Wp/2399/2006 Of Japson Estates Pvt. Ltd v. Dy. Commissioner Of Income Tax

THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE G.CHANDRAIAH WRIT PETITION No. 2399 of 2006 Date: 09-06-2006. Between : Japson Estates Pvt. Ltd., Hyderabad, rep. by its Managing Director. …..Petitioner And Dy.Commissioner of Income Tax, Circle –2 (1), Hyderabad & another. …..Respondents. For the Petitioner : Dr.N.R.Sivaswamy & Sri S.DwarakanathFor the Respondents : SRI S.R.ASHOK > Head Note: ? CITATIONS: 1. 165 ITR 86 (Bom) 2. 239 ITR 421 (P&H) 3 238 ITR 820 (Cal) 4. 245 ITR 457 (Cal) 5. 222 ITR 620 (MP) C/15 THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE G.CHANDRAIAH WRIT PETITION No. 2399 of 2006 Date: 09-06-2006. Between : Japson Estates Pvt. Ltd., Hyderabad, rep. by its Managing Director. …..Petitioner And Dy.Commissioner of Income Tax, Circle –2 (1), Hyderabad & another. …..Respondents. THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE G.CHANDRAIAH WRIT PETITION No. 2399 of 2006 ORDER: (Per Hon’ble Sri Justice Bilal Nazki) This writ petition has been filed challenging the intimation dated27.1.2006 issued by 1[st] respondent under Section 143(1) of theIncome-tax Act, 1961 (hereinafter referred to as ‘the Act’), adjustingthe amount of refund of Rs.32,58,795/- pertaining to the assessmentyear 2005-06 against the demand of Rs.45,14,870/-. The facts are not at dispute. For the assessment year 2003-04, theassessee Company returned a total income of Rs.25,63,380/-.However, through an assessment order dated 30.12.2005, theDeputy Commissioner of Income-tax, under Section 143(3) of the Act,determined the total income as Rs.1,21,14,010/-. He determined the net tax payable by the assessee at Rs.45,14,870/-. The assessmentorder was served on the assessee on 16.1.2006. A notice of demandwas issued under Section 156 of the Act for the assessment year 2003-04. It was served on the assessee on 16.1.2006. According tothis notice, the tax was payable by the assessee within thirty days ofthe date of service. Thus, the demand was required to be made goodby the assessee on or before 15[th] of February 2006. The assesseefiled an appeal before the Commissioner of Income-tax within thestipulated period of thirty days and the appeal is pending before theCommissioner of Income-tax (Appeals). For subsequent assessmentyear i.e. 2005-06, the Company filed a return disclosing taxableincome of Rs.11,69,051/-. The tax payable on the returned incomewas Rs.4,27,785/-. However, the Company paid excess tax i.e.Rs.35,31,400/-. It happened because tax was deducted at sourcefrom a portion of income received by the assessee during therelevant accounting year. The Assessing Officer accepted his returnfor the assessment year 2005-06 under the provisions of Section 143(1) (ii) of the Act and issued intimation on 27.1.2006, which wasserved on the petitioner-Company on 30.1.2006. By virtue of thisorder, the assessee was entitled to a refund of Rs.32,58,795/-including interest of Rs.1,55,180/-. Instead of refunding the money,the Assessing Officer adjusted this amount against the demand ofRs.45,14,870/- pertaining to assessment year 2003-04. Thepetitioner is aggrieved of this adjustment. The main contention of the learned counsel for the petitioner is thatno prior intimation as required under Section 245 of the Act was givenbefore the amounts were adjusted. It is also contended that theamount found due for the assessment year 2003-04 could be paid onor before 15.2.2006, but the adjustment order was made on27.1.2006 when, as a matter of fact, the assessee was not obliged tomake payments in terms of the notices issued to him for theassessment year 2003-04. The main contention of the learned counsel for the petitioner is thatno prior intimation as required under Section 245 of the Act was givenbefore the amounts were adjusted. It is also contended that theamount found due for the assessment year 2003-04 could be paid onor before 15.2.2006, but the adjustment order was made on27.1.2006 when, as a matter of fact, the assessee was not obliged tomake payments in terms of the notices issued to him for theassessment year 2003-04. Counter has been filed. There is no dispute raised with regard to thefacts. But it is contemplated that in terms of Section 245, before anadjustment is made, it is not necessary to issue a show cause noticeand the Department can adjust the amount, and what is required forsuch adjustment is only intimation in writing to the assessee. It is alsocontended by the Department that the notice of demand underSection 156 of the Act for the assessment year 2003-04 was servedon the assessee on 16.1.2006. He was required to pay the amountwithin thirty days. That does not mean that the demand could not beenforced by way of adjustment of refund within thirty days, as theamount became due soon after the order of assessment waspassed. To appreciate the rival contentions, it will be necessary to reproduceSection 245 of the Act, which reads as under ; “Where under any of the provisions of this Act, a refund isfound to be due to any person, 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 the amount to be refunded or any part of thatamount, against the sum, if any, remaining payable underthis Act by the person to whom the refund is due, aftergiving an