2016 (6) TMI 217 - HC - Income Tax

Court orders Revenue to refund deceased Assessee's heir promptly, violating Income Tax Act; stay on recovery measures granted.

The court directed the Revenue to promptly issue the balance refund with interest to the deceased Assessee's legal heir, despite citing adjustments ... Adjustment/set-off of tax refund against outstanding demand - mandatory intimation and opportunity of hearing under Section 245 - discretionary power to set off refunds subject to satisfaction of recoverability - timely payment of refunds and statutory interest - prohibition on coercive steps pending disposal of stay applicationAdjustment/set-off of tax refund against outstanding demand - mandatory intimation and opportunity of hearing under Section 245 - discretionary power to set off refunds subject to satisfaction of recoverability - Whether the Revenue lawfully adjusted/withheld a portion of the refund for AY 2006-07 against demands of subsequent years without issuing the statutory intimation and affording an opportunity under Section 245 of the Act. - HELD THAT: - The Court applied the established principle that Section 245 confers a discretionary power to set off refunds against outstanding tax demands only after giving written intimation to the assessee and affording an opportunity of being heard, and only where the Revenue is satisfied that the demand cannot otherwise be realized. Reliance was placed on the Court's earlier exposition in Glaxo Smith Kline Asia P. Ltd. and subsequent decisions which require that the power not be invoked mechanically and that adjustment should not be made without prior notice. In the present case the refund voucher and payment showed that the alleged adjustments were in fact effected before any Section 245 intimation was issued; the Revenue's contention that the amount was merely 'withheld' pending verification was rejected because the demand for AY 2008-09 was already subject to appeal and a stay application before the appellate authority. Issuance of a Section 245 notice after this writ petition had been filed could not cure the prior fatal non-compliance with the statutory requirement. [Paras 14, 15, 16, 17, 18]The adjustment/withholding of Rs. 36,34,267 against the refund for AY 2006-07 without prior intimation and opportunity under Section 245 was invalid; the balance refund together with statutory interest was to be paid forthwith.Prohibition on coercive steps pending disposal of stay application - timely decision on stay application by CIT(A) - Directions concerning the pending stay application against the assessment for AY 2008-09 and interim protection from coercive steps. - HELD THAT: - The Court directed that the CIT(A) shall decide the stay application filed by the petitioner against the AY 2008-09 assessment within a specified short period, and until such decision no coercive action should be taken to enforce the said demand. This was ordered to secure the petitioner's rights given the prior invalid adjustment of refund and the pendency of appellate proceedings. [Paras 19]CIT(A) to decide the stay application within four weeks (not later than 23rd May 2016) and no coercive steps to be taken till such decision; compliance to be ensured.Final Conclusion: The writ petition was allowed in part: the Revenue was directed to pay the withheld balance refund for AY 2006-07 with statutory interest by a specified date, the CIT(A) was ordered to decide the stay application for AY 2008-09 within a fixed period, and enforcement of the AY 2008-09 demand was restrained until the stay application is decided. Issues:Non-compliance with court directions for refund to deceased Assessee's legal heir for AY 2006-07.Analysis:The deceased Assessee filed a return for AY 2006-07, claiming tax exemption on long term capital gains from the sale of agricultural land. The Assessing Officer passed an assessment order assessing total income at a higher amount, denying the claimed exemption. The Assessee's appeal was partly allowed by the CIT (A), and both parties appealed to the ITAT. The ITAT later allowed the Assessee's appeal, entitling the Assessee to a refund of the excess tax paid. Following the Assessee's death, the legal heir pursued the matter, requesting the refund with statutory interest. Despite court directions, the Revenue delayed the refund, citing adjustments against demands for other assessment years.The legal heir contended that the adjustment without prior intimation or opportunity to be heard was a violation of Section 245 of the Income Tax Act. The court referenced previous judgments emphasizing the discretionary nature of set-off under Section 245, requiring intimation to the Assessee before adjustment. The Revenue's explanation of withholding pending verification was deemed unacceptable, especially since the demands were under appeal with a stay application. Issuing a notice under Section 245 after court notice did not rectify the violation.Consequently, the court directed the Revenue to issue the balance refund with interest promptly, without delay. Additionally, the CIT (A) was instructed to decide on the stay application related to the demand for another assessment year within a specified timeframe. Coercive steps for recovery were prohibited until the CIT (A) decision. Any non-compliance with the court's directions allowed the Petitioner to seek redress from the court. The writ petition was disposed of accordingly, with no costs imposed.