not be entitled to any relief on such claim except refund of tax wrongly paid or paid in excess. 13. Section 243 provides for interest on delayed refunds. Section 244 deals with interest on refund where no claim is needed. Section 244A declares that the assessee entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not acceptable to the department - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws. It is, at once, necessary to notice the facts involved in the said case. The Assistant Collector of Central Excise took the view that the product of the respondent, who manufactured electrical insulation tapes, fell under Heading 39.19 of the Schedule to the Central Excise Tariff Act, 1985. The assessee joined issue with the officer on the ground that it fell under Heading 85.47. An order in respect of another plant was distinguished by the Assistant Collector. In appeal, the Collector (Appeals) observed that the reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on 20.07.2005, wherein the court took the view that there was no substantial question of law. For the Assessment Year 2001-2002, the Assessing Officer continued to disallow the cross charges / administrative expenses. A demand was raised on 16.02.2005 and the amount was recovered by attaching the bank accounts on the very next day. The petitioner therein filed an application before the Tribunal seeking refund of the amount recovered pending disposal of the appeal by the Tribunal. By order dated 03.03.2005, the Tribunal directed the Revenue to refund the amount within two weeks from the date of receipt of the order. The said order was challenged by the Revenue in a writ petition. The said order was stayed by the High Court by order dated 27.04.2005. Ultimately, the Revenue withdrew the said petition, as the assessee s appeals for Assessment Years 2000-2001 and 2001-2002 were allowed by the Tribunal by a common order dated 19.08.2005. The Tribunal took the view that there is no difference in the facts from the earlier assessment years. It is noted that the appeals against the said order of the Tribunal had been admitted and pending consideration before the High Court. Thereafter, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 143 in respect of the said return; or (ii) the order is the subject matter of an appeal or further proceedings; or (iii) any other proceeding under this Act is pending; and (iv) that the grant of the refund is likely to adversely affect the revenue, the Assessing Officer may, with the previous order of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determine. Thereafter, the court proceeded to note the distinction between the provisions as follows: 23. The difference between the two provisions is that Section 241 gave a much wider power and did not require the assessed to whom the refund was due to be put on notice of the proposed withholding of the refund. Secondly, the discretion was to be exercised by the Assessing Officer with the previous approval of the Chief Commissioner or Commissioner. Thirdly, the refund could be withheld for any indefinite time on the formation of an opinion that the grant of the refund was going to adversely affect the Revenue. On a plain reading of the two provisions, it is clear that Section 241 gave the Revenue a much wider power than Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o misuse of the power by the Revenue in order to delay the refund till such time a fresh demand for the subsequent assessment years is finalized. If reasonable time limits are not set for the processing of and disposal of an application for refund by the Revenue, it may result in the assessee not being able to get the refund at all. Also, the statute by stipulating the payment of interest on refunds (Section 244A) and interest on delayed refunds (Section 243) has underscored the importance of timely processing of refund claims. 28. As already noticed, this discretionary power has to be exercised after giving an opportunity to the assessed of being heard preceded by an intimation to the assessed in writing of the action proposed to be taken under Section 245. A further implicit requirement is that the Revenue will have to be satisfied that the assessed will not be in a position to satisfy the demand of tax and that but for the set off, the outstanding tax amount cannot be recovered at all. 29. The High Courts have emphasized the importance of hedging the power of the Revenue under Section 245 with certain safeguards in order to prevent its misuse. The decisions in State Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd that no notice under Section 245 was issued to the assessed proposing to set off the demand against the outstanding tax amount due from it. There is no explanation why such notice was not issued except saying that after the order of the Tribunal dated August 17, 2005, the Revenue was processing the refund application made by the writ petitioner. It could dispose of this application only on December 27, 2005. Even at this stage, there was no proposal to invoke Section 245 although on this date there was an outstanding demand for the assessment year 2000-01. The petitioner was, therefore, compelled to come to this court assailing the delay in processing this application for refund. The application moved by the Revenue in this court appears to be a device to pass the responsibility of taking a decision under Section 245 on to the court only because the petitioner had come to this court. To us, this does not appear to be a sufficient justification for by-passing the procedural requirement under Section 245. 