Refund adjustment and remission claims must be considered before acting on a demand notice under the statutory scheme.

An admitted refund from earlier assessment years, together with interest, had to be considered for adjustment before a fresh assessment for the later year, because the statutory scheme allowed excess tax paid to be refunded or set off and also provided interest on delayed refund. The remission provision could be invoked only on recorded reasons, so the remission application had to be decided first. Until the refund adjustment, remission claim, and fresh assessment were completed, the demand notice could not be acted upon.

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Issues: Whether the petitioner's assessed refund and interest thereon were required to be adjusted before the fresh assessment for the relevant assessment year, and whether the application for remission under the statutory provision had to be considered before acting on the demand notice.

Analysis: The assessee had an admitted refundable amount from earlier assessment years, along with interest, which had not been set off against the tax liability for the later assessment year. The statutory scheme required refund of tax paid in excess, with the assessee having the option of set-off against another assessment year, and also permitted interest for delayed refund. The remission provision empowered the State Government to remit tax, interest or penalty for a year, but only on recorded reasons. Since the adjustment exercise had not been undertaken and the remission application had not reached its logical conclusion, the impugned demand could not be acted upon until the statutory claims were considered and the assessment was redone.

Conclusion: The authorities were directed to consider the remission application, adjust the assessed refund due from earlier years, and make a fresh assessment for the relevant year; the demand notice was not to be acted upon until then.

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