VIJAY SINGH KADAM VS. CCIT
(DELHI HIGH COURT)
DATED: 27.04.2016
(DELHI HIGH COURT)
DATED: 27.04.2016
Summarised
Judgement (Scroll for Complete Judgement)
Citation
: S. 245: Approach of the department of setting off / adjusting refund
against demand without serving a prior s. 245 intimation to the assessee and
without providing opportunity of hearing to assessee & without arriving at
a satisfaction to the effect that such adjustment of refund can only be the
mode of recovery of demand is bad in law. Dept directed to refund the amount
set off / adjusted together with interest.
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Complete Judgement
VIJAY SINGH KADAM VS. CCIT
(DELHI HIGH COURT)
DATED: 27.04.2016
The Petitioner was
furnished with a defaced refund adjustment voucher. Inter alia it reveals that
the net refund amount payable is shown as Rs. 1,65,35,770. In another portion
thereunder titled “adjustments – regular refunds payable to income tax”, under
a column titled “amount to be adjusted” a demand of Rs. 20,68,392 (under
Section 144A of the Act), penalty of Rs. 15,200 (Under Section 271(1)(b) of the
Act) and Rs. 15,48,222 (under Section 271 (1) (c) of the Act‟) have been shown.
The aggregate amount ‘to be adjusted’ worked out to Rs. 36,34,267 which,
according to the Petitioner, was in fact adjusted against the total refund
amount resulting in the Petitioner being issued a demand draft only for a sum
of Rs. 1,29,01,503. The Petitioner’s contention was that such adjustment of
demand pertaining to AY 2008-09, without prior intimation to the Petitioner or
affording him an opportunity of being heard was in gross violation of Section
245 of the Act. Further, the Petitioner states that against the demand raised
for AY 2008-09 by the AO, the Petitioner had already filed an appeal before the
CIT (A) together with an application for stay which is still pending disposal
by the CIT (A). HELD by the High Court upholding the plea:
(i) The mandate of
Section 245 of the Act is clear. It states that where a refund is found to be
due to any person, then in lieu of payment of the refund, it would be in the
discretion of the AO, the Deputy Commissioner (Appeals), Commissioner (Appeals)
or the Chief Commissioner or the Commissioner to set off the amount to be
refunded, against the sum amount found payable “after giving an intimation in
writing to such person of the action proposed to be taken under this Section.” In
Glaxo Smith Kline Asia (P) Ltd. v. CIT (2007) 290 ITR 35 (Del) this Court
analyzed Section 245 of the Act in some detail and observed as under: “26. In
our view, the power under Section 245 of the Act, is a discretionary power
given to each of the tax officers in the higher echelons to “set off the amount
to be refunded or any part of that amount against the same, if any, remaining
payable under this Act by the person to whom the refund is due.‟ That this
power is discretionary and not mandatory is indicated by the word “may”.
Secondly, the set off is in lieu of payment of refund. Thirdly, before invoking
the power, the officer is expected to give an intimation in writing to the
Assessee to whom the refund is due informing him of the action proposed to be
taken under this Section. Further, it was reiterated in para 38 of the decision
in Glaxo Smith Kline Asia P. Ltd. v. Commissioner of Income Tax (supra): “38…….
Unless there are sound reasons justifying the formation of an opinion that the
tax that has become payable cannot be recovered from the Assessee as and when
the issues are ultimately decided, the power under Section 245 should not
lightly be invoked.” The above decision was followed by this Court in The
Oriental Insurance Company Limited v. DCIT (supra). There the Court too
reiterated that the adjustment which was sought to be made contrary to Section
245 of the Act, without affording an opportunity of hearing to the Petitioner
“before the adjustment was made” would vitiate the action of adjusting the
demand against such refund.
(ii) In the present
case although the refund voucher uses the word “adjustment to be made” as far
as the Petitioner is concerned, the refund issued was after the adjustment was
made. The explanation offered by the Revenue that it was merely ‘withholding’
Rs. 36,34,267 pending verification and not ‘adjusting’ it is not acceptable.
The Revenue is fully aware that the demand raised for AY 2008-09 had been
challenged by the Petitioner before the CIT (A) and an application for stay of
recovery of the demand had also been filed. The Revenue in fact does not
dispute that both the appeal and the application are pending for disposal
before the CIT (A). Therefore, it cannot be said that the withholding of the
above amount was pending “verification” of the demand for AY 2008-09 or AY
2010-11.
(iii) Incidentally the
show cause now issued to the Assessee under Section 245 of the Act is dated
21st March 2016, i.e., two months after notice had been issued by this Court in
the present petition. Whatever the demand may be for the AYs 2008-09 and
2010-11, the fact remains that prior making the adjustment of such demand
against the refund due to the Petitioner, no notice was issued to the
Petitioner as mandatorily required under Section 245 of the Act. By issuing a
notice on 21st March 2016 under Section 245 of the Act, two months after the
notice was issued in the present petition, the Revenue cannot seek to correct
the fatal error arising from the clear violation of the mandatory requirement
under Section 245 of the Act.
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