35. If the Department has decided to issue a refund voucher for the assessment year 2000-01, by the same yardstick it should also be willing to make the refund for the subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made in respect of additions on issues, which were covered against them by the earlier orders of the Tribunal or the Commissioner (Appeals). 18. In Suri Sons vs. Commissioner of Income Tax another, reported in (1988) 169 ITR 320, a Bench of the Punjab Haryana High Court was dealing with the case, where the assessment for the year 1979-1980 was annulled by the Appellate Tribunal and the same was questioned under Section 256(1) of the Act. On the basis of the annulment, refund became due. The court repelled the contention based on Section 241 of the Act, as it stood then, for the reason that the proceedings questioning the validity of the order were pending before the High Court. The court, further, held as follows: As held by us in our judgment in Civil Writ Petition No. 4378 of 1986 [Leader Valves Private Ltd. vs. CIT (1987) 167 ITR 542], the assessing authority is not justified in withholding the refund which has become due to the assessee merely for the reason that the proceedings initiated by the Revenue questioning the validity of the order under which the refund has become due are pending before the appropriate authority. Accordingly, for the reasons given by u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithholding of refund and the order of the Commissioner of Income-tax granting the approval for withholding of the refund could not be justified under the provisions of section 241. The court noted that a huge amount has been withheld only on the ground that the appeal against the order of the Commissioner of Income Tax (Appeals) was pending before the Tribunal and there is no material forthcoming, which would justify the withholding of the refund. It was found that the petitioner, who was an assessee, was not shown to be in default in the payment of income tax dues or even in the matter of filing of returns. 20. In Vijay Kumar Bhati vs. Commissioner of Income Tax another, reported in (1994) 205 ITR 110, a Division Bench of the Delhi High Court was, again, dealing with the case under Section 241 of the Act. The petitioner was a non-resident Indian and he sought a mandamus for refund along with interest. The writ petition was filed in August, 1987. The factum of entitlement to refund was not disputed by the Revenue; but, it took the stand that a petition under Section 256(1) was pending before the Appellate Tribunal for referring certain questions of law. An order under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the pendency of these proceedings in this court and this does not commend itself to us, to say the least. We have not been told by the Revenue any reason as to why assessments for years subsequent to the assessment year 1988-89 were not taken though interest was accruing all this period on the refund due to the petitioner. We are of the view that the assessment order for the assessment year 1988-89 and penalties imposed on the petitioner have no meaning particularly when we are of the view that withholding of the refund by the respondents was illegal and all orders passed under section 241 of the Act, after dismissal of the application under section 256 of the Act by this court, were without jurisdiction and illegal. Rather it has been contended by the petitioner that the interest accrued on non-resident account maintained in foreign exchange is not liable to tax. There had been no answer to this by the Revenue. The writ petition was allowed. 21. In Commissioner of Income Tax vs. J.K. Industries Ltd., reported in (2000) 245 ITR 457, a Bench of the Calcutta High Court declared that intimation should be given in writing before set off is made under Section 245. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of the Income-tax Act; (ii) The amount of refund is set off against another sum which is payable by that person under Income-tax Act; and (iii) The refundable amount is set off after intimation, in writing, of such proposed action to that person. In the present case, the first two conditions stand fulfilled, but the third condition is missing. No intimation, in writing, was given by the assessing Officer prior to the proposed action of set-off. When the third condition in terms requires that intimation in writing has to be given about the proposed action that must be strictly followed. This course was not adopted by the Assessing Officer. A perusal of the intimation dated March 26, 1997, (reproduced earlier), would show that the Assessing Officer sent the intimation to the assessee after making adjustment or it was a simultaneous action. Thus, adjustment was made in violation of the third condition contained in section 245 of the Act. As has been noticed earlier, there was no provision regarding intimation to the assessee in section 49E of the 1922 Act. It would, thus, mean that there was a purpose in adding a specific condition regarding intimation in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken the view that the restriction on the power under Section 241 would apply with equal, if not greater, force to Section 245. It is, further, held that, if reasonable time limits are not set for processing of or disposal of the application for refund by the Revenue, it may result in the assessee not being able to get the refund at all. It was also a case, where there was no notice at all under Section 245 processing to set off the demand against the outstanding tax amount due from it. This was also a case, where the issue involved had attained finality in regard to the Assessment Years 1998-1999 and 1999-2000 by the dismissal of the appeals in the High Court by order dated 20.07.2005. 