Mini Muthoottu Mutual Funds Ltd. Vs. Commissioner of Income-tax (Central-i) - Court Judgment

S. Siri Jagan, J.

1. The petitioner is an assessee under the Income-tax Act. Certain amounts were assessed as due from him under the Income-tax Act by Ext.P1 assessment order, which was subjected to challenge before the Income-tax Appellate Tribunal. While that appeal was pending, by the Finance (No. 2) Act of 1998, a Scheme was introduced by the Parliament, by name, Kar Vivad Samadhan Scheme, whereby on a declaration made by an assessee in accordance with the provisions of the Scheme in respect of tax arrears due from an assessee, the amount payable under the Kar Vivad Samadhan Scheme by the declarant shall be determined at the rates specified in that Scheme and the declarant would only be liable to pay that amount, instead of the actual amount due. The petitioner filed a declaration, Ext.P2 dated 24-12-1998, before the respondent claiming the benefit of the Scheme in respect of an amount of Rs. 6,82,606 due as interest from the petitioner as per Ext.P1 assessment order. Pursuant thereto, Ext.P3 order dated 5-2-1999 was passed, whereby the petitioner was given benefit under the Scheme amounting to only fifty per cent of Rs. 12,29,969. This Rs. 12,29,969 was arrived at by the respondent after adjusting the refund of Rs. 22,00,000 due to the petitioner in respect of subsequent assessment years. That adjustment of refund was made under Section 245 of the Income-tax Act, by Ext.P5 and similar orders dated 7-9-1998. Against those orders, the petitioner filed revision dated 26-11-1998 before the respondent herein, which is Ext.P4.It was at a time when Ext.P4 was pending, the petitioner has filed this original petition challenging both the adjustment of the refund due to him under Section 245 as also Ext.P3 order under the Kar Vivad Samadhan Scheme, in which, for computing the amounts due from the petitioner, the refunds due to the petitioner had been deducted to arrive at the tax arrears on which only the benefit under the Scheme was computed, which is illegal according to the petitioner, in so far as before making the adjustment of the refund no prior intimation as stipulated in Section 245 of the Income-tax Act was issued to the petitioner.

2. After passing of Ext.P3 order, the Tribunal without reference to Ext.P3 order, allowed the petitioner's appeal against the assessment made which was the subject-matter of Ext.P3.In the meantime, this original petition was dismissed for default. Thereupon, the revenue filed a review petition before the Tribunal pointing out that since the order under the Kar Vivad Samadhan Scheme had become final, the Tribunal could not have legally decided the appeal on merits and, therefore, the appeal should be restored to file. Pursuant thereto, the Tribunal allowed the review petition and restored the appeal to file, which is still pending. Later on, this original petition was restored to file and now comes up for hearing before me. As I have already stated, the petitioner challenges both the adjustment of the refund due to him against the amounts due under the assessment in question and Ext.P3 order under the Kar Vivad Samadhan Scheme based on the adjusted amount of tax arrears due from the petitioner.

3. The petitioner's contentions are two fold. The first is that since the petitioner had filed Ext.P2 declaration claiming the benefit of an amount of Rs. 26,82,606, which has now been denied based on the adjustment of refund due to the petitioner, the petitioner should be allowed to retract from the declaration under the Kar Vivad Samadhan Scheme and must be permitted to pursue the appeal against the assessment order itself. The second is that in view of the specific stipulation in Section 245 of the Act, which requires the Assessing Officer to put the petitioner to notice on the proposal to adjust the refund against tax payable before making the adjustment, which has not been done in this case, the adjustment itself is bad and, therefore, for the purpose of Kar Vivad Samadhan Scheme, the respondent could not have legally taken into account the adjustment of the refund for the purpose of determining the amount due from the petitioner under the Kar Vivad Samadhan Scheme. The petitioner relies on the following decisions in support of his contentions that the refund could not have been adjusted without a prior notice regarding the proposal to adjust refund against tax due and also in support of the contention that such invalid adjustment of refund could not have been taken into account for the purpose of determining the amounts payable by the petitioner pursuant to Kar Vivad Samadhan Scheme:

Hira Lal & Sons v. ITO : [1985]156ITR30(All) , J.K. Industries Ltd. v. CIT : [1999]238ITR820(Cal) and Japson Estates (P.) Ltd. v. Dy. CIT : [2006]285ITR40(AP) .

