Refund adjustment cannot be made against a demand not yet in existence; penalty order challenge left to appellate remedy.

Refund adjustment against a penalty demand was held unsustainable where the penalty order was digitally signed only after the adjustment order, because no legally existing and payable demand was available on the adjustment date. The refund set-off was therefore set aside and consequential refund of the adjusted amount was directed. The court declined to interfere with the penalty order itself in writ jurisdiction because that order was not directly challenged in these proceedings and an efficacious appellate remedy remained available. The challenge to the penalty order was left open to be pursued in accordance with law.

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Issues: (i) whether the adjustment of refundable income-tax amount against a penalty demand could be sustained when the penalty order was digitally signed only after the adjustment order, and (ii) whether the Court should interfere with the penalty order itself in writ jurisdiction.

Issue (i): whether the adjustment of refundable income-tax amount against a penalty demand could be sustained when the penalty order was digitally signed only after the adjustment order.

Analysis: The adjustment was made under the refund-adjustment mechanism after notice proceedings. However, the penalty order on which the adjustment was founded was digitally signed only after the adjustment order. On the date of adjustment, the demand could not be treated as existing and payable so as to justify set-off against the refund.

Conclusion: The adjustment order was unsustainable and was set aside, and refund of the adjusted amount was directed in favour of the assessee.

Issue (ii): whether the Court should interfere with the penalty order itself in writ jurisdiction.

Analysis: The penalty order was not challenged in these proceedings, and an efficacious remedy was available to question it in the appropriate appellate forum.

Conclusion: No interference was made with the penalty order, and the challenge to it was left open to be pursued in accordance with law.

Final Conclusion: The assessee succeeded on the refund-adjustment issue and obtained consequential refund relief, but the penalty order itself was not adjudicated on merits in these proceedings.

Ratio Decidendi: A refund cannot be adjusted against a demand that had not legally come into existence on the date of adjustment, and a writ court may decline to interfere with an unchallenged penalty order where an effective alternative remedy is available.

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