V.K. Singhal, J.
1. The petitioner submitted an application under the Kar Vivad Samadan Scheme for the assessment year 1995-96. The said declaration was considered invalid by communication dated February 23, 1999, which has been challenged in these petitions.
2. The facts of the case are that in respect of the assessment year 1995-96 an intimation under Section 143(1)(a) for Rs. 18,59,056 was received which was reduced to Rs. 14,75,003 and the matter is stated to be pending before the Income-tax Appellate Tribunal.
3. For the assessment year 1996-97, by virtue of a rectification order passed under Section 154 on August 31, 1998, a sum of Rs. 22,87,134 was refundable.
4. For the assessment year 1997-98 a refund of Rs. 10,78,700 was found payable in accordance with the intimation under Section 143(1)(a) of the Act. According to learned counsel for the petitioner, adjustment of refund for the year 1997-98 and part of the amount refundable of 1996-97 have wrongly been adjusted in the demand outstanding for 1995-96. In the intimation for the assessment year 1997-98 dated March 31, 1998, adjustment of refund of Rs. 10,78,700 for the demand of 1995-96 is stated to be without intimation to the petitioner and with regard to the refund for 1996-97 of Rs. 22,87,134 even the directions for any adjustment have not been given. Since the adjustment has been made without informing the petitioner it is stated that they are invalid and the conditions of the Kar Vivad Samadhan Scheme, 1998, in respect of outstanding tax liability of March 31, 1998, duly stand fulfilled. Under Section 245 of the Income-tax Act, if the refund is due, the assessing authority can set off the amount of refund or any part thereof against the sum payable by the assessee to whom the refund is due after giving an intimation in writing to such person of the action proposed to be taken.
5. Reliance is placed on the judgment given in the case of State Bank of Patiala v. CIT , wherein it was held that for set off under Section 245 of any refund against tax payable it is mandatory to send the intimation to the assessee. If the intimation was sent after making the adjustment or it was simultaneous, then the set off of such refund against the amount payable is not maintainable.
6. In A. N. Shaikh v. Suresh B. Jain : [1987]165ITR86(Bom) , a similar view was taken by the Bombay High Court and in Hira Lal and Sons v. ITO : [1985]156ITR30(All) , by the Allahabad High Court.
7. The Madhya Pradesh High Court in Shiv Narain Shivhare v. Asst. CIT (Investigation) : [1996]222ITR620(MP) , has also taken the same view.
8. In Vijay Kumar Bhati v. CIT : [1994]205ITR110(Delhi) , the Delhi High Court also observed that if any refund is due to the assessee, intimation in writing is to be given for an action proposed to be taken under Section 245. Any order of set off purporting to be made without any such intimation is neither fair not just nor reasonable and has to be ignored.
9. The matter if examined in the light of the above decisions and the provisions of Section 245 of the Act, it is clear that the adjustment/set off could be made after giving the intimation to such person of whom the action is proposed to be taken. The word 'after' in the section refers that first intimation has to be given and then adjustment/set off may be made. In spite of opportunity being given, it has not been proved that any intimation was given in respect of adjustment of Rs. 3,96,505 out of refund of the assessment year 1996-97. For the amount of Rs. 10,78,700 the intimation is dated March 31, 1998, in which it is mentioned that the refund amount of Rs. 10,78,700 is adjusted towards the demand due for 1995-96.It is not in dispute that on that date, the demand for 1995-96 was outstanding and in accordance with the provisions of Section 245 the assessing authority should have given the prior intimation before adjustment. The declaration was filed by the petitioner on December 29, 1998. The intimation under Section 143(1)(a) to that effect has not been challenged before any authority and now it is claimed that the adjustment is without prior intimation. The petitioner was free to challenge the intimation dated March 31, 1998, immediately after it was received in 1998. It has not come on record as to what has happened in the recovery proceedings and in any case, for adjustment already made by intimation dated March 31, 1998, demand to the extent of Rs. 10,78,700 was not outstanding since the adjustment was already made on that date, may be in contravention of the provisions of Section 245. The action of the respondent in adjustment/set off of the refund has not been challenged in time and the amount to that extent was not outstanding for the year 1995-96. The petitioner is not entitled to any relief under the Kar Vivad Samadhan Scheme, 1998, to that extent. The illegality with regard to not sending intimation is only procedural without affecting the rights of the Department. The provisions of prior intimation are only to safeguard the interest of the assessee to the extent if the amount is not payable then set off should not be made. It may be because some amount has already been paid or some relief has been given, in appeal, rectification, revision, etc., or for some reason, the demand shown to be outstanding may not be the correct figure. It is not in dispute that the amount of demand to that extent was outstanding.
10. In these circumstances, in respect of Rs. 3,96,505 since nothing has come on record regarding giving any prior intimation nor adjustment or any order communicated to the assessee, it is considered that the declaration to that extent alone was pending. The Commissioner of Income-tax is directed to pass an order treating the sum of Rs. 3,96,505 as outstanding of dues.
11. Petitions are accordingly partly allowed.