26. Time is, now, ripe to consider the purport of Section 245 of the Act. Section 237, which is the first Section in Chapter XIX relating to Refunds, provides that when a person satisfies the Assessing Officer that he has paid an amount in excess of the amount with which he is properly chargeable, he will be entitled to a refund of the excess. Section 239 provides for the form of the claim for refund and also the period of limitation. Therefore, a refund is to be made on the basis of an applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be for a long period of time. 27. But, we should notice, however, that withholding of refund was, nonetheless, essentially ancillary or incidental in the sense that it was to be interlocutory in nature. It was substantially an interim arrangement. It was to be done during the pendency of the various contingencies, which were provided for. Furthermore, the exercise of power under Section 241 was subjected to the condition that, besides the contingencies provided therein being present, the officer had to form the opinion that the grant of refund is likely to adversely affect the Revenue. On the other hand, Section 245 of the Act, though it figures in the Chapter dealing with refunds, is essentially and substantially a provision, which facilitates recovery of tax. Under the Act, collection and recovery of tax is contemplated in Chapter XVII. Tax can be collected by deduction at source. It also provides for advance payment of tax. Besides the same, there is collection at source. Under Chapter XVII-D, a bunch of Sections starting with Section 220, provides for the other modes of recovery of tax. Section 222 provides for certificate being issued to the Tax Recovery Officer for re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing commentary: The provisions of this section are not merely for the benefit of the department but for the convenience of both department and the taxpayer. It would be the duty of the AO to allow a set-off under this section if the assessee claims it and proves that he is entitled to a refund. When an application is made to the AO under this section, he can decide whether a refund is due to the assessee, without there being a prior adjudication of the claim to refund. However, a set-off under this section cannot be demanded, if the claim to refund is itself barred. 30. The question arose in Hindustan Construction Co. Ltd. vs. V.S. Gaitonde, Income Tax Officer, Companies Circle I(3), Bombay another, reported in (1965) 56 ITR 241 (Supreme Court). Therein, an application for refund was made by the assessee, but beyond the time. Thereafter, the assessee was served with demand notices for certain assessment years. The assessee sought the benefit of set off under Section 49E of the refund, which was due according to it; but, which, according to the Department, had been rejected as being time-barred. The assessee took the contention that, though the words in Section 49E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted the interpretation placed by the court. 31. N.C. Mukherjee Co. vs. Union of India another, reported in (1968) 68 ITR 500 (SC) was a case, where the court directed to set off the amounts due from the assessee as against the refund due, which had not been determined for a long period of time. Let us take certain concrete examples. Assuming for a moment, there is a refund falling due by virtue of an order within the meaning of Section 240 of the Act and, subsequently, an assessment is completed against the very same assessee. Let us further proceed on the basis that the assessee accepts the assessment and does not appeal the same. He, instead, requests that the refund due to him may be adjusted against the amount payable by him. Will it be open to the officer to deny the benefit of Section 245? Will it remain a matter of discretion? We would think that, in such circumstances, it would not only be a power, but would be a power coupled with a duty, as Section 245 is intended to benefit both, the Revenue and the assessee. 32. Likewise, let us take a situation, where, again, a refund is due for a certain year. An assessment order is passed. The matter, in the meantime, rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statement in the letter (Annexure No. 5) was in compliance with Section 245 and a response from the assessee was awaited; but, instead, the assessee rushed to the court. What is stated in Annexure No. 5 is that the refund is being adjusted. No doubt, in the cases, which we have adverted to at the instance of the assessee, the words, which have been used, would suggest that adjustment is made and the intimation adverts only to the fait accompli of the adjustment having been made and, therefore, it was held that it would amount to a simultaneous intimation and not prior intimation, as was required by law. 36. This brings up the question as to what really is the purpose of incorporating the words in Section 245, which words were not there in Section 49E, the previous version of the provision. Does it entail the obligation to comply with the principles of natural justice? 