Unilateral refund credit without sanction is impermissible, but penalty and interest may not follow if the irregularity is later reversed.

An assessee cannot unilaterally take credit of a refund amount while the refund claim remains pending and no written sanction or permission for self-adjustment has been granted by the competent authority. Such suo motu credit is therefore not legally permissible. However, where the department is aware of the entry and the amount is later reversed, the irregularity by itself does not justify penal consequences or interest. The document states that penalty and interest were not warranted on these facts, even though the initial credit was unauthorised.

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Issues: Whether an assessee could take credit suo motu of a refund amount pending sanction, and whether penalty and interest were leviable for such irregular credit.

Analysis: The refund claim was still pending before the proper authority, and there was no written order sanctioning the refund or permitting self-adjustment. An assessee is not authorised to credit the claimed amount into its accounts on its own without approval of the competent authority, so the suo motu taking of credit was not in accordance with law. At the same time, the record showed that the department was aware of the credit entries and that the amounts were later debited, thereby rectifying the irregularity. In these circumstances, the unauthorised credit could be maintained as an irregular act, but the basis for penal consequences and interest was not made out.

Conclusion: The suo motu credit was not legally permissible, but penalty and interest were set aside.

Final Conclusion: The disputed amount remained appropriated, while the assessee obtained relief from the penal and interest components, resulting in only partial success in the appeal.

Ratio Decidendi: An assessee cannot unilaterally take credit of a refund claim without a written sanction by the competent authority, but penalty and interest are not warranted where the irregularity is subsequently reversed and the circumstances do not justify further punitive action.

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