Rectification application not treated as pending appeal, while refund adjustment needs prior written intimation to be valid.

A rectification application under section 254(2) of the Income-tax Act does not amount to a pending appeal or a continuation of the appeal; it is only a limited power to correct mistakes apparent from the record, so it cannot satisfy the pendency requirement under the Kar Vivad Samadhan Scheme, 1998. By contrast, adjustment of refund against outstanding dues under section 245 is valid only if the assessee is first given prior written intimation of the proposed set-off. Where that mandatory notice is not shown, the adjustment is ineffective for legal purposes and the demand remains outstanding for Scheme eligibility.

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Issues: (i) Whether an application under section 254(2) of the Income-tax Act, 1961 could be treated as a pending appeal or continuation of the appeal for availing benefit under the Kar Vivad Samadhan Scheme, 1998; and (ii) whether adjustment of refund without prior written intimation under section 245 of the Income-tax Act, 1961 could be treated as a valid adjustment so as to negate outstanding tax demand for the Scheme.

Issue (i): Whether an application under section 254(2) of the Income-tax Act, 1961 could be treated as a pending appeal or continuation of the appeal for availing benefit under the Kar Vivad Samadhan Scheme, 1998.

Analysis: The appellate remedy under section 253 culminates in a final order under section 254(1), while section 254(2) is only a limited power of rectification of mistakes apparent from the record. It does not reopen the appeal and cannot be equated with a pending appeal or treated as its continuation. Since clause 95(i)(c) of the Scheme excludes cases where no appeal, reference, writ petition, or revision is pending on the relevant date, a rectification application does not satisfy the pendency requirement.

Conclusion: The application under section 254(2) was not a pending appeal, and the rejection of the declaration in the first matter was justified.

Issue (ii): Whether adjustment of refund without prior written intimation under section 245 of the Income-tax Act, 1961 could be treated as a valid adjustment so as to negate outstanding tax demand for the Scheme.

Analysis: Section 245 permits set-off of refund against outstanding dues only after giving prior intimation in writing of the proposed adjustment. The record did not establish compliance with that mandatory requirement. Non-compliance vitiates the adjustment for legal purposes, and the demand must therefore be treated as outstanding on the date of the declaration for the Scheme. In consequence, the assessee could not be denied the benefit on the footing that no outstanding demand existed.

Conclusion: The refund adjustment was invalid for want of prior written intimation, and the rejection of the declaration in the second matter was unsustainable.

Final Conclusion: The challenge to denial of Scheme benefits succeeded only in the matter involving refund adjustment, while the challenge based on section 254(2) failed; the common decision was therefore mixed in result.

Ratio Decidendi: A rectification application under section 254(2) is not an appeal or continuation of an appeal, and a refund adjustment under section 245 is invalid unless preceded by mandatory written intimation to the assessee.

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