37. A learned Judge of the Madras High Court in Sabeta Detergents Ltd. vs. Commissioner of Income Tax, reported in (2001) 248 ITR 385, after adverting to the decision of the Delhi High Court in Vijay Kumar Bhati vs. Commissioner of Income Tax another, reported in (1994) 205 ITR 110, which we have already ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd would cause prejudice to the party entitled to the refund. In fact, Mr. H.M. Bhatia, learned counsel for the appellants, would take the stand that the adjustment had not taken place by virtue of the notice (Annexure No. 5); but, in fact, the Revenue was awaiting a response and he asked us to take notice of the words is being adjusted . As far as this case is concerned, we are overtaken by the subsequent development in the form of order dated 03.03.2015 passed by the appellate authority canceling the assessment itself. The question, therefore, may be academic; but, in view of the course we intend to adopt in this case, it is necessary to lay down the true purport of the words in question. A quasi-judicial authority is obliged to comply with the principles of natural justice. Rights cannot be adjudicated without opportunity of either making a representation or, if the situation so warrants, an opportunity of personal hearing. Even if the order is an administrative order, as long as the administrative order has the effect of affecting legal rights of parties, the authority is not immune from the operation of the principles of natural justice. These principles are elementar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e principles of natural justice, as they tend to advance the cause of justice. They would make the proceedings of the authority fair. Therefore, we would think that, in keeping with the object of the provision and the change in the law brought about by the Parliament, the intention was clearly not to reduce it to an empty formality; but, it was intended that a bare opportunity of hearing against the proposed refund being set off must be given to the party. It is, certainly, not sufficient to merely send a communication simultaneously. This flows from the words, which are specifically used, namely, proposal to set off. No doubt, vexed question relating to the legality of the assessment, under which the amount has fallen due, cannot be raked -up before the authority. Such, in our view, would be the purport of the words used. 39. However, the fact remains that, as far as Annexure No. 5 notice is concerned, the adjustment of the refund was sought to be done with reference to the assessment made for the year 2014-2015 and that was the subject matter of the writ petition. But, there is no dispute that, much prior to the judgment delivered before the learned Single Judge, assessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 015; whereas, the assessment order for the year 2015-2016 was passed on 12.05.2015. In the light of the said assessment order, though we did toy with the idea of relegating the appellants to the remedy of a review, as the learned Single Judge did not have occasion to consider the effect of this development; we felt that it will be in the interest of parties that we took note of the development and dealt with the arguments of the parties in the appeal. 42. Even according to respondent No. 1 / writ petitioner, Section 245 vests a discretion. Section 245 uses the word may . This is a case, which attracts Section 240 of the Act, as the refund became due by virtue of the order passed in assessee s appeal for three years dated 18.07.2014. Writ petitioner has also moved an application for refund, as already noted. For the years 2010-2011, 2011-2012 2012-2013, as against the order of the Income Tax Appellate Tribunal dated 18.07.2014, it is pointed out by the appellants that appeals are pending before this Court and, for the year 2011-2012, it is pointed out that 50 per cent of the demand has already been realised by attachment under Section 226(3) of the Act by order dated 23.01.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 12.05.2015. 44. In the circumstances of the case, we are inclined to accept the request, namely, that a decision will be taken by the authority regarding the refund in accordance with law, which would include the right to consider whether, under Section 245 of the Act, a case is made out for adjustment of the refund against the demand for the year 2015-2016. We have adverted to the various principles and situations, in which Section 245 can operate. It may not be exhaustive. The officer is duty bound not to invoke Section 245 without application of mind. Every repository of discretionary power would be obliged to act, in the first place, being guided by relevant considerations and ignoring irrelevant considerations. The relevant considerations, in this case, would be the fact that there is no stay obtained by the assessee in the appeal against the assessment for the year 2015-2016; but, equally, the authority would be bound to consider the fact that, for the Assessment Years 2010-2011, 2011-2012 and 2012- 2013, the Tribunal has ruled in favour of the assessee in regard to the applicability of the issue. If it is found that the issue considered by the Tribunal for the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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