A reading of the section would indicate that for the purpose of any adjustment of the amount due to the assessee by way of refund against an outstanding demand due from the assessee to the Revenue an intimation in writing is required to be given to the concerned person of the action proposed. Proposed action would mean a notice before making the adjustments and not an intimation of making the adjustment. It is not in the nature of information, It has to be an intimation that the Revenue proposes to adjust the amount of refund due to the assessee towards the amount of tax due from the assessee. An order passed purporting to set off an amount of refund due to the assessee without a prior intimation would be against the express provisions of law and therefore bad in law. The provisions of section 245 are mandatory in nature. In the present case there was no prior intimation of the proposed action of adjusting the amount of refund due to the assessee towards any other amount due from the assessee. It was an intimation informing the 6
appellant that the amount of refund due for the assessment year 1997-98 stood adjusted against the outstanding demand for the assessment year 1995-96. It would not be same thing as a prior intimation of the proposed action. As the adjustment of the refund amount was made without following the provisions of section 245 and without giving a proper intimation the same was bad in law. The provisions of section 245 being mandatory in nature, any action taken contrary to such provision would be bad in law. This is the consistent view of other High Courts as well. A reference may be made to the following judgments. The Delhi High Court in Vijay Kumar Bhati v. CIT [1994] 205 ITR 110, while interpreting section 245 held (headnote): "For the purpose of any set off under section 245 of the Income-tax Act, 1961, of any refund due to the assessee an intimation in writing has to be given to the assessee of the action proposed to be taken under section 245. Any order of set off purporting to be made without any such intimation is neither fair, nor just, nor reasonable and has to be ignored."
Karnataka High Court
Jeans Knit Private Limited vs The Deputy Commissioner Of Income ... on 13 February, 2013
In these writ petitions the petitioner has prayed for a writ in the nature of certiorari to quash the order dated 22.11.2012 and 19.10.2012 vide Annexures-A and A1 passed by respondent no.1.2. Petitioner company is an export oriented unit. For the assessment year 2007-2008 petitioner company filed returns of income 3
claiming deduction under Section 10(B) of the Income Tax Act. On 30.12.2010 the first respondent passed an order of assessment disallowing the claim of petitioner company under Section 10(B) of the Act as per Annexure-B. Aggrieved by the order of assessment at Annexure-B petitioner company filed an appeal before the Commissioner of Income Tax (Appeals-1), Bangalore. The appeal filed by the petitioner came to be partly allowed on 24.08.2012 holding that assessee is eligible for claim of deduction under Section 10(B) of the Act. The first respondent by giving effect to the order of Commissioner of Appeals issued communication on 19.10.2012 as per Annexure-A1 specifying that petitioner is entitled for refund of Rs.14,24,54,020/- and further stated that the same will be adjusted towards the demand for the assessment year 2008-2009. Aggrieved by that portion of the order in Annexure-A1 adjusting the refund, the petitioner is before this court.
3. For the assessment year 2008-2009 petitioner filed returns of income and the same was processed and the assessing officer passed the order on 21.12.2011 raising a demand of Rs.59,15,52,537/-. Aggrieved by this order of assessment at Annexure-E petitioner company filed an appeal 4
before the Commissioner of Income Tax (Appeals) and the same is pending adjudication. During the pendency of this appeal petitioner approached the first respondent for grant of stay of assessment order for the assessment year 2008-2009. Under the impugned order Annexure-A dated 22.11.2012 the stay application came to be rejected and directed to pay the demand in installments. Aggrieved by this order at Annexure-A rejecting the stay application the petitioner is before this court.
4. Heard arguments on both the side and perused the entire writ papers.
5. Learned counsel for the petitioner contends that the order of first respondent at Annexure-A1 adjusting refund of Rs.14,24,54,020/- towards the demand for assessment year 2008-2009 is illegal, arbitrary and contrary to Section 245 of the Act. There is some force in this contention of learned counsel for the petitioner. In identical circumstances a Division Bench of this court in Fosroc Chemicals (India) Ltd vs. Commissioner of Income tax and another 248 ITR 607 had the occasion to interpret Section 245 of the Act as under:
5
Section 245 of the Act reads as under:
"Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section."
A reading of the section would indicate that for the purpose of any adjustment of the amount due to the assessee by way of refund against an outstanding demand due from the assessee to the Revenue an intimation in writing is required to be given to the concerned person of the action proposed. Proposed action would mean a notice before making the adjustments and not an intimation of making the adjustment. It is not in the nature of information, It has to be an intimation that the Revenue proposes to adjust the amount of refund due to the assessee towards the amount of tax due from the assessee. An order passed purporting to set off an amount of refund due to the assessee without a prior intimation would be against the express provisions of law and therefore bad in law. The provisions of section 245 are mandatory in nature. In the present case there was no prior intimation of the proposed action of adjusting the amount of refund due to the assessee towards any other amount due from the assessee. It was an intimation informing the 6
appellant that the amount of refund due for the assessment year 1997-98 stood adjusted against the outstanding demand for the assessment year 1995-96. It would not be same thing as a prior intimation of the proposed action. As the adjustment of the refund amount was made without following the provisions of section 245 and without giving a proper intimation the same was bad in law. The provisions of section 245 being mandatory in nature, any action taken contrary to such provision would be bad in law. This is the consistent view of other High Courts as well. A reference may be made to the following judgments. The Delhi High Court in Vijay Kumar Bhati v. CIT [1994] 205 ITR 110, while interpreting section 245 held (headnote): "For the purpose of any set off under section 245 of the Income-tax Act, 1961, of any refund due to the assessee an intimation in writing has to be given to the assessee of the action proposed to be taken under section 245. Any order of set off purporting to be made without any such intimation is neither fair, nor just, nor reasonable and has to be ignored."
