Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2000 Supreme(Cal) 130

High Court Of Calcutta
Y. R. Meena, G. C. De
COMMISSIONER OF INCOME-TAX - Appellant
Versus
J.K.INDUSTRIES LTD. - Respondent
W. P. 216 Of 1999
Decided On : 03/14/2000

Advocates Appeared:
Debi Prasad Pal, J.P.KHAITAN, N.C.ROY CHAUDHARY, SUDIPTA ROY

The requirement of prior intimation under Section 245 of the Income-tax Act, 1961, is mandatory and any adjustment of refund without such intimation is illegal and void. The principles of natural justice require that the assessee be given an opportunity of being heard before any adjustment is made under Section 245.

Headnote:
INCOME TAX - REFUND - ADJUSTMENT AGAINST TAX LIABILITY - REQUIREMENT OF PRIOR INTIMATION - SECTION 245 OF THE INCOME-TAX ACT, 1961 - INTERPRETATION - PRINCIPLES OF NATURAL JUSTICE - APPLICABILITY - SCOPE OF JUDICIAL REVIEW.
Fact of the Case:

The assessee, a company, filed a declaration under the Kar Vivad Samadhan Scheme for the assessment years 1991-92 and 1992-93 to settle the tax arrears for the said assessment years. On account of settlement of the tax liability under the Kar Vivad Samadhan Scheme, there was a refund due. Instead of refunding that amount, part of the amount of refund due was adjusted against the tax liability and withheld that refund due to the petitioner and there was no tax arrear within the meaning of the Kar Vivad Samadhan Scheme, 1998. The petitioner has wrongly been deprived of his right to get the refund due.
Finding of the Court:

The court held that the requirement of prior intimation under Section 245 of the Income-tax Act, 1961, is mandatory and any adjustment of refund without such intimation is illegal and void. The court also held that the principles of natural justice require that the assessee be given an opportunity of being heard before any adjustment is made under Section 245.
Issues: 1. Whether the requirement of prior intimation under Section 245 of the Income-tax Act, 1961, is mandatory? 2. Whether the principles of natural justice require that the assessee be given an opportunity of being heard before any adjustment is made under Section 245?
Ratio Decidendi: 1. The court held that the requirement of prior intimation under Section 245 of the Income-tax Act, 1961, is mandatory and any adjustment of refund without such intimation is illegal and void. The court relied on various High Court decisions which have held that the intimation required under Section 245 is a prior intimation of the proposed action for adjustment and that the assessee is entitled to a reasonable notice to represent his case before the authority before an order of adjustment is passed. 2. The court also held that the principles of natural justice require that the assessee be given an opportunity of being heard before any adjustment is made under Section 245. The court relied on the Supreme Court decision in Institute of Chartered Accountants of India v. L K. Ratna, which held that even if the statute does not provide for pre-decisional hearing, the principles of natural justice should be complied with to give the hearing or opportunity before any order is passed against any person unless there is clear mandate to the contrary.
Final Decision: The court dismissed the appeal filed by the Revenue and upheld the impugned order of the learned single judge dated January 28, 1999.

Y. R. MEENA, J.

( 1 ) BY this appeal, the appellants have challenged the impugned judgment of a learned single judge dated January 28, 1999 (see [1999] 238 ITR 820), and prayed that the impugned judgment be set aside.

( 2 ) THE petitioner/respondent is a company within the meaning of the Companies Act, 1956. The respondent-company filed the declaration under the Kar Vivad Samadhan Scheme for the assessment years 1991-92 and 1992-93 to settle the tax arrears for the said assessment years. On account of settlement of the tax liability under the Kar Vivad Samadhan Scheme, there was a refund due. Instead of refunding that amount part of the amount of refund due was adjusted against the tax liability and withheld that refund due to the petitioner and there was no tax arrear within the meaning of the Kar Vivad Samadhan Scheme, 1998. The petitioner has wrongly been deprived of his right to get the refund due.

( 3 ) AGAINST the balance demands payable for the assessment years 1991-92 and 1992-93, respondent No. 2 had set off refunds. An intimation was sent to the petitioners by respondent No. 2. On receipt of the intimation, the petitioner raised objection to the set off by respondent No, 2, specially pointed out to respondent No. 2 that the refund due to the assessee cannot be adjusted against the amount seized from the residence of Shri A. K. Chhajer unilaterally but the request of the petitioner/respondent was rejected and the full amount of refund due has not been refunded to the petitioner-respondent. Then the petitioner/respondent filed this writ petition before this court. Learned single judge discussed the views expressed by various High Courts and has taken the view that no adjustment can be made of the refund due to the assessee, against any tax arrears, without intimation to the assessee as required under Section 245 of the Act.

( 4 ) LEARNED counsel for the appellants, Shri Roy Chowdhury submits that though the intimation was not given before setting off the amount due against the assessee but after setting off the amount against tax arrears the intimation was given and the assessee has not raised any objection for some time. Therefore, now the assessee cannot take the plea that the set off was illegal.

( 5 ) ON the other hand, learned counsel for the assessee/respondent, Dr. Pal submits that there are a number of decisions of various High Courts and in one case the decision is challenged before the Supreme Court, the Supreme Court has rejected even the special leave petition. Not even a single decision has been shown by counsel for the Revenue in favour of the Revenue which support the case of the Revenue that without intimation the amount due can be set off against the tax arrears.

( 6 ) THE facts are not in dispute that the respondent-company's assessment for the years 1990-91, 1993-94, 1994-95, 1995-96 and 1996-97 resulted in refunds of Rs. 5,77,94,371, the break-up of which is given as under :

Assessment year Refund Assessment year demand Amount of refund (Rs.) Date of urported set

1990-91 1991-92 3,21,706 28-12-1995

1993-94 1991-92 23,87,516 31-01-1996

1994-95 1992-93 1,20,32,585 05-02-1996

1995-96 1992-93 2,37,61,939 30-07-1996

1996-97 1992-93 1,92,90,625 27-01-1997

Total

5,77,94,371

( 7 ) THIS amount of refund due to the respondent was set off against the outstanding demand for the assessment years 1991-92 and 1992-93, without giving any intimation in writing to the respondent-company, as required under section 245 of the Income-tax Act, 1961. The details of amount of refund, dates of order of set-off and dates of communication of set-off, are as under :