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2015 (7) TMI 55 - MADRAS HIGH COURT

2015 (7) TMI 55 - MADRAS HIGH COURT - [2015] 378 ITR 500 - Adjustment of Refund with the demand without proper information to assessee - Stay under Section 220(6) - Held that:- On a careful consideration of respective contentions and this Court taking note of the entire gamut of the attended facts and circumstances of the instant case in an integral manner comes to an inevitable conclusion that Section 245 of the Income Tax Act, 1961 makes it crystalline clear that the Income Tax Officer might, .....

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as a Lever or Premium in favour of the Revenue, in the considered opinion of this Court.

As such, this Court to prevent an aberration of justice and to promote substantial cause of justice, quashes the intimation dated 24.03.2014 under Section 245 of the Income Tax Act in respect of Assessment Year 2008-2009 (Against dues of Assessment year 2011-2012) the intimation dated 22.04.2014 for Adjustment of Refund in respect of Assessment Years 2009-2010 and 2010-2011 (Against dues of Assess .....

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respect of Assessment Years mentioned supra and leaving it open to the respective parties to raise all factual and legal issues in respect of the subject matter in issue, i.e., aspect of payment / Retention of 'Refund etc.,' and it is open to the Concerned Authority / Department to take into consideration of the same, in a fair, just, dispassionate, practical, pragmatic, purposeful and meaningful manner and to pass a fresh speaking orders on merits by outlining the process of reasoning in an ob .....

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2014 relating to the Assessment Year 2008-2009 (ii) as against the Order dated 18.11.2014 in W.P.No.21478 of 2014 relating to the Assessment Year 2009-2010 (iii) as against the Order dated 18.11.2014 in W.P.No.21479 of 2014 relating to the Assessment Year 2010-2011 (iv) as against the Order dated 18.11.2014 in W.P.No.21480 of 2014 relating to the Assessment Year 2012-2013 passed by the Learned Single Judge respectively. 2. The Learned Single Judge after examining the entire facts and circumstanc .....

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ioner within a period of two weeks from the date of receipt of copy of this Order etc., 3. Moreover, the Learned Single Judge had further added that the 1st Appellant/1st Respondent shall take up for consideration, the Petition dated 28.03.2013, hear the 1st Respondent/Petitioner in person and pass Orders on merits and in accordance with Law within a period of two weeks thereafter. 4. The Learned Counsel for the Appellants (in four Writ Appeals) submits that the Orders of the Learned Single Judg .....

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statutory mandate enjoined under Section 245 of the Income Tax, 1961. 6. Advancing his arguments, the Learned Counsel for the Appellants emphatically projects an argument that Section 245 of Income Tax Act provides that where under any circumstances refund becomes due to an assesse, the Assessing Officer is expected to adjust the same as against other outstanding dues pending under the Act. Furthermore, in the present case, although the aforesaid Assessment Years resulted in refund, there is a s .....

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ers, which was binding the Department in so far as Assessment Year 2011-2012 is an erroneous one more particularly for the reason that those proceedings had not attained finality, as the same is under challenge by the Revenue before the Higher Forums. 8. Continuing further, it is represented on behalf of the Appellants that the Learned Single Judge should have flourished the issue in a wholesome manner taking into account that finality on the merits of Assessment Years were still pending, on Sta .....

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essing Officer to intimate such adjustment of the refund in lieu of the subsisting demand which has been scrupulously followed by the 1st Appellant. 10. The core argument advanced on behalf of the Appellants is that when the Respondent/Writ Petitioner sought for a purported Stay under Section 220(6) of the Income Tax Act in terms of its letter dated 28.03.2014 for the Assessment Year 2011-2012, no appeal in respect of the said 'Assessment Year' was even filed and pending and as such, the .....

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e Authority) (CIT-A) itself was filed only on 25.04.2014 and as such the question of Assessing Officer being able to consider the Stay Application atleast before the said date does not arise. 13. Apart from the above, the plea taken on behalf of the Appellants is that the Learned Single Judge while passing the Impugned Order in the Writ Petitions had over looked the material documents submitted by the Revenue at the time of hearing the Writ Petitions which revealed that later, the 1st Appellant .....

