M/S.cognizant Technology Solutions India P. Ltd., 6[Th] Floor, New v. The Deputy Commissioner Of Income Tax, Large Taxpayer Unit

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 30.4.2013 CORAM: THE HONOURABLE MR.JUSTICE V.DHANAPALAN W.P.No.8571 of 2013& M.P.No.1 of 2013 M/s.Cognizant Technology Solutions India P. Ltd.,6[th] Floor, New No.165/Old No.110,Menon Eternity Building,St.Mary's Road,Chennai-600 018represented by its Director.. PetitionerVs. The Deputy Commissioner of Income Tax,Large Taxpayer Unit,1775, Jawaharlal Nehru Inner Ring Road,Anna Nagar Western Extension,Chennai-600 101... Respondent Writ Petition filed under Article 226 of the Constitution ofIndia, praying for issuance of a Writ of Certiorarified Mandamus tocall for the records and quash the impugned order made in PANAAACD3312M, dated 22.3.2013 passed by the respondent herein forAssessment Year 2008-09 in so far as it seeks to adjust the refundof Rs.103,09,77,260/- as against the alleged demand outstanding forAssessment Year 2009-10 and consequently direct the respondentherein to refund the aforesaid sum of Rs.103,09,77,260/- underSection 240 of the Income Tax Act, 1961 together with interestthereon as may be payable under Section 244/244-A of the Act. For petitioner : Mr.Arvind P.Datar, Senior Counsel assisted by Mr.Sandeep Bagmar.RFor respondent : Mr.T.Pramod Kumar Chopda, Senior Standing Counsel ORDER By consent of the learned counsel appearing for the parties,the Writ Petition is taken up for disposal. https://hcservices.ecourts.gov.in/hcservices/ 2. This Court heard the learned counsel appearing for theparties exhaustively on 29.4.2013 and the Writ Petition was posted"for orders" today (30.4.2013) and accordingly, it is disposed ofby this order. 3. Heard Mr.Arvind P.Datar, learned Senior Counsel assisted byMr.Sandeep Bagmar.R, learned counsel for the petitioner andMr.T.Pramod Kumar Chopda, learned Senior Standing Counsel appearingfor the respondent-Income Tax Department. 4. The petitioner calls in question the order made in PANAAACD3312M, dated 22.3.2013 passed by the respondent herein forAssessment Year 2008-09 in so far as it seeks to adjust the refundof Rs.103,09,77,260/- as against the alleged demand outstanding forAssessment Year 2009-10, seeking to quash the same and consequentlydirect the respondent herein to refund the aforesaid sum ofRs.103,09,77,260/- under Section 240 of the Income Tax Act, 1961(for short, 'the Act') together with interest thereon as may bepayable under Section 244/244-A of the Act. 5. The case of the petitioner is as follows: (a) The petitioner is a Private Limited Company incorporatedunder the Companies Act, 1956 and engaged in the business ofdevelopment of computer software and related services and itsexport and provides various software solutions to variety ofindustries. The petitioner carries out its business activitiesthrough various units set up in Software Technology Parks (STPs)and Special Economic Zones (SEZs) and claims deduction underSection 10-A and 10-AA of the Act. (b) For the assessment year 2008-09, the petitioner filedtheir Return of income on 29.9.2008, which was processed underSection 143(1) of the Act on 8.3.2010. The petitioner's case wasselected for scrutiny by the Assistant Commissioner of Income Taxunder Section 143(2) of the Act on 12.8.2009 and details werecalled for by the respondent under Section 142(1) of the Act on26.8.2011, for which, detailed submissions were made by thepetitioner before the respondent from time to time. (c) The petitioner's case was referred to the Transfer PricingOfficer for necessary verification under Section 92-CA of the Act,as the petitioner has international transactions with their groupcompanies abroad. The Transfer Pricing Officer, vide order dated11.10.2011, accepted the arm's length price of the transactions ofthe petitioner-Company with that of their group companies abroad.Consequently, no transfer pricing adjustments were made by the https://hcservices.ecourts.gov.in/hcservices/ respondent. (c) The petitioner's case was referred to the Transfer PricingOfficer for necessary verification under Section 92-CA of the Act,as the petitioner has international transactions with their groupcompanies abroad. The Transfer Pricing Officer, vide order dated11.10.2011, accepted the arm's length price of the transactions ofthe petitioner-Company with that of their group companies abroad.Consequently, no transfer pricing adjustments were made by the https://hcservices.ecourts.gov.in/hcservices/ respondent. (d) The respondent passed the assessment order under Section143(3) read with Section 92-CA of the Act for the assessment year2008-09 in the petitioner's case on 30.12.2011, by which thefollowing items had been disallowed: (i) Disallowance of excess claim of deduction under Section10-A/10-AA of the Act; (ii) Disallowance of Exchange Fluctuation Gain on EEFC Accountfor the purpose of computation of deduction under Section 10-A/10-AA of the Act; (iii) Exclusion of Expenditure in Foreign Currency from exportturnover, but not from total turnover for computation of deductionunder Section 10-A/10-AA of the Act; (iv) Exclusion of telecommunication expenditure from exportturnover, but not from total turnover for computation of deductionunder Section 10-A/10-AA of the Act; (v) Disallowance of provisions made on contingent