Court Orders Tax Refund with Interest Due to Non-Compliance with Income Tax Act's Section 245 Procedures.

The HC allowed the writ petition, directing the respondents to refund the amount determined under the intimation dated 17th January 2021, with applicable interest, within four weeks. The court found the respondents failed to comply with the mandatory requirements of Section 245 of the Income Tax Act, lacking proper intimation and reasoned order before adjusting the refund. The court rejected the respondents' argument that interim orders during the COVID-19 pandemic did not apply to ITAT's stay orders, deeming the refund adjustment unsustainable.

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Issues Involved:
1. Delay in processing and release of income tax refund.
2. Adjustment of tax refund against outstanding demands without proper intimation under Section 245 of the Income Tax Act, 1961.
3. Compliance with previous court orders and interim orders during the COVID-19 pandemic.

Detailed Analysis:

1. Delay in Processing and Release of Income Tax Refund:
The petitioner, a telecommunications company, filed its return of income for AY 2019-20, claiming a refund of Rs. 205,21,46,330/-. The processing of this return was delayed by the respondents, leading the petitioner to approach the court. The court had previously directed the respondents to release the due refund with interest within two weeks from the date of the order (11th January 2021). Despite forwarding the court's order to the respondents, the refund was not released, prompting the petitioner to seek further judicial intervention.

2. Adjustment of Tax Refund Against Outstanding Demands Without Proper Intimation:
The respondents issued an intimation under Section 143(1) of the Income Tax Act on 17th January 2021, determining a refund of Rs. 227.27 crore but proposed to adjust this refund against outstanding demands for AYs 2007-08 and 2008-09. The petitioner contended that no notice under Section 245 of the Act was received, which is a prerequisite for such adjustments. The petitioner argued that the demands for these years were stayed by the High Court and ITAT, and thus, could not be adjusted against the refund. The respondents, however, claimed that proper procedure under Section 245 was followed, and the petitioner was given an opportunity to be heard, which the petitioner disputed.

3. Compliance with Previous Court Orders and Interim Orders During the COVID-19 Pandemic:
The petitioner highlighted that various interim orders by the High Court extended the stay on demands due to the COVID-19 pandemic until 31st January 2021. The respondents' adjustment of the refund was claimed to be in violation of these interim orders. The court noted that the respondents did not provide any separate intimation under Section 245 to the petitioner and did not record reasons for rejecting the petitioner's objections before making the adjustment. The court emphasized that compliance with Section 245 is mandatory and requires prior intimation and consideration of the taxpayer's objections.

Court's Conclusion:
The court found that the respondents failed to comply with the mandatory requirements of Section 245, as there was no proper intimation or reasoned order communicated to the petitioner before adjusting the refund. The court also rejected the respondents' contention that the interim orders during the pandemic did not apply to the ITAT's stay orders. The court concluded that the respondents' action of adjusting the refund was unsustainable and directed them to refund the amount for AY 2019-20 with interest within four weeks.

Judgment:
The writ petition was allowed in terms of prayer clause b(i), directing the respondents to refund the amount determined under intimation dated 17th January 2021, with applicable interest, within four weeks.

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