Mandatory requirement of prior intimation under section 245 of the Income-tax Act and the continuation of stay till the disposal of the appeal.

JUDGMENT :

(Kamal Khata, J.)

1. By this Petition under Article 226 of the Constitution, the Petitioner has raised a grievance that the Respondents have unlawfully adjusted a refund admittedly due in the sum of (i) Rs.1,66,84,74,041 for Assessment Year (AY) 2021-22 against the demand for AY 2015-16 and 2016-17 and (ii) Rs.44,58,24,745 for AY 2017-18 against the demand for AY 2016-17 without prior intimation u/s 254 of the ITA (Income-tax Act 1961).

2. Learned Senior Counsel Mr. Mistri submitted that by a notice u/s (under section) 156 of the ITA Respondent No. 2 granted refund of Rs.166,84,74,041/-. However, by a show cause notice u/s 220 of the ITA dated 29th December 2022 the Respondent No. 3 sought to treat the Petitioner as an ‘assessee in default’ for non-payment of outstanding demands. It is submitted that these demands for AY 2015-16 and 2016-17 were stayed by Respondent No.2’s orders dated 29th December 2021 and 27th April 2022 upon payment of 20% of the demand by the Petitioner. Besides, the Tribunal by orders dated 23rd March 2022 for AY 2015-16 and 5th September 2022 for AY 2016-17 decided in favour of the Petitioner in an appeal against the order u/s 263 of ITA passed by Respondent No. 4. It is submitted that the CBDT Circulars also mandate stay in such cases till the disposal of the first Appeal.

3. Learned Sr. Counsel submits that by an order dated 27th January 2023 u/s 254 of the ITAT a refund of Rs.44,58,24,745/- was determined. The same was adjusted against the demand for AY 2016-17 without prior intimation u/s 245. It is submitted that the law mandates an intimation and a speaking order after considering the Petitioner’s objections to such adjustment which was not followed.

4. In defence Mr. Mohanty learned counsel for the Respondent submitted that the order u/s 220 (6) of the ITA for AY 2015-16 was stayed for a period of six months or till the Appellate Authority’s Order whichever is earlier and consequently since the stay expired on 28th June 2022, the said demand of Rs.68,71,84,411/- was justified. However, he further submitted that by giving effect to the ITAT order for AY 2015-16 on 27th January 2023, the computation has resulted in a refund of Rs.93,52,63,810/- which is not effected on account of a technical issue in the ITBA System that indicates a comment “Error while reading by CPC-ITR.” He further admitted that on account of procedural lapse the refund for AY 2017-18 has been adjusted against the demand for AY 2016-17 without giving prior intimation u/s 245 of the Act as stated in paragraph ‘M’ of Affidavit in Reply dated 30th March 2023. He submitted that a procedural lapse did not vitiate the adjustment as there was an outstanding demand for AY 2016-17 on 7th February 2023 being the date of adjustment for refund.

5. We are unable to agree with the Respondents Counsel on both counts on account of settled law. Firstly, when stay is granted it would continue till the disposal of the Appeal and not only for a period of six months u/s 220(6) of the ITA. This Court in the case of Hindustan Unilever Ltd. v DCIT – 1(1), [2015] 60 taxmann.com 326, held that in view of the stay u/s 220(6) of the Act, the time to make the payment stands extended till the disposal of the appeal by CIT (Appeals). With regard to the second contention, non-giving of intimation in writing prior to setting off the amount payable against the amount to be refunded is fatal. This Court in Jet Privilege (P) Ltd. v Dy CIT, [2021] 131 taxmann.com119 and BPCL v ADIT, [2021] 133 taxmann.com 320 held that the requirement of prior intimation u/s 245 of the ITA was a mandatory requirement and failure to comply with this mandatory requirement of prior intimation would make the entire adjustment wholly illegal.

6. In view thereof, we pass the following order

i. The adjustment of Rs.166,84,74,041 for AY 2021-22 against the demand for AY 2015-16 & 2016-17 and adjustment of Rs.44,58,24,745/- for AY 2017-18 against the demand for AY 2016-17 are quash