2009 (2) TMI 133 - HC - Income Tax

Court affirms refund adjustment despite procedural lapse; challenge dismissed for failure to contest authority's decision.

The court upheld the adjustment of the refund against amounts due under assessment, despite acknowledging the procedural lapse of no prior intimation. The ... KVSS – Kar Vivad Samadhan Scheme – the amount payable under the Kar Vivad Samadhan Scheme by the declarant shall be determined at the rates specified in that Scheme and the declarant would only be liable to pay that amount, instead of the actual amount due – assessee filed a declaration claiming benefit of rs. 26,82,606 due against interest – revenue granted benefit of Rs. 12,29,969/- only after adjustment of refund due to assessee for subsequent years – assessee challenged the order of adjustment of refund with tax in arrear and interest specifically not notice was issued u/s 245 – In between there was a revision u/s 264 – HC observed that the two technicalities are there and accepted the technicality raised by the Revenue. Therefore, since the petitioner has not chosen to challenge the order in revision, the petitioner is not entitled to succeed in this original petition as rightly pointed out by the counsel for Revenue – Petition dismissed. Issues Involved:1. Adjustment of refund under Section 245 of the Income Tax Act without prior intimation.2. Validity of retracting from the declaration made under the Kar Vivad Samadhan Scheme.Issue-Wise Detailed Analysis:1. Adjustment of Refund under Section 245 Without Prior Intimation:The petitioner contended that the adjustment of the refund due to him against the amounts due under the assessment was illegal as it was done without prior intimation as required under Section 245 of the Income Tax Act. Section 245 stipulates that any adjustment of refund must be preceded by an intimation in writing to the assessee regarding the proposed action. The petitioner argued that this procedural requirement was not met, rendering the adjustment invalid.The court examined the relevant legal provisions and judicial precedents on the matter. Section 245 of the Income Tax Act states: 'Where under any of the provisions of this Act, a refund is found to be due to any person, the Assessing Officer... may in lieu of payment of the refund, set off the amount to be refunded... against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.'The court referred to several high court decisions, including *Hiralal and Sons v. Income-tax Officer* [1985] 156 ITR 30 (All.), *J. K. Industries Ltd. v. CIT* [1999] 238 ITR 820 (Cal.), and *Japson Estates (P) Ltd. v. Deputy CIT* [(2006) 285 ITR (AP) 40 (AP), which uniformly held that such an adjustment without prior intimation is invalid.Despite acknowledging the procedural lapse, the court ultimately agreed with the Revenue's argument that since the petitioner had already challenged the adjustment in a statutory revision, which was dismissed, and did not further contest that decision, the petitioner could not now raise the issue again. The court concluded that the order of adjustment had merged with the revisional authority's decision, and without challenging the latter, the petitioner could not succeed on this ground.2. Validity of Retracting from the Declaration Made under the Kar Vivad Samadhan Scheme:The petitioner also sought to retract from the declaration made under the Kar Vivad Samadhan Scheme, arguing that the benefit claimed was denied based on the adjusted refund. The petitioner contended that he should be allowed to pursue the appeal against the assessment order itself.The court examined Section 90 of the Scheme, which outlines the time and manner of payment of tax arrears and the conclusive nature of the orders passed under the Scheme. Specifically, Section 90(4) states: 'Where the declarant has filed an appeal or reference... such appeal or reference... shall be deemed to have been withdrawn on the day on which the order referred to in sub-section (2) is passed.'The court found that once an order under the Scheme is passed, the appeal pending before the Tribunal is deemed withdrawn, and the Tribunal no longer has jurisdiction to entertain it. Allowing retraction from the declaration would defeat the purpose of the Scheme, as it would enable assessees to retract their declarations if the orders under the Scheme were unfavorable to them. The court noted that the petitioner had filed the declaration under the Scheme after being aware of the refund adjustment, further weakening his case for retraction.In conclusion, the court held that the petitioner could not retract from the declaration made under the Kar Vivad Samadhan Scheme once the order under the Scheme was passed by the competent authority. The original petition was dismissed, affirming the validity of the adjustment of the refund and the finality of the order under the Kar Vivad Samadhan Scheme.