Japson Estates P. Ltd. vs Deputy Commissioner of Income Tax and Another

Bilal Nazki, J.—This writ petition has been filed challenging the intimation dated January 27, 2006, issued by the first respondent u/s 143(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), adjusting the amount of refund of Rs. 32,58,795 pertaining to the assessment year 2005-06 against the demand of Rs. 45,14,870.

The facts are not in dispute. For the assessment year 2003-04, the asses-see-company returned a total income of Rs. 25,63,380. However, through an assessment order dated December 30, 2005, the Deputy Commissioner of Income Tax, u/s 143(3) of the Act, determined the total income as Rs. 1,21,14,010. He determined the net tax payable by the asses-see at Rs. 45,14,870. The assessment order was served on the assessee on January 16, 2006. A notice of demand was issued u/s 156 of the Act for the assessment year 2003-04. It was served on the assessee on January 16, 2006. According to this notice, the tax was payable by the assessee within thirty days of the date of service. Thus, the demand was required to be made good by the assessee on or before February 15, 2006. The assessee filed an appeal before the Commissioner of Income Tax within the stipulated period of thirty days and the appeal is pending before the Commissioner of Income Tax (Appeals). For the subsequent assessment year i.e. 2005-06, the company filed a return disclosing taxable income of Rs. 11,69,051. The tax payable on the returned income was Rs. 4,27,785. However, the company paid excess tax, i.e., Rs. 35,31,400. It happened because tax was deducted at source from a portion of income received by the assessee during the relevant accounting year. The Assessing Officer accepted his return for the assessment year 2005-06 under the provisions of Section 143(1)(ii) of the Act and issued intimation on January 27, 2006, which was served on the petitioner-company on January 30, 2006. By virtue of this order, the assessee was entitled to a refund of Rs. 32,58,795 including interest of Rs. 1,55,180. Instead of refunding the money, the Assessing Officer adjusted this amount against the demand of Rs. 45,14,870 pertaining to the assessment year 2003-04. The petitioner is aggrieved by this adjustment.

The main contention of learned counsel for the petitioner is that no prior intimation as required u/s 245 of the Act was given before the amounts were adjusted. It is also contended that the amount found due for the assessment year 2003-04 could be paid on or before February 15, 2006, but the adjustment order was made on January 27, 2006, when, as a matter of fact, the assessee was not obliged to make payments in terms of the notices issued to him for the assessment year 2003-04.

Counter has been filed. There is no dispute raised with regard to the facts. But it is contemplated that in terms of Sction 245, before an adjustment is made, it is not necessary to issue a show-cause notice and the Department can adjust the amount, and what is required for such adjustment is only intimation in writing to the assessee. It is also contended by the Department that the notice of demand u/s 156 of the Act for the assessment year 2003-04 was served on the assessee on January 16, 2006. He was required to pay the amount within thirty days. That does not mean that the demand could not be enforced by way of adjustment of refund within thirty days, as the amount became due soon after the order of assessment was passed.

To appreciate the rival contentions, it will be necessary to reproduce Section 245 of the Act, which reads as under :

Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals), or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any 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.

On a bare reading of this section, it becomes clear that the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals), or Chief Commissioner or Commissioner may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under the Act by the person to whom the refund is due. The only condition for exercise of such power is that it can be done after giving intimation to such person of the action proposed to be taken under this section.

In the present case it has been contended in the counter affidavit that intimation was given. But the only intimation we find from the record is the intimation u/s 143(1) of the Act, which is the impugned intimation. Intimation u/s 143(1) of the Act is an intimation regarding refund. Section 143(1) of the Act lays down :

143.(1) Where a return has been made u/s 139, or in response to a notice under Sub-section (1) of Section 142,�

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of Sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued u/s 156 and all the provisions of this Act shall apply accordingly ; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee :

Provided that except as otherwise provided in this Sub-section, the acknowledgement of the return shall be deemed to be an intimation under this Sub-section where either no sum is payable by the assessee or no refund is due to him;

Provided further that no intimation under this Sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made :

Provided also that where the return made is in respect of the income first assessable in the assessment year commencing on the 1st day of April, 1999, such intimation may be sent at any time up to the 31st day of March, 2002.

In this case, at the footnote of the intimation u/s 143(1), it has been inscribed, "Adjusted against demand (partly) for the assessment year 2003-04 at Rs. 45,14,870". By no stretch of imagination, can this intimation be treated as intimation u/s 245 of the Act. It has been contended in the counter affidavit that the assessee did not communicate any reason to the Department as to why the adjustment as proposed in the intimation should not be made, but there is no such intimation of any proposed adjustment. It is only a notice u/s 143(1) of the Act, in which it has been communicated that the amounts have already been adjusted. Therefore, there was no occasion for the assessee-petitioner to raise an objection to the adjustment. 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.

Learned counsel for the petitioner has drawn our attention to various judgments. They are : (1) A.N. Shaikh and others Vs. Suresh B. Jain, ; (2) State Bank of Patiala Vs. Commissioner of Income Tax and Another, ; (3) J.K. Industries Ltd. Vs. Commissioner of Income Tax and Others, ; (4) Commissioner of Income Tax Vs. J.K. Industries Ltd., and (5) Shiv Narain Shivhare Vs. Assistant Commissioner of Income Tax (Investigation) and Another, .

Since there has been no intimation in terms of Section 245 of the Act, therefore, the petitioner has been deprived of his right to raise any objections to the order of adjustment. Therefore, the intimation to the extent of adjusting the amount, is quashed.

The second ground urged that the amounts were not due as the petitioner had thirty days time to make payment would not be necessary for us to decide at this stage. Since the respondents had failed to give intimation in terms of Section 245 of the Act to the petitioner, the part of the communication contained in the intimation u/s 143(1) regarding adjustment, is quashed. However, the respondents are at liberty to issue intimation prior to adjustment in terms of Section 245 of the Act.

With the above directions, the writ petition is allowed. No order as to costs.