4. The prayers of the petitioner in the original petition are stoutly opposed by the respondent. According to the revenue, the petitioner cannot after having suffered Ext.P3 order now contend that he must be permitted to retract from the declaration filed under the Kar Vivad Samadhan Scheme and permitted to pursue the appeal pending before the Tribunal in respect of the assessment in question in view of the specific provisions in Section 90(4) of the Kar Vivad Samadhan Scheme.

5. Regarding the second contention, the revenue would contend that the petitioner had in fact been put on notice regarding the adjustment of refund by a specific intimation given to the petitioner, which has been produced by the petitioner as Ext.P5. According to the counsel for the revenue, such an intimation alone is contemplated by Section 245. Therefore, according to the revenue, the petitioner cannot now contend that the adjustment of refund under Section 245 is bad. Alternatively the revenue would contend that even otherwise the petitioner had challenged the adjustment of refund in a statutory revision petition and the revisional authority dismissed the same, by Ext.R(B) order, which the petitioner had not chosen to challenge. That order having become final, the petitioner is now estopped from contending that the adjustment of refund is invalid because of non-compliance with Section 245. The revenue would also contend that even otherwise, the contention of the petitioner is purely technical insofar as the petitioner has not been able to point out any valid objection to the adjustment of the refund, that has been made, without which the adjustment of the refund cannot be faulted. Therefore, according to the counsel for the revenue, notwithstanding any procedural irregularities which may be cited by the petitioner, the adjustment of refunds made is a valid adjustment against which the petitioner cannot now complain and therefore, this Court may not interfere with the orders passed under the Kar Vivad Samadhan Scheme on such a technical contention.

6. In answer to the contentions of the revenue, the counsel for the petitioner would contend that if Section 90 of the Finance Act is read as a whole, it is clear that there is no prohibition in an assessee retracting from the declaration filed under the Scheme. He would further submit that the fact that he had not challenged the revisional order which was passed pending the original petition, does not prevent the petitioner from pursuing the original petition, in which he had specifically challenged the validity of the adjustment of refund of tax due to him also. He would submit that, at the most, the same is only a technicality which shall not stand in the way of giving justice to the petitioner, if he is otherwise entitled to the same.

7. I have considered the rival contentions in detail.

8. First I shall consider the question as to whether the petitioner can now validly retract from the declaration made under the Scheme. Section 90 of the Scheme reads thus:

Time and manner of payment of tax arrear.--(1) Within sixty days from the date of receipt of the declaration under Section 88, the designated authority shall, by order, determine the amount payable by the declarant in accordance with the provisions of this Scheme and grant a certificate in such form as may be prescribed to the declarant setting forth therein the particulars of the tax arrear and the sum payable after such determination towards full and final settlement of tax arrears:

Povided that where any material particular furnished in the declaration is found to be false by the designated authority at any stage, it shall be presumed as if the declaration was never made and all the consequences under the direct tax enactment or indirect tax enactment under which the proceedings against the declarant are or were pending shall be deemed to have been revived:

Provided further that the designated authority may amend the certificate for reasons to be recorded in writing.

(2)The declarant shall pay the sum determined by the designated authority within thirty days of the passing of an order by the designated authority and intimate the fact of such payment to the designated authority along with proof thereof and the designated authority shall thereupon issue the certificate to the declarant.

(3) Every order passed under Sub-section (1), determining the sum payable under this scheme, shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any other proceeding under the direct tax enactment or indirect tax enactment or under any other law for the time being in force.

(4) Where the declarant has filed an appeal or reference or a reply to the show-cause notice against any order or notice giving rise to the tax arrear before any authority or Tribunal or Court, then, notwithstanding anything contained in any other provisions of any law for the time being in force, such appeal or reference or reply shall be deemed to have been withdrawn on the day on which the order referred to in Sub-section (2) is passed.

Provided that where the declarant has filed a writ petition or appeal or reference before any High Court or the Supreme Court against any order in respect of the tax arrear, the declarant shall file an application before such High Court or the Supreme Court for withdrawing such writ petition, appeal or reference and after withdrawal of such writ petition, appeal or reference with the leave of the court, furnish proof of such withdrawal along with the intimation referred to in Sub-section (2).