liabilities; (vi) Disallowance of loss pertaining to the 10-A/10-AA unitsfor computation of total income of the assessment year 2008-09; (vii) Disallowance under Section 14-A of the Act; (viii) Disallowance of expenditure incurred for selectingemployees and (ix) Disallowance under Section 40(a)(i) towards payments madeto non-residents on account of non-deduction of taxes at sources. After making disallowances and adjustments on the abovegrounds, the respondent assessed the income of the petitioner atRs.716,33,79,150/- as against the returned income ofRs.93,54,87,072/- and consequently, a demand of Rs.181,37,25,560/-was raised, vide demand notice, dated 31.12.2011 under Section 156of the Act. (e) Pursuant to the said demand notice, the petitioner filed astay petition before the respondent under Section 220(6) of the Actand the respondent, vide order dated 6.7.2012, stayed the demand tothe extent of Rs.71,55,83,993/- pending disposal of the appealbefore the Commissioner of Income Tax (Appeals) (i.e. for short,'CIT(A)') or until 31.12.2012 whichever is earlier. The petitionerremitted Rs.25,22,00,000/- on 24.2.2012 and the respondent adjusted https://hcservices.ecourts.gov.in/hcservices/ income tax refund of Rs.71,47,53,133/- relating to variousassessment years on various dates only with express consent of thepetitioner given during the hearing while completing theassessment, and thereafter, on 17.12.2012, the petitioner requestedfor extension of stay of demand till the disposal of appeal by CIT(A). (f) The petitioner filed an appeal against the said assessmentorder, dated 30.12.2011, for assessment year 2008-09 on 30.1.2012and the same was decided in favour of the petitioner on 25.2.2013.The CIT(A) allowed the appeal except on one issue pertaining todisallowance under Section 14-A of the Act. https://hcservices.ecourts.gov.in/hcservices/ income tax refund of Rs.71,47,53,133/- relating to variousassessment years on various dates only with express consent of thepetitioner given during the hearing while completing theassessment, and thereafter, on 17.12.2012, the petitioner requestedfor extension of stay of demand till the disposal of appeal by CIT(A). (f) The petitioner filed an appeal against the said assessmentorder, dated 30.12.2011, for assessment year 2008-09 on 30.1.2012and the same was decided in favour of the petitioner on 25.2.2013.The CIT(A) allowed the appeal except on one issue pertaining todisallowance under Section 14-A of the Act. (g) The petitioner's case for the assessment year 2009-10 wasselected for scrutiny by the respondent under Section 143(2), videnotice dated 23.8.2011. The respondent, vide order dated 22.8.2012,transferred the case of the petitioner for the assessment year2009-10 to the Additional Commissioner of Income Tax, LTU, Chennai.The assessment for the assessment year 2009-10 was completed by theAddl.C.I.T. on 5.3.2013 and the income of the petitioner wasassessed at Rs.1473,42,53,550/- (as per normal provisions of theAct) as against the returned income of Rs.2229,73,15,902/- (underSection 115-JB of the Act) and consequently, a demand ofRs.362,38,85,090/- was raised, vide notice dated 7.3.2013 underSection 156 of the Act, which was received by the petitioner on11.3.2013, which provided for 30 days' time for payment of the saiddemand and the said period of 30 days expired on 10.4.2013. (h) By virtue of the order passed by the C.I.T (Appeals) on25.2.2013, the petitioner became entitled to refund ofRs.103,09,77,260/-. The respondent has to refund the amount to theassessee automatically in terms of Section 240 of the Act. Asagainst the refund of Rs.103,09,77,260/-, the respondent set-offthe said refund to the demand of Rs.362,38,85,090/-. (i) The respondent instead of issuing the refund to thepetitioner, adjusted the said refund of Rs.103,09,77,260/- againstthe demand made for the assessment year 2009-10 without intimatingthe petitioner and the said adjustment was made by the impugnedorder, dated 22.3.2013, even before the expiry of 30 days from thedate of demand notice for the assessment year 2009-10. UnderSection 245 of the Act, the respondent can set-off the amount ofrefund against any sum payable by an assessee which is due, onlyafter giving intimation in writing to such assessee of the actionproposed to be taken. (j) The issues involved in the assessment order for theassessment year 2009-10 including the significant disallowance oftax holiday benefit on certain income and with the exception of https://hcservices.ecourts.gov.in/hcservices/ three very minor issues (i.e. disallowance for MAT computationpurpose of market-do-market foreign exchange loss and Section 14-Aadjustment and disallowance for normal computation purpose of anamount under Section 40(a)(i) with respect to non-with-holding oftaxes for payments made for purchase of software licence), aresimilar to that of the one made in assessment year 2008-09, whichwas eventually decided in favour of the petitioner by CIT(A) andmany of the issues being similar, were already decided in favour ofthe petitioner for the assessment year 2005-06 and 2007-08 by theIncome Tax Appellate Tribunal, Chennai, by order dated 23.1.2013 inI.T.A.Nos.114 and 2100 (Mds) of 2011 and I.T.A.No.90(Mds) of 2011.Thus, the demand made by the Additional C.I.T. for the assessmentyear 2009-10, is untenable. (k) Even assuming without