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245 of the Income Tax Act and adjusting the same for any new subsisting due could not be validly carried out, which is an erroneous interpretation and would defeat the intent of said Section of the 245 of the Act. That part, positive direction issued by the Learned Single Judge to process the refund claim of the Respondent/Petitioner and to sanction refund within two weeks runs counter to express ingredients of Section 245 of Income tax Act. 15. The Learned Counsel for the Appellants contends th .....

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lant for resorting to set-off/adjustment as per decision of this Court in Sabena Detergents v. Commissioner of Income Tax reported in (2001) 248 ITR at Page 0385 wherein it is held as follows:- There is nothing in Section 245 of the Act to warrant the conclusion that the task of adjusting the refund towards the arrears of tax payable by the assessee is a quasi-judicial proceeding. Section 215 of the Act in terms does not require any show-cause notice being given, calling upon the assessee to exp .....

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Tribunal had decided the issue on merits repeatedly in favour of the Respondent for the last three Assessment Years, viz., Assessment Years 2008-2009, 2009-2010 and 2010-2011 respectively. Furthermore, as against the Orders of the Income Tax Appellate Tribunal, the 1st Appellant's Department had not obtained Stay and therefore, the Orders of the Income Tax Appellate Tribunal still holds the field and binding on the Appellants. 18. The Learned Counsel for the Appellants brings it to the noti .....

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presented on behalf of the Appellants that the Respondent / Petitioner had appealed against the aforesaid Assessment Order to the Commissioner of Income Tax (Appeals) and also filed a Stay Petition/Application with the Department against recovery of taxes pending disposal of the Appeal. 20. The Learned Counsel for the Appellants contends that the Appellant's Department had confirmed and sanctioned the 'Refund' due to the Respondent as per refund order, but, failed to issue the Cheque .....

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ants takes a legal plea that the ingredients of Section 245 of Income Tax Act cannot make a legal right of a Assesse under Section 220(6) of the Income Tax Act completely a redundant one. 22. The Learned Counsel for the Respondent relies on the following decisions:- (a) In the decision UTI Mutual Fund V. Income-Tax Officer and Others reported in (2012) 345 ITR at pages 71 and 72 it is observed and held as under:- Administrative directions for fulfilling recovery targets for the collection of rev .....

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ideration. Rejecting such applications without hearing the assessee, considering the submissions and indicating at least brief reasons is impermissible. The following are important: (1) No recovery of tax should be made pending (a) expiry of time limit for filing an appeal; (b) disposal of a stay application, if any, moved by the assessee and for a reasonable period thereafter to enable the assessee to move a higher forum, if so advised. Coercive steps may, however, be adopted where the authorit .....

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eration in deciding the application for stay. (4) When a bank account has been attached, before withdrawing the amount, reasonable prior notice should be furnished to the assessee to enable the assessee to make a representation or seek recourse in law. (5) In exercising the powers of stay, the Income-tax Officer should not act as a mere tax gatherer but as a quasi judicial authority vested with the public duty of protecting the interests of the Revenue while at the same time balancing the need t .....

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held as follows:- Each assessment year is treated as separate and independent under the Income-tax Act, 1961. Section 245 of the Act permits the Revenue to recover the demand of one year which is pending by adjusting the refund due for another year. The term refund has not been defined in the Act and, therefore, it has to be understood and interpreted in the manner in which it is understood in day-to-day life. The term recovery in common parlance includes adjustments. The word recovery is compr .....

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reserve a right to adjust, if the circumstances so warrant. In a given case, the Assessing Officer may not reserve the right to refund. Further, reserving a right is different from exercise of right or justification for exercise of a discretionary right/power. Moreover, the circular is not binding on the Tribunal. The Tribunal has power to grant stay as an inherent power vested in the appellate authority as well as under section 254 and the rules. The Tribunal is competent to stay recovery of t .....

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ent is stayed. Therefore, the Tribunal can stay adoption of coercive steps for recovery of demand but may permit adjustment under section 245. When and in what cases, adjustment under section 245 of the Act should be stayed would depend upon the facts and circumstances of the case. The discretion is to be exercised judiciously. The nature of additional resulting in the demand is a relevant consideration. Normally, if the same addition/disallowance/issue has already been decided in favour of the .....

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but for the adjustment against the demand for the assessment year 2006-07. An application for stay was dismissed. 23. At this stage, it is to be borne in mind that Section 245 of the Income Tax Act does not either in express terms or by necessary implication require that the assesse should be in default either within the ordinary meaning of that expression or as that expression has been defined by Section 220 of the Act as per decision (S.RM.AR.RM.Ramanathan Chettiar V. Additional I.T. Officer .....