Similarly, the High Court of Calcutta in J.K. Industries Ltd. v. CIT [1999] 238 ITR 820, has taken the same view and held (headnote): "The wording of section 245 of the Income-tax Act, 1961, leaves no manner of doubt that the proposed adjustment is to be intimated to the assessee. Since the adjustment at the time of intimation is only a proposed one, the intimation has to go before the adjustment has been made. The Revenue has no jurisdiction to make an adjustment 7
of a refund without following section 245 and without giving a prior intimation to the assessee as required by that section."
6. In view of the above dictum of this court, the impugned communication at Annexure-A1 adjusting the refund without prior intimation to the petitioner is illegal and contrary to law. Therefore, the impugned communication at Annexure-A1 in so far is it relates to adjusting of refund is to be set-aside. The matter is required to be remanded to the first respondent to follow the procedure laid down under Section 245 of the Income Tax Act by providing an opportunity to the petitioner and to pass an order in accordance with law.
7. Being aggrieved by the order of assessment for the assessment year 2008-2009 petitioner company filed an appeal before the Commissioner of Income Tax (Appeals) and the same is pending adjudication. In the meanwhile, the petitioner filed a letter on 14.2.2012 before the assessing officer for stay of his order of assessment for the year 2008-2009. After having discussions with the authorized representative of 8
the petitioner company, the assessing officer permitted the petitioner company to pay the demand as under:
• First installment - payment of Rs.10 Crore by March 30, 2012. • Second installment - payment of Rs.1.5 Crore each month starting from April until disposal of appeal by CIT(A) or fulfillment of total demand whichever is earlier.
8. Accordingly the petitioner company made payment of first installment of Rs.10 Crore and paid two monthly installments for the month of June and July 2012. Thereafter the petitioner company failed to pay the further installments. Again on 20.11.2012, the petitioner company filed a stay application before the first respondent - assessing officer on the basis of a circular No.530 dated 06.03.1989 and instruction no.1914 dated 02.12.1993. Now under the impugned order the first respondent rejected the stay application filed by the petitioner as per Annexure-A. Learned counsel for the petitioner contends that for assessment year 2007-2008 the Commissioner of Income Tax (Appeals) allowed the claim of petitioner company for deduction under Section 10(B). Identical issue is involved in 9
the appeal filed by the petitioner company for the assessment year 2008- 2009 and therefore they are entitled for stay. This ground urged by the petitioner company is considered by the first respondent in the impugned order at Annexure-A. First respondent rejects this contention firstly on the ground that finding of Commissioner of Income Tax (Appeals) for the assessment year 2007-2008 is challenged by the Department before the Income Tax Appellate Tribunal and the same is pending adjudication. Therefore, the finding of Commissioner of Income Tax (Appeals) has not attained finality. Secondly, the first respondent rejected this contention on the ground that the issues involved in the assessment year 2007-2008 are partly similar to the issues involved in the year 2008-2009. This reasoning given by the first respondent in the impugned order is in accordance with law and I find no justifiable ground to interfere with the same.
9. After passing the assessment order for the year 2008-2009 petitioner made an application for stay on 14.2.2012. The first respondent after having discussion with the authorized representative of the petitioner company permitted them to pay the demand on monthly installments. Accordingly, the petitioner company made certain payments and 10
subsequently failed to honour or to pay the installments. By taking this into consideration, the first respondent rejected the stay application holding that the petitioner is not entitled to press into service the circular No.530 and instruction no.1914. Again this reasoning of the first respondent is in accordance with law.
10. Having regard to the facts and circumstances of this case, a direction is required to be issued to the Commissioner of Income Tax (Appeals) to dispose the appeal filed by the petitioner for the assessment year 2008-2009 within a time frame of three months from the date of receipt of copy of this order subject to petitioner paying the upto date installments as specified in the impugned order. For the reasons stated above, the following: ORDER
i) Writ petitions are hereby partly allowed. ii) The impugned order dated 19.10.2012, Annexure-A1 is quashed in so far as it relates to adjusting the refund of 11
Rs.14,24,54,020/- towards demand for the assessment year 2008-2009.
iii) The matter is remanded to the first respondent to follow the procedure under Section 245 of the Act, by providing an opportunity to the petitioner and to pass appropriate orders in accordance with law on the question of adjustment of refund. iv) The Commissioner of Income Tax (Appeals) is hereby directed to dispose the appeal filed by the petitioner for the assessment year 2008-2009 within a time frame of three months from the date of receipt of copy of this order. v) Petitioner to comply the order at Annexure-A by paying upto date installments. Ordered accordingly.
Sd/-
JUDGE.
DKB.
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