admitting that the three new andminor issues as stated above, are decided against the petitioner,the total sum of income tax demand payable will only beapproximately to an extent of Rs.6,00,00,000/- as against theuntenable demand made at Rs.362,38,85,090/-. (k) Even assuming without admitting that the three new andminor issues as stated above, are decided against the petitioner,the total sum of income tax demand payable will only beapproximately to an extent of Rs.6,00,00,000/- as against theuntenable demand made at Rs.362,38,85,090/-. (l) Where the demand made is substantially greater than theReturned income, the recovery proceedings are liable to be stayedand where the demand arises out of the issues which have beendecided in favour of the assessee in the earlier years by anappellate authority, the same ought to be stayed and such anassessee cannot be treated as being in default in respect of theamount attributable to such disputed amount. 6. The petitioner challenges the impugned order on the groundthat it is without jurisdiction and contrary to Sections 240 and245 of the Act, as the same has been passed by the respondentwithout intimating in writing to the petitioner. The order ofadjustment of refund made by the respondent is bad in law, as thejurisdiction to make adjustment or set-off vests only with theassessing officer who has made the assessment and the consequentdemand under Section 156 of the Act and the respondent is not theassessing officer and is not competent to make the order ofadjustment of refund and pass the impugned order, which amounts totreating the petitioner as an assessee in default or in arrearswhen the time limit for payment of the demand for the assessmentyear 2009-10 has not yet expired. The petitioner assails theimpugned order also on the ground that the petitioner is entitledto move a stay petition under Section 220(6) of the Act against thenotice of demand made in the assessment year 2009-10 within 30 daysfrom the date of receipt of the notice under Section 156 of theAct; however, by the action of the respondent, the legal remedyavailable to the petitioner has been taken away, resulting inrecovery of tax demand even without waiting for completion of 30days' period as provided for in the notice of demand issued to the petitioner under Section 156 of the Act. According to thepetitioner, the impugned action of the respondent amounts toviolation of fundamental right available to the petitioner underArticle 19(1)(g) of the Constitution of India. It is furtheralleged that the action of the respondent is contrary to the lawlaid down by Courts holding that before an adjustment of refund dueagainst the sum payable is made, a prior intimation to the assesseeis mandatory and only thereafter, the Revenue has jurisdiction tomake the set-off and such refund is to be set-off only against anyamount found payable by such assessee. The impugned action of therespondent is also contrary to the instruction of the Central Boardof Direct Taxes (CBDT) in Instruction No.1952, dated 14.8.1998,Instruction No.1969, dated 20.8.1999, Instruction No.1989, dated20.10.2010 and Board's letter dated 28.4.2010, wherein, CBDT gaveinstructions to the Revenue Officers that the provisions of Section245 of the Act must be followed and written intimation must be sentto the assessee before adjusting refund of the outstanding demandand any lapse in this regard shall be viewed seriously. Thepetitioner claims balance of convenience in their favour andalleges that prima-facie case is made out and states that graveprejudice and irreparable loss will be caused if the impugned orderis allowed to be acted upon. 7. The respondent has filed counter affidavit, inter-aliastating as follows: 7. The respondent has filed counter affidavit, inter-aliastating as follows: (a) The respondent objects to the usage of the term "allegeddemand" by the petitioner, as the demand for the assessment year2009-10 was raised under the provisions of the Act and is very muchexisting on record and the demand for Rs.362,38,85,090/- raised inthe assessment year 2009-10 is a legally enforceable demand as ondate, as demand notice was issued along with the assessment order,and the said notice was served on the assessee on 11.3.2013. Theaverment of the petitioner that the income tax refund ofRs.71,47,53,133/- relating to various assessment years wereadjusted against the demand of the assessment year 2008-09 onlywith the express consent of the petitioner given during the hearingwhile completing the assessments, is not correct. The refunds dueto an assessee can be adjusted against the demands due to the sameassessee, as per the provisions of Section 245 of the Act. (b) While disposing of the assessee's petition for stay ofdemand raised in assessment year 2008-09, the assessing officerissued order under Section 220(6) of the Act on 6.7.2012, whereinstay was granted for demand of Rs.87,55,83,993/- (Rs.16,00,00,000/-+ Rs.71,55,83,993/-) till the disposal of appeal before CIT(Appeal)or 31.12.2012, whichever is earlier. However, it is clearlymentioned in that order that any refund arising to the assesseeshall be appropriated against the pending demands without prejudice to that order. Section 220(6) of the Act gives discretionary powerto the assessing officer to dispose of a stay petition filed by theassessee and further empowers him