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2017 (3) TMI 1241 - HC - Income TaxPenalty proceedings u/s 271(1)(c) - protective assessment - Reopening of assessment - amounts reflected in the FDRs and the interest accrued thereon, on a protective basis to the income of the assessee - adjustment of refund claim with the dues - Held that:- As under Section 91 of the Scheme, a designated authority is empowered to grant waiver from imposition of penalty and interest in respect of income, which is subject matter of the declaration. Since, penalty and interest was levied in the instant qua tax, which was in arrears, as on 31.3.1998, the declaration issued by the designated authority, according to the Board's circular, would cover the penalty and interest, determined at a later point in time. The circular, to my mind, was binding on the Revenue. Especially, in the circumstance, that, it seeks to explain as to how the Scheme is to operate - UCO Bank V. CIT [1999 (5) TMI 3 - SUPREME Court] .Having regard to the aforesaid, it cannot be argued by the Revenue that, since, the penalty order was issued on 25.06.1998, i.e., after 31.3.1998, it would not covered by the certificate issued to the petitioner under the Scheme. The other submission advanced on behalf of the petitioner, which, in my view, also, has merit, is that, the respondents/Revenue, on 25.06.1998 could not have issued an order of "protective" penalty, as order dated 10.03.1997 itself was an order that added the amounts reflected in the FDR (along with interest accrued therein) in the hands of the petitioner on a protective basis. As rightly argued by the learned counsel for the petitioner, while there can be a protective order qua assessment, there cannot be a protective order in respect of penalty. See Metal Stores Versus Commissioner Of Income-Tax. See Metal Stores Versus Commissioner Of Income-Tax [1990 (8) TMI 131 - GAUHATI High Court ] To my mind, a careful reading of the provisions of Section 245 of the 1961 Act would show that the refund could, perhaps, have been adjusted against any amount remaining payable under the Act, provided intimation in writing is given to the concerned person, (in this case, the petitioner) of the action "proposed to be taken", under the said provision. Therefore, quite clearly, in my opinion, what is envisaged, is that, in the first instance, a proposal for adjustment, by way of a show cause notice, will have to be served on the person, to whom, refund is due. The proposal, to be meaningful, would have to set out the details and the reasons as to why adjustments is required to be carried out by the Revenue, against the refund due. Only after issuance of such a proposal/show cause notice and upon consideration of reply, if any, received - could a decision be taken as to whether or not an adjustment of refund is necessitated. Anything short of such minimum opportunity would, to my mind, result in a complete breach of principles of natural justice. Writ Petition has to be allowed in favour of assessee. Consequently, the notice of demand and penalty order dated 25.06.1998 and the consequential order of interest dated 22.10.2012 are quashed.
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