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nt Technology Solutions India P.Ltd., V. Deputy CIT reported in (2013) 356 ITR at page 373 (Madras), it is held that, Where there being no intimation in writing to the assessee before making adjustment of refund and the Deputy Commissioner had not followed the prescribed procedures while adjusting the refund against the outstanding amount, the order was vitiated in law . 26.The following are the conditions to be satisfied in order to set off a refund under Section 245 of the Act:- (a) A refund i .....

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off of refunds against tax balance payable. 27.In this connection, it may not be out of place for this Court to make a significant mention that in the decision Suresh B.Jain V. A.N.Shaikh, 16th Income-Tax Officer and others reported in 1987 Vol. (165) ITR at Page 151 at Special Page 153, it is among other things observed and held as follows:- .... Shri Joshi further submits that, in any event, it is not permissible for the Income-tax Officer to adjust the amount of refund due in respect of the e .....

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ny 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 mere perusal of this Section makes it clear that the Income-Tax Officer may, in lieu of payment of refund, set off the amount to be refunded against the sum payable by the person, but only after giving intimation in writing to such person of the proposed action. Shri .....

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solute and the respondents are directed to refund the amount of ₹ 4,26,090 to the petitioner within a period of two weeks from today. The respondents shall ensure that the refund order is actually handed over to the petitioner before the expiry of two weeks. The respondents shall pay the costs of the petition. 28.That apart, this Court pertinently points out the decision Pankaj Dutta V. Income Tax Officer and Another reported in (2010) 235 CTR (J&K) at Pages 110 and 111 whereby and whe .....

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tances of the case, was in accordance with the established principles of law, equity and justice. It was not a fanciful or arbitrary exercise of discretion. It is accepted that exercise of discretionary power can be interfered with by the High Court only if the order passed is violative of some fundamental or basic principles of justice and fair play or suffers from any patent or flagrant error. In view of the fact situation so projected in this appeal, it may be safely held that refusal of gran .....

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s warranted. 29. Also in the decision Japson Estates P.Ltd. V. Deputy Commissioner of Income-Tax and Another reported in (2006) 285 ITR at Page 40 at Special Page 44 it is observed and held in Paragraph Nos.8 to 10 as follows:- ...... 8. In this case, at the footnote of the intimation under section 143(1), it has been inscribed, Adjusted against demand (partly) for the assessment year 2003-2004 at ₹ 45,14,870 . By no stretch of imagination, can this intimation be treated as intimation unde .....

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ustment. It may be true that section 245 of the Act does not contemplate a show-cause notice or an inquiry, but at the same time, it requires a prior intimation in writing, of the proposed action of adjustment. Admittedly, such a notice was not given to the petitioner. 9. Learned counsel for the petitioner has drawn our attention to various judgments : They are (1) A.N.Shaikh V. Suresh B.Jain (1987) 165 ITR 86 (Bom) J.K.Industries Ltd. V. CIT (1999) 239 ITR 421 (P&H); (3) J.K.Industries Ltd. .....

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10) 187 TAXMAN 44 (Bom) at Page 44 at Special Page 50 in Paragraph No.16, it is observed and held as under : .....16. Whether the refund claim is correct and genuine, the authority must satisfy itself that the applicant has a prima facie correct and genuine claim, does not mean that the authority should examine the merits of the refund claim closely and come to a conclusion that the applicant's claim is bound to succeed. This would amount to prejudging the case on merits. All that the author .....

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lusion which could be arrived at on that evidence..... 31. Be that as it may, on a careful consideration of respective contentions and this Court taking note of the entire gamut of the attended facts and circumstances of the instant case in an integral manner comes to an inevitable conclusion that Section 245 of the Income Tax Act, 1961 makes it crystalline clear that the Income Tax Officer might, in lieu of payment of refund set-off the amount to be refunded against the sum payable by an indivi .....

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, however, on going through the Impugned Order passed by the Learned Single Judge, this Court is of the considered view that the Learned Single Judge had rightly opined that the adjustment was not tenable in the peculiar facts and circumstances of the case. That apart, the fact of the matter is that notwithstanding the fact that the Respondent/Petitioner was entitled to get the refund even as early as in January, 2014 pertaining to four Assessment Years, the refunds were not processed and the ma .....

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