to impose such conditions as hemay think fit for granting stay of demand. (c) The respondent does not deny that consequent to theappellate order, the petitioner is entitled to refund ofRs.103,09,77,260/- in the assessment year 2008-09 and as soon asthe appellate order for assessment year 2008-09 was received in theoffice of the respondent on 22.3.2013, effect was immediately givento the said order on the same day and a refund ofRs.103,09,77,260/- was determined. The said refund ofRs.103,09,77,260/- determined in the assessee's case in assessmentyear 2008-09, was adjusted against the demand pending in theassessee's case in the assessment year 2009-10, which was intimatedto the assessee in the order giving effect to the appellate order. (d) While the order dated 22.3.2013 containing refund detailsand intimation regarding adjustment of refund against demand, wassent to the assessee by post, the adjustment of refund wassimultaneously carried out on 26.3.2013 in 'Online Tax AccountingSystem'. Section 245 of the Act requires that the assessee need tobe intimated about the adjustment of refund. Though the adjustmentof refund against the demand made on 26.3.2013 was intimated to theassessee along with the order dated 22.3.2013 to give effect to theappellate order, it is verified from records that the saidintimation was sent by post on 30.3.2013. In the month of March,the assessing officer was under tremendous pressure of completingtime barring scrutiny assessments and also to give effect tovarious appellate orders and collection of demands. The delay indispatching the intimation about the adjustment of refund, isgenuinely regretted, which is only a procedural delay and the actof adjustment of refund against the demand payable, is well withinthe framework of law. (e) The averment of the petitioner that the refund due to thepetitioner in assessment year 2008-09 was adjusted against thedemand raised in assessment year 2009-10 even before the samebecoming due, is not acceptable. The demand raised under the Actbecomes payable the moment the demand notice is served on theassessee (petitioner). As per Section 220(1) of the Act, theassessee is required to pay the demand specified in demand noticeunder Section 156 of the Act within 30 days from the date ofservice of the demand notice and the period of 30 days can furtherbe reduced by the assessing officer if he has any reason to believethat it will be detrimental to the Revenue, if the full period of30 days is allowed. If the demand is not paid within the period of30 days, the assessee is liable to pay simple interest @ 1% forevery month of default under Section 220(2) of the Act. Hence, the demand raised under the Act is to be paid within 30 days from thedate of service of demand notice and the petitioner's contentionthat the same becomes due for payment only on 10.4.2013, i.e. afterthe lapse of 30 days from the date of service of demand notice on11.3.2013, is not correct. If the demand is not paid within thestipulated period of 30 days, the petitioner is liable for penaltyunder Section 221(1) of the Act. Further, steps for recovery can beinitiated as provided in Sections 222 and 226 of the Act. When thepetitioner is duty bound to make payment of demand within 30 days,there is nothing wrong on the part of the Department to collect thedemand by adjustment of refund within the stipulated period of 30days. In fact, by adjusting the refund against the demand withinthe period of 30 days from the date of service of demand notice,the liability of the petitioner to pay interest under Section 220(2) of the Act is reduced to that extent. (f) The main issue, viz., disallowance of tax holiday benefiton receipt towards software maintenance, was dealt in a differentmanner in assessment year 2009-10 from the one dealt in assessmentyear 2008-09. In the appellate order for assessment year 2008-09,the CIT(A) relied on the recent circular issued by the CBDT inCircular No.1/2013 in F.No.178/84/2012-ITA.1, dated 17.1.2013 andheld that software maintenance activity is also eligible for taxholiday under Section 10-A/10-AA of the Act. However, in theassessment order completed for the assessment year 2009-10, whenthis Circular of CBDT, dated 17.1.2013 was pointed out by thepetitioner-assessee, it was specifically brought out by theassessing officer that the assessee-Company has not complied withthe requirement specified in the Circular. (g) As per the Circular, it is necessary that there must exista direct and intimate nexus or connection of development ofsoftware done abroad with the eligible units set up in India andsuch development of software should be pursuant to a contractbetween the client and the eligible unit. However, the petitioner-Company could produce only an MoU entered into between theprincipal holding company, viz., Cognizant Inc. USA and there is noagreement with the client or the final site of maintenance. Basedon these and after elaborate analysis of the facts, the tax holidayclaimed on overseas software maintenance was denied in theassessment order, which resulted in substantial reduction in taxholiday under Section 10-A/10-AA of the Act, i.e. fromRs.2163,35,14,860/-claimedbytheassessee-CompanytoRs.1004,40,71,894/-. Based on the findings made in the assessmentyear 2009-10, the order of CIT (Appeals) granting relief to theassessee on the issue of