[Emphasis supplied

Sub-section (4) of Section 9 is abundantly clear. That stipulates that once an order as contemplated under the Kar Vivad Samadhan Scheme has been passed, the Tribunal before whom in appeal is pending, does not have jurisdiction to deal with the appeal insofar as that appeal shall be deemed to have been withdrawn, which is the specific condition of the Kar Vivad Samadhan Scheme. The petitioner's contention on the basis of the other sub-section does not find favour with me on that point. Therefore, I have no doubt in my mind that once an order under the Scheme has been passed on the declaration by the assessee, which is Ext.P3 in this case, the Tribunal cannot validly entertain the appeal at all. That being so, the petitioner cannot now be allowed to retract from the declaration already made. If that is allowed, then the very purpose of the Scheme would be defeated. Any assessee after finding that the order under the Scheme is not favourable to him, can turn around and retract his declaration, if such a permission is granted which is not contemplated by the Scheme. Further the petitioner filed Ext.P2 declaration dated 24-12-1998 after being made aware of the adjustment of refund by Ext.P5 dated 7-9-1998 served on the petitioner on 24-9-1998. Therefore, there is no merit in the first contention of the petitioner and I hold that the petitioner cannot retract from the declaration made under the Kar Vivad Samadhan Scheme once the order under the Scheme is passed by the competent authority, which in this case is Ext.P3.

9. Regarding the second contention, I find considerable merit in the contention of the petitioner that adjustment of refund under Section 245 could not have been made without first issuing a notice to the petitioner. Section 245 of the Income-tax Act reads thus:

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.

[Emphasis supplied

Going by Section 245, adjustment of refund can be made only after giving intimation in writing to the assessee of the action proposed to be taken under the Scheme. Although no decision of this Court or the Supreme Court is available on the question, the petitioner has placed three decisions before me of three High Courts on that point, which are the following:

Hira Lal & Sons' case (supra), J.K. Industries Ltd.s case (supra) and Japson Estates (P.) Ltd.'s case (supra).

In Hira Lal and Sons' case (supra) the Allahabad High Court held thus:

Proceedings for adjusting an amount towards tax liability under the Act, out of any sum due to an assessee by way of refund, are quasi-judicial in nature. Without anything more, therefore, the assessee is entitled, on principles of natural justice, to a reasonable notice to place his version before the authority before an order of adjustment is finally passed. From the facts noticed earlier and those asserted in the affidavits exchanged between the parties, it is amply borne out that before the impugned order of adjustment was passed, no opportunity was afforded to the petitioner firm to have its say in the matter. It is obvious that the petitioner can legitimately urge that prejudice has been caused to it and that in case an opportunity was afforded to it, it would have succeeded in satisfying the respondents that no amount, from out of the amount which became due for refund to it. In pursuance of the order of the Tribunal, could be adjusted towards any tax liability of Hiralal Mithal. The petitioner's grievance in this respect is well founded....' (p. 32)

In J.K. Indnstries Ltd.'s case (supra) the Calcutta High Court held thus:

The wording of the section leaves no manner of doubt that the proposed adjustment is to be intimated to the assessee. Since the adjustment at the time of intimation is only a proposed one, the intimation has to go before the adjustment has been made. If the assessee objects to the proposed adjustment, whether the revenue can nonetheless make such an adjustment on its unilateral decision, is a point which does not fall for my consideration. But quite clearly the revenue has no jurisdiction to make an adjustment of a refund without following Section 245 and without giving a prior intimation to the assessee as required by that section.

Each assessment year for each assessee is generally kept separate in the Act. The assessee has no right to club together assessment years. The revenue also has no general right to dissect an assessment year into more than one period of time or agglomerate assessment years as they please. Since Section 245 is a special right of set off given to the revenue as a departure from the general rule of keeping assessment years and rights and liabilities in regard thereto separate and isolated, it is essential that the section be followed in letter and spirit. The wording of the section is so clear that its letter and its spirit speak the same way.' (p. 823)

These decisions have been referred to and agreed with in Japson Estates (P.) Lid.'s case (supra). In fact the facts in Japson Estates (P.) Ltd.s case (supra) are very identical to the facts of this case, wherein paragraphs 8 to 10 it is stated thus:

8. In this case, at the footnote of the intimation under Section 143(1), it has been inscribed, 'Adjusted against demand (partly) for the assessment year 2003-04 at Rs. 45,14,870'. By no stretch of imagination, can this intimation be treated as intimation under Section 245 of the Act. It has been contended in the counter-affidavit that the assessee did not communicate any reason to the department as to why the adjustment as proposed in the intimation should not be made, but there is no such intimation of any proposed adjustment. It is only a notice under Section 143(1) of the Act, in which it has been communicated that the amounts have already been adjusted. Therefore, there was no occasion for the assessee-petitioner to raise an objection to the adjustment. It may be true that Section 245 of the Act, does not contemplate a show-cause notice or an inquiry, but at the same time, it requires a prior intimation in writing, of the proposed action of adjustment. Admittedly, such a notice was not given to the petitioner.

