Income Tax –Refund vs Demand - Past adjustment of refunds against the arrears where procedure u/s 245 of Income Tax Act was not followed – CBDT Clarifies
DELHI High Court vide its judgement in the case of Court On Its Own Motion Vs. UOI and Others in W.P.(C) 2659/2012 dated 14.03.2013 = () had issued directions for necessary action by the Income Tax Department. One Mandamus is on past adjustments of refunds against the arrears; in particular, where procedure prescribed under Section 245 of the Income Tax Act, 1961 has not been followed.
Section 245 of the Act empowers and authorises an Assessing Officer to adjust refunds against pending demands and arrears, and reads as:
“245. Set off of refunds against tax remaining payable.- Where under any of the provisions of this Act a refund is found to be due to any person, the Assessing Officer, Deputy Commissioner (Appeals), Commissioner (Appeals) or Chief Commissioner or Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, 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 High Court observed, “ Section 245 mandates and envisages prior intimation to the assessee so that he/she can respond before any adjustment of refund is made towards the demand relating to any other assessment year. Thus, an opportunity of response/reply should be given and after considering the stand and plea of the assessee, justified and valid order or direction for adjustment of refund can be made. The Section postulates two stage action; prior intimation and then subsequent action when warranted and necessary for adjustments of the refund towards arrears ”.
But in the case of returns processed at Central Processing Unit at Bengaluru, the computer itself adjusts the refund due against the existing demand, i.e., there is adjustment but without following the two-stage procedure prescribed in Section 245 of the Act.
So in cases where returns have been processed by the CPC, Bengaluru and refunds have been fully or partly adjusted against the past arrears while passing or communicating the order under Section 143(1) of the Act, without following the procedure under Section 245 of the Act , the High Court directed that:-
A. All such cases will be transferred to the Assessing Officers;
B. The Assessing Officers will issue notice to the assessee which will be served as per the procedure prescribed under the Act.
C. The assessees will be entitled to file response/reply to the notice seeking adjustment of refund;
D. After considering the reply, if any, the Assessing Officers will pass an order under Section 245 of the Act permitting or allowing the refund.
E. The Board will fix time limit and schedule for completing the said process.
In compliance of (E) above, CBDT has fixed 31st of August 2013 (positively) for completing the process mentioned at A to D above.
Board wants Chief Commissioners to bring the instructions to the notice of all officers working under their jurisdiction for necessary and strict compliance within the time frame prescribed above.
CBDT Instruction No. 6/2013, Dated: July 10, 2013