tax holiday on overseas softwaremaintenance was not accepted and it is proposed to file furtherappeal by the Department before the I.T.A.T. (h) With regard to the decisions of the appellate authoritiesin the earlier assessment years, the assessing officer has notaccepted these decisions and proposals had already been submittedto the Commissioner for further contesting these appellatedecisions in the earlier assessment years to the next higherappellate forum. The order of CIT (A) in assessment year 2008-09 isproposed to be contested before the ITAT and orders of ITAT forassessment years 2005-06 and 2007-08 are proposed to be appealedbefore this Court under Section 260-A of the Act. The time limitfor filing such appeals has not barred and the same will be filedin an appropriate manner after compliance of legal formalities.Thus, the receipt of appellate order in favour of the assessee inthe earlier year, would not make demand raised in subsequent year,viz., 2009-10 on similar issues as an untenable one. (i) As per Instruction No.1914 issued by the CBDT, theassessing officer may grant stay for such demands arising out ofissues which were decided in assessee's favour in earlier years.Section 220(6) of the Act empowers the assessing officer to imposesuch conditions as he may think fit before granting stay againstcollection of demand. Accordingly, while disposing of assessee'sstay petition in assessment year 2008-09, it was clearly stated inthe order dated 6.7.2012 that any refund arising to the assesseewill be adjusted against the demand irrespective of the staygranted. The stay orders granted by the office of the respondentunder Section 220(6) of the Act, invariably contains a clause thatrefund arising to the assessee shall be adjusted against demandirrespective of the stay order. On similar lines, even if thedemand raised in assessment year 2009-10, were to be stayed by theassessing officer, then the refund determined in assessment year2008-09 would have been adjusted against the demand payable inassessment year 2009-10. The demand raised in assessment year 2009-10 to the tune of Rs.362 crores, was very much existing on recordand no appellate order has been received against that order. Insuch case, the assessee cannot expect the Income Tax Department toissue refund arising in assessment year 2008-09 directly to theassessee without adjusting against the existing demand. (j) The contention of the assessee that the respondent has nojurisdiction to make adjustment of refund, is not correct. Therespondent is the assessing officer of the petitioner for incometax purpose and has jurisdiction to make adjustment of refundagainst demand in the petitioner's case. Only for completing theassessment proceedings of assessment year 2009-10 under Section 143(3) of the Act, the Commissioner of Income Tax, Large TaxpayerUnit, Chennai, vide order in F.No.1/Notifications & Orders/12-13,dated 22.8.2012, transferred the case of the petitioner to the Additional Commissioner of Income Tax, Large Taxpayer Unit,Chennai. In the said Notification, it is clearly stated that aftercompletion of assessment proceedings under Section 143(3) of theAct for assessment year 2009-10, the Additional Commissioner ofIncome Tax (LTU) shall return the files to the Deputy Commissionerof Income Tax, Large Taxpayer Unit, Chennai, i.e. the respondent.Thus, after completing the assessment proceedings under Section 143(3) of the Act in assessment year 2009-10, vide order dated7.3.2013, the Additional CIT, LTU has returned the relevant recordsto the assessing officer, viz., Deputy CIT, LTU and thereafter,refund determined in assessment year 2008-09 was adjusted againstthe demand raised in assessment year 2009-10. Additional Commissioner of Income Tax, Large Taxpayer Unit,Chennai. In the said Notification, it is clearly stated that aftercompletion of assessment proceedings under Section 143(3) of theAct for assessment year 2009-10, the Additional Commissioner ofIncome Tax (LTU) shall return the files to the Deputy Commissionerof Income Tax, Large Taxpayer Unit, Chennai, i.e. the respondent.Thus, after completing the assessment proceedings under Section 143(3) of the Act in assessment year 2009-10, vide order dated7.3.2013, the Additional CIT, LTU has returned the relevant recordsto the assessing officer, viz., Deputy CIT, LTU and thereafter,refund determined in assessment year 2008-09 was adjusted againstthe demand raised in assessment year 2009-10. (k) It is for the assessee to file a stay petition underSection 220(6) of the Act as and when a demand notice is served onthem. The Department need not anticipate for any stay petition tobe filed by the petitioner. At the time of determination of refundin assessment year 2008-09, no stay petition has been filed by thepetitioner against notice of demand in assessment year 2009-10.Hence, the refund determined in assessment year 2008-09 wasrightfully adjusted against the demand of assessment year 2009-10. (l) The demand raised under the provisions of the Act isrequired to be paid within 30 days from the date of service ofnotice. It does not mean that no collection can be made till 30[th]day. In fact, after the lapse of 30 days, the assessee shall betreated to be in default of taxes and is liable for interest underSection 220(2) and penal provisions under Section 221(1) and otherrecovery