9. The learned Counsel for the petitioner has drawn our attention to various judgments. They are : (1) A.N. Shaikh v. Suresh B. Jain : [1987]165ITR86(Bom) , (2) State Bunk of Patiala v. CIT , (3) J.K. Industries Ltd. v. CIT : [1999]238ITR820(Cal) ; (4) CIT v. J.K. Industries Ltd. : [2000]245ITR457(Cal) and (5) Shiv Narain Shivhare v. Asstt. CIT (Inv.) : [1996]222ITR620(MP) .

10. 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 any objections to the order of adjustment. Therefore, the intimation to the extent of adjusting the amount is quashed. (p. 44).

I am in respectful agreement with the above decisions on the point as to whether adjustment of refund under Section 245 can be made without a prior intimation to the assessee regarding the proposal for such adjustment. In this case admittedly, there was no intimation of any proposal to make adjustment as required under Section 245. What has been done is only to intimate the petitioner about the amount of refund due, on the foot of which intimation, an endorsement has been made stating that the refund has been adjusted against the tax due for the year 1989-90, which is the assessment year for which the petitioner filed declaration under the Kar Vivad Samadhan Scheme.

10. Normally in view of my findings on the 2nd contention of the petitioner, the petitioner should succeed in this original petition. However, still I have to consider the other contentions raised by the revenue in respect of the adjustment of refund. As I have pointed out, the counsel for the revenue argues that since the adjustment itself has been made the subject-matter of a revision under Section 264 of the income-tax Act, which has been repelled by the revisional authority by Ext.R(B) order, the petitioner having not challenged that order, cannot now raise a contention that the adjustment is bad. The revenue also points out that the contention of the petitioner is a pure technicality insofar as even now, the petitioner cannot now point out any valid objection as to why that refund cannot be adjusted against tax due for other assessment years, which is a statutory right of the revenue under Section 245. The counsel for the petitioner would submit that if he had been given a notice regarding the proposed adjustment, he could have pointed out that since the appeal is pending, adjustment should not be made and also that in view of the benefits available to him under the Kar Vivad Samadhan Scheme, such adjustment cannot be made. He also points out that insofar as the petitioner had challenged the adjustment of refund itself in this original petition, this Court cannot on a pure technicality of not having challenged the revisional order, non-suit the petitioner.

11. On a consideration of the rival contentions I am inclined to agree with the revenue. Admittedly, the petitioner had challenged the order of adjustment of refund itself in a statutory revision, wherein the revisional authority had considered the matter on merits and rightly or wrongly decided that the adjustment of refund is valid. Admittedly, the petitioner had not taken any steps to challenge that order. I am of opinion that the order of adjustment of refund has merged with the order of the revisional authority and therefore, without challenging the order of the revisional authority also, the petitioner cannot succeed on the question as to whether adjustment of refund is valid or not. As far as the contention of the same being a mere technicality on which the petitioner should not be denied justice, is concerned, 1 am of opinion that it is technicality against technicality, insofar as the question as to whether the adjustment is valid or not for want of prior notice itself is a technicality since the petitioner could not satisfy me that had notice been issued to the petitioner, the petitioner could have successfully challenged the adjustment of refund. The fact that the appeal was pending, is no valid ground for objecting to the refund. There is no law saying that refund cannot be adjusted under Section 245, if an appeal against tax assessed, against which the adjustment of refund is to be made is pending. Further, the argument that since the declaration of the petitioner under the Kar Vivad Samadhan Scheme is pending, adjustment cannot be made also does not appeal to me. If before Ext.P3 order was passed the question of refund had been considered after due notice to the petitioner the fact that proceedings under the Kar Vivad Samadhan Scheme are pending would have been no valid ground to object to the refund. It is not as if simply because the petitioner objects to the refund, the revenue would be prevented from adjusting the refund. Adjustment of refund is a power vested with the revenue