intimation in writing to such person of the actionproposed to be taken under this section.” On bare reading of this Section, it becomes clear that the AssessingOfficer, Deputy Commissioner (Appeals), Commissioner (Appeals), orChief Commissioner or Commissioner may, in lieu of payment of therefund, set off the amount to be refunded or any part of that amount,against the sum, if any, remaining payable under the Act by theperson to whom the refund is due. The only condition for exercise ofsuch power is that it can be done after giving intimation to suchperson of the action proposed to be taken under this Section. In the present case it has been contended in the counter affidavit thatintimation was given. But the only intimation we find from the record isthe intimation under Section 143(1) of the Act, which is the impugnedintimation. Intimation under Section 143(1) of the Act is an intimation “143 (1): Where a return has been made under section139, or in response to a notice under sub-section (1) of section 142, -- i. if any tax or interest is found due on the basis ofsuch return, after adjustment of any taxdeducted at source, any advance tax paid, anytax paid on self-assessment and any amountpaid otherwise by way of tax or interest, then,without prejudice to the provisions of sub-section (2), an intimation shall be sent to theassessee specifying the sum so payable, andsuch intimation shall be deemed to be a noticeof demand issued under section 156 and allthe provisions of this Act shall applyaccordingly; andsuch return, after adjustment of any taxdeducted at source, any advance tax paid, anytax paid on self-assessment and any amountpaid otherwise by way of tax or interest, then,without prejudice to the provisions of sub-section (2), an intimation shall be sent to theassessee specifying the sum so payable, andsuch intimation shall be deemed to be a noticeof demand issued under section 156 and allthe provisions of this Act shall applyaccordingly; and ii. if any refund is due on the basis of such return, itshall be granted to the assessee and anintimation to this effect shall be sent to theassessee :shall be granted to the assessee and anintimation to this effect shall be sent to theassessee : ii. if any refund is due on the basis of such return, itshall be granted to the assessee and anintimation to this effect shall be sent to theassessee :shall be granted to the assessee and anintimation to this effect shall be sent to theassessee : Provided that except as otherwise provided in this sub-section, the acknowledgement of the return shall bedeemed to be an intimation under this sub-section whereeither no sum is payable by the assessee or no refund isdue to him ; Provided further that no intimation under this sub-sectionshall be sent after the expiry of one year from the end ofthe financial year in which the return is made : Provided also that where the return made is in respect of the income first assessable in the assessment yearcommencing on the 1[st] day of April, 1999, such intimationmay be sent at any time up to the 31[st] day of March,2002.” In this case, at the foot note of the intimation under Section 143(1), ithas been inscribed, “Adjusted against demand (partly) for A.Y.2003-04 at Rs.45,14,870/-.” By no stretch of imagination, this intimation canbe treated as intimation under Section 245 of the Act. It has beencontended in the counter affidavit that the assessee did notcommunicate any reason to the Department as to why theadjustment as proposed in the intimation should not be made, butthere is no such intimation of any proposed adjustment. It is only anotice under Section 143 (1) of the Act, in which it has beencommunicated that the amounts have already been adjusted.Therefore, there was no occasion for the assessee-petitioner to raisean objection to the adjustment. It may be true that Section 245 of theAct does not contemplate a show cause notice or an inquiry, but atthe same time, it requires a prior intimation in writing, of the proposedaction of adjustment. Admittedly, such a notice was not given to thepetitioner. The learned counsel for the petitioner has drawn our attention tovarious judgments. They are – (1) A.N.Shaikh v. Suresh B.Jain, (2) State Bank of Patiala v. CIT, (3) J.K.Industries v. CIT, (4) CIT v. J.K.Industries Limited and (5) Shivnarain Shivhare v.ACIT. Since there has been no intimation in terms of Section 245 of the Act,therefore, the petitioner has been deprived of his right to raise anyobjections to the order of adjustment. Therefore, the intimation to theextent of adjusting the amount, is quashed. The second ground urged that the amounts were not due as thepetitioner had thirty days time to make payment would not be necessary for us to decide at this stage. Since the respondents hadfailed to give intimation in terms of Section 245 of the Act to thepetitioner, the part of the communication contained in intimation underSection 143 (1) regarding adjustment, is quashed. However, therespondents are at liberty to issue intimation prior to adjustment interms of Section 245 of the Act. With the above directions, the writ petition is allowed. No order as to costs. ________________ (BILAL NAZKI, J) Date: 09-06-2006 ___________________ (G. CHANDRAIAH, J) N.B: L.R. Copies to be marked. (B/o) ajr