proceedings under Section 222 and 226 of the Act. Hence,there is no violation of fundamental rights of the petitioner bycollection of demand by adjusting refund determined in thepetitioner's case. (m) Though the assessee relied on various decisions of theCourts, in the instant case, the demand of assessment year 2009-10is a correct demand raised after completion of assessmentproceedings under Section 143(3) of the Act, which is not disputedeven by the petitioner. Along with the adjustment of refund throughOnline, the intimation regarding adjustment was conveyed in theorder giving effect to the appellate order in assessment year 2008-09. The delay of a few days in despatching the intimation to theassessee, arising due to the workload of time barring assessmentsat the end of March 2013, is regretted. However, the refund hasbeen adjusted against a valid demand. (n) The demand raised in assessment year 2009-10 is not onsimilar lines as raised in assessment year 2008-09 and hence, theappellate order of CIT (Appeals) in assessment year 2008-09 cannotequally be applied to the assessment year 2009-10 and the demand https://hcservices.ecourts.gov.in/hcservices/ raised in assessment year 2009-10 is a tenable one and the assesseecan file appeal before the CIT (Appeals) against the order ofassessment in assessment year 2009-10. (o) If there is any relief given to the assessee, then any taxcollected will be refunded along with interest under Section 244-Aof the Act. Similar action was taken in assessment year 2008-09,wherein, pending disposal of appeal proceedings and pending stayorder issued by the assessing officer, substantial demands werecollected by way of refund adjustment. As soon as the receipt ofappellate order, the entire tax collected in excess was determinedas refundable to the assessee, which was eventually adjustedagainst the demand pending in assessment year 2009-10. (p) Since act of adjustment of refund of assessment year 2008-09 against the demand of assessment year 2009-10, has already beencompleted on 26.3.2013 and no further action is pending, thequestion of granting stay of the impugned order does not arise. (p) Since act of adjustment of refund of assessment year 2008-09 against the demand of assessment year 2009-10, has already beencompleted on 26.3.2013 and no further action is pending, thequestion of granting stay of the impugned order does not arise. (q) The order dated 22.3.2013 was passed to give effect to theorder of CIT (Appeals) for assessment year 2008-09, whereby, refundof Rs.103,09,77,260/- was determined. If this order is quashed, norefund can be issued. Even if the order dated 22.3.2013 is quashed,then a fresh order of refund is to be passed in assessment year2008-09. In such circumstances, as per provisions of Section 245 ofthe Act, the demand pending in assessment year 2009-10 needs to beadjusted against the refund, which will be a repetition of what wasalready done by the Department, which does not serve any purpose.According to the respondent, the Writ Petition is not maintainableand is devoid of merits and hence, the respondent prayed to dismissthe Writ Petition. 8. The respondent has also filed an affidavit, dated18.4.2013, stating as follows: (i) A demand of Rs.362,38,85,090/- was raised, vide assessmentorder, dated 7.3.2013 issued under Section 143(3) of the Act in thepetitioner's case relating to the assessment year 2009-10. (ii) The appellate order of CIT (Appeals), Large TaxpayerUnit, Chennai, relating to the assessment year 2008-09, wasreceived by the respondent's office on 22.3.2013 and that appellateorder was given effect to and a refund of Rs.103,09,77,260/- wasdetermined in the petitioner's case, vide order made in PAN: , dated 22.3.2013. (iii) The refund of Rs.103,09,77,260/- determined in theassessment year 2008-09, was adjusted against the tax demandrelating to the assessment year 2009-10 as per the provisions of https://hcservices.ecourts.gov.in/hcservices/ Section 245 of the Act and the adjustment of refund against the taxdemanded, was done Online on 26.3.2013 and intimation regarding thesame was sent to the petitioner thereafter by post. (iv) Section 245 of the Act stipulates that the assessingofficer may adjust the refund against the demand after giving anintimation to the assessee. There is no provision for cancellationof the refund adjustment and the amount adjusted has already beenremitted into Government Account and therefore, no refund can beissued once again in assessment year 2008-09. (v) If the adjustment of refund is cancelled, then it willresult in refunding the collection made in assessment year 2009-10,i.e. an amount of Rs.103.09 crores collected out of demand ofRs.362.38 crores may have to be refunded in assessment year 2009-10, if the order of adjustment is cancelled, which will result inrefunding of the amount pending subsisting demand. (vi) The delay in giving intimation under Section 245 of theAct may be condoned and the order of adjustment of refund againstthe demand, may be upheld in the interest of the Revenue. 9. The learned Senior Counsel appearing for the petitionervehemently contended that under Section 245 of the Act, theassessing officer may, in lieu of payment of refund, set-off theamount to be refunded or any part of that amount, against the sum,if any, remaining payable under the Act by the person to whom therefund is due, after giving an intimation in writing to such personof the action proposed to be taken under that Section. (vi) The delay in giving intimation under Section 245 of theAct may be condoned and the order of adjustment of refund againstthe demand, may be upheld in the interest of the Revenue. 9. The learned Senior Counsel appearing for the petitionervehemently contended that under Section 245 of the Act, theassessing officer may, in lieu of payment of refund, set-off theamount to be refunded or any part of that amount, against the sum,if any, remaining payable under the Act by the person to whom therefund is due, after giving an intimation in writing to such personof the action proposed to be taken under that Section. 10. The learned Senior Counsel appearing for the petitionerpointed out the Circular of the Central Board of Direct Taxes (forshort, 'the CBDT'), issued in Instruction Nos.1952, dated 14.8.1998and Instruction No.1969, dated 20.8.1999, stating that writtenintimation must invariably be sent to assessee before adjusting hisrefund with outstanding demand in compliance to provisions ofSection 245 of the Act. As there were certain lapses on the part ofthe Department in some cases, the CBDT reiterated the position inthe subsequent circulars also. Therefore, the learned SeniorCounsel appearing for the petitioner submitted that there is non-compliance of the provisions of Section 245 of the Act, as therewas no intimation sent to the petitioner-assessee before theimpugned adjustment of refund is made by the respondent. 11. On the other hand, the learned Senior Standing Counselappearing for the respondent-Revenue submitted that it is only togive effect to the order of the Commissioner of Income Tax(Appeals), LTU, Chennai in I.T.A.No.108/11-12/LTU(A), dated25.2.2013 and the assessment order under Section 143(3) of the Act, dated 30.12.2011 read with rectification order, dated 23.1.2013,the impugned order dated 22.3.2013 has been passed and therefore,the amount due to be paid by the petitioner-assessee has beenadjusted towards the demand outstanding for the assessment year2009-10 and accordingly, Rs.103,09,77,260/- had been adjusted,which was duly intimated to the petitioner-assessee and ultimately,it is the adjustment made towards the due to the Department. 12. I have heard the learned counsel appearing for theparties and perused the material documents available on record. 13. It is seen that the petitioner-Company is an assessee inPAN.No.AAACD3312M and they are engaged in the business ofdevelopment of computer software and related services and itsexport and they provide various software solutions to variety ofindustries. The petitioner carries out their business activitiesthrough various units set up in Software Technology Parks (STPs)and Special Economic Zones (SEZs) and claims deduction underSection 10-A and 10-AA of the Act. It is the case of the petitionerthat for the assessment year 2008-09, the petitioner filed theirReturn of income on 29.9.2008 and the same was processed underSection 143(1) of the Act on 8.3.2010. The petitioner's case wasselected for scrutiny by the Assistant Commissioner of Income Taxunder Section 143(2) of the Act on 12.8.2009 and the details werecalled for by the respondent under Section 142(1) of the Act on26.8.2011 and the petitioner claims that detailed submissions weremade by the petitioner before the respondent from time to time. 14. The petitioner's case was referred to the Transfer PricingOfficer for necessary verification under Section 92-CA of the Act,as the petitioner has international transactions with their groupcompanies abroad. The Transfer Pricing Officer, vide letter dated11.10.2011, accepted the arm's length price of the transactions ofthe petitioner-Company with that of their group companies abroadand consequently, no transfer pricing adjustments were made by therespondent. 14. The petitioner's case was referred to the Transfer PricingOfficer for necessary verification under Section 92-CA of the Act,as the petitioner has international transactions with their groupcompanies abroad. The Transfer Pricing Officer, vide letter dated11.10.2011, accepted the arm's length price of the transactions ofthe petitioner-Company with that of their group companies abroadand consequently, no transfer pricing adjustments were made by therespondent. 15. While so, the respondent passed the assessment order underSection 143(3) read with Section 92-CA of the Act for theassessment year 2008-09 in the petitioner's case on 30.12.2011, bywhich, the respondent inter-alia disallowed various items, asquoted above. After making disallowances and adjustments, therespondent assessed the income of the petitioner atRs.716,33,29,150/- as against the Returned income ofRs.93,54,87,072/- and consequently, demand of Rs.181,37,25,560/-was raised by demand notice, dated 31.12.2011 issued under Section156 of the Act. The petitioner filed a stay petition before therespondent under Section 220(6) of the Act and the respondent, videorder dated 6.7.2012, stayed the demand to the extent of Rs.87,55,83,993/- (Rs.16,00,00,000/- + Rs.71,55,83,993/-) pendingdisposal of the appeal before the Commissioner of Income Tax(Appeals) or until 31.12.2012, whichever is earlier. The petitionerremitted an amount of Rs.25,22,00,000/- on 24.2.2012 and therespondent adjusted income tax refund of RS.71,47,53,133/- relatingto various assessment years on various dates only with expressconsent of the petitioner given during the hearing while completingthe assessments. Thereafter, the petitioner on 17.12.2012,requested for extension of stay of demand till the disposal of theappeal by CIT(A). 16. The petitioner filed an appeal against the said assessmentorder dated 30.12.2011 for the assessment year 2008-09 on 30.1.2012and the same was decided in favour of the petitioner on 25.2.2013.The CIT(A) allowed the appeal except on one issue pertaining todisallowance under Section 14-A of the Act. The assessment for theassessment year 2009-10 was completed by the Additional C.I.T. on5.3.2013 and the income of the petitioner was assessed atRs.1473,42,53,550/- as against the Returned income ofRs.2229,73,15,902/- under Section 115-JB of the Act, andconsequently, a demand of Rs.362,38,85,090/- was raised, videnotice dated 7.3.2013 under Section 156 of the Act, which wasreceived by the petitioner-assessee on 11.3.2013, which providedfor a period of 30 days' time for payment of the said demand.17. By virtue of the order passed by the CIT (A) on 25.2.2013,the petitioner became entitled to refund of Rs.103,09,77,260/- andas per the contention of the petitioner, the respondent has torefund the said amount to the assessee automatically in terms ofSections 240 of the Act and that under Section 245 of the Act, therespondent can set-off the same only after giving intimation inwriting to the petitioner; but, by the impugned order dated22.3.2013, the respondent set-off the said refund amount ofRs.103,09,77,260/- in respect of the demand of Rs.362,38,85,090/-made for the assessment year 2009-10. The respondent ultimatelypassed the impugned order, dated 22.3.2013 by giving effect to theorder of the CIT (Appeals), LTU, Chennai, in I.T.A.No.108/11-12/LTU(A), dated 25.2.2013 and modifying the assessment order underSection 143(3), dated 30.12.2011 read with rectification order,dated 23.1.2013, and challenging the said order, dated 22.3.2013,the Writ Petition is filed by the petitioner. 18. The only question that arises for consideration is as towhether the respondent is empowered to adjust the refund amountautomatically without complying with the provisions of Section 245of the Act. 18. The only question that arises for consideration is as towhether the respondent is empowered to adjust the refund amountautomatically without complying with the provisions of Section 245of the Act. 19. In this connection, it is worthwhile to extract Section245 of the Act, as follows:Section 245:Set off of refunds against tax remainingpayable:Where under any of the provisions of this Act, arefund is found to be due to any person, theAssessing Officer, Deputy Commissioner (Appeals),Commissioner (Appeals) or Chief Commissioner orCommissioner, as the case may be, may, in lieu ofpayment of the refund, set off the amount to berefunded or any part of that amount, against the sum,if any, remaining payable under this Act by theperson to whom the refund is due, after giving anintimation in writing to such person of the actionproposed to be taken under this section." 20. From a reading of the above Section, it is crystal clearthat the Assessing Officer, Deputy Commissioner (Appeals),Commissioner (Appeals) or Chief Commissioner or Commissioner, asthe case may be, may, in lieu of payment of the refund, set-off theamount to be refunded or any part of that amount, against the sum,if any, remaining payable under the Act by the person to whom therefund is due, after giving an intimation in writing to such personof the action proposed to be taken under that Section.(emphasissupplied). 21. On a perusal of the entire material documents includingthe impugned order, it is clearly evident that there is nointimation in writing to the petitioner-assessee before making suchan adjustment of refund. No doubt, the respondent is empowered tomake the adjustment of refund, but the same can be done only in themanner as contemplated under the provisions of the Act. It isconspicuous from the records that there is no intimation in writingto the petitioner before making such adjustment of refund. As therespondent has not followed the procedures prescribed under theprovisions of the Act while adjusting the refund amount with theoutstanding amount, the impugned order is vitiated in law and isliable to be set aside. 22. For the foregoing reaasonings, the impugned order is setaside. The Writ Petition is allowed and the matter is remanded backto the respondent for compliance of Section 245 of the Act, andthereafter, the respondent is at liberty to adjust the refundamount payable to the petitioner with the amount payable for therespective assessment year, in accordance with law. Such an exercise shall be completed by the respondent within a period offour weeks from the date of receipt of a copy of this order. Nocosts. The Miscellaneous Petition is closed. Sd/- Asst. Registrar//true copy// Sub Asst.Registrar cs ToThe Deputy Commissioner of Income Tax,Large Taxpayer Unit,1775, Jawaharlal Nehru Inner Ring Road,Anna Nagar Western Extension,Chennai-600 101.+ 1 CC. to M/S.Sandeep Bagmar, Rishi Kumar Advocates SR.No.25881+ 1 CC. to Mr.Pramodkumar Chopda Sr.Standing Counsel for Income TaxSR.No.26063 dated 30/4/13.W.P.No.8571 of 2013GJ(CO)VS 29/05/2013