Court rules adjustment of demand without notice illegal, orders release of refund, emphasizes procedural compliance.

The court held that the adjustment of demand against the petitioner's refund without issuing a notice under Section 245 of the Act was illegal as it violated the mandatory requirement of providing an opportunity for a hearing. The court also found that the recovery of demand, which contradicted settled issues in favor of the petitioner, was inconsistent with legal principles and CBDT Circular No.1914 of 1993. Consequently, the court allowed the writ petition, directing the assessing officer to release the amount to the petitioner and emphasized the importance of adhering to procedural requirements and legal principles in tax assessments.

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Issues:
1. Validity of adjustment of demand against refund without notice under Section 245 of the Act.
2. Compliance with mandatory requirements under Section 245 of the Act.
3. Applicability of CBDT Circular No.1914 of 1993 regarding recovery of demand.
4. Contradiction in recovery of demand against settled issues in favor of the petitioner.

Issue 1: Validity of adjustment of demand against refund without notice under Section 245 of the Act:
The assessing officer adjusted a demand of Rs.17.98 crores against the refund due to the petitioner for the assessment year 2010-2011 without issuing any notice under Section 245 of the Act. The petitioner contended that this adjustment was illegal as it was done without affording any opportunity of hearing, which is a mandatory requirement under Section 245 of the Act.

Issue 2: Compliance with mandatory requirements under Section 245 of the Act:
It was acknowledged that no notice under Section 245 of the Act was issued before the adjustment was made. The court emphasized that the procedure prescribed under Section 245, including advance intimation and an opportunity of hearing, is mandatory. Consequently, the adjustment made without following this procedure was deemed to be in violation of the Act and was required to be quashed.

Issue 3: Applicability of CBDT Circular No.1914 of 1993 regarding recovery of demand:
The recovery of demand against the petitioner, relating to an issue already decided in their favor by the ITAT and the High Court, was found to be directly contrary to CBDT Circular No.1914 of 1993. The Circular stipulates that a stay of demand can be granted in situations where the demand relates to issues decided in favor of the assessee by an appellate authority or court earlier. The court highlighted that the recovery was inconsistent with established legal principles and judgments.

Issue 4: Contradiction in recovery of demand against settled issues in favor of the petitioner:
The court noted that the recovery of demand in this case, which pertained to an issue already resolved in favor of the petitioner by the ITAT and the High Court, was contrary to established legal precedents. The recovery of demand on an issue covered by judgments in favor of the petitioner was deemed invalid. The court cited relevant judgments, including those of the Supreme Court, to support its decision.

In conclusion, the court allowed the writ petition, directing the assessing officer to release the amount to the petitioner within a specified period. The court emphasized that the recovery of demand on issues already settled in favor of the petitioner was invalid, and no purpose would be served by remitting the case back to the assessing officer. The decision highlighted the importance of following procedural requirements and legal principles in tax assessments and adjustments.

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