Whether an intimation, which mentions that refund due to an assessee stands adjusted against tax demand raised in subsequent year, can be construed as prior intimation of proposed action u/s 245 - NO: HC

THE issues before the Bench are - Whether an intimation, which mentions that refund due to an assessee stands adjusted against the tax demand, can be construed as prior intimation of the proposed action u/s 245 of the Act; Whether a stay order can be claimed on the basis of favourable order passed by CIT(A) in assessee's own case, although the same has been challenged by the Department before the Tribunal and Whether assessee is entitled to a stay against the assessment order on the basis of Circular No. 530, when the assessee has failed to discharge the tax demand payable in monthly installments. Assessee's writ partly allowed.

Facts of the case

Assessment Year 2007-08

The assessee company is an export oriented unit and had claimed deduction u/s 10(B), which was disallowed by the AO. On appeal, the CIT(A) partly allowed the claim, and accordingly, the AO issued a communication to the assessee regarding the refund, but also stated that the same would be adjusted towards the demand raised for the AY 2008-2009. Aggrieved by this adjustment, the assessee filed a writ petition before the High Court.

The assessee contended that the order of adjustment of refund towards the claim for the AY 2008-09 was in violation of Section 245.

Assessment Year 2008-09

The assessee's return was processed and a demand of Rs.59,15,52,537 was raised. On this issue, an appeal is pending before the CIT(A). During the pendency of this appeal the assessee approached the Revenue on14.2.2012 for grant of stay of the assessment order, which was rejected on 22.11.2012. Instead, the assessee was directed the pay the demand in installments. After paying two installments, the assessee defaulted and filed another stay application on 20.12.2012 on the basis of a circular No.530 dated 06.03.1989 and instruction no.1914 dated 02.12.1993. The stay application was rejected by the Department. Aggrieved by this order, the assessee filed a writ petition before this court.

The Counsel for the assessee contented on the ground that the facts of the present AY were similar to AY 2007-08 and since the CIT(A) had allowed the deduction in the AY 2007-08, the assessee was entitled for the stay. On the other hand, the DR argued that since the Department has already filed an appeal before the Tribunal against the order of the CIT(A), the matter has not attained finality, and hence the stay cannot be granted.

Having heard the parties, the High Court held that,

Assessment Year 2007-08

+ in identical circumstances a Division Bench of this court in Fosroc Chemicals (India) Ltd vs. Commissioner of Income tax and another had the occasion to interpret Section 245 of the Act as under: "In the present case there was no prior intimation of the proposed action of adjusting the amount of refund due to the assessee towards any other amount due from the assessee. It was an intimation informing the appellant that the amount of refund due for the assessment year 1997-98 stood adjusted against the outstanding demand for the assessment year 1995-96. It would not be same thing as a prior intimation of the proposed action. As the adjustment of the refund amount was made without following the provisions of section 245 and without giving a proper intimation the same was bad in law.";

+ in view of the above dictum of this court, the impugned communication at Annexure-A1 adjusting the refund without prior intimation to the petitioner is illegal and contrary to law. Therefore, the impugned communication at Annexure-A1 in so far is it relates to adjusting of refund is to be set-aside. The matter is required to be remanded to the first respondent to follow the procedure laid down under Section 245 of the Income Tax Act by providing an opportunity to the petitioner and to pass an order in accordance with law;

Assessment Year 2008-09

+ this ground urged by the petitioner company is considered by the first respondent in the impugned order at Annexure-A. First respondent rejects this contention firstly on the ground that finding of Commissioner of Income Tax (Appeals) for the assessment year 2007-2008 is challenged by the Department before the Income Tax Appellate Tribunal and the same is pending adjudication. Therefore, the finding of Commissioner of Income Tax (Appeals) has not attained finality. Secondly, the first respondent rejected this contention on the ground that the issues involved in the assessment year 2007-2008 are partly similar to the issues involved in the year 2008-2009. This reasoning given by the first respondent in the impugned order is in accordance with law and I find no justifiable ground to interfere with the same;

+ after passing the assessment order for the year 2008-2009 petitioner made an application for stay on 14.2.2012. The first respondent after having discussion with the authorized representative of the petitioner company permitted them to pay the demand on monthly installments. Accordingly, the petitioner company made certain payments and subsequently failed to honour or to pay the installments. By taking this into consideration, the first respondent rejected the stay application holding that the petitioner is not entitled to press into service the circular No.530 and instruction no.1914. Again this reasoning of the first respondent is in accordance with law;

+ having regard to the facts and circumstances of this case, a direction is required to be issued to the Commissioner of Income Tax (Appeals) to dispose the appeal filed by the petitioner for the assessment year 2008-2009 within a time frame of three months from the date of receipt of copy of this order subject to petitioner paying the upto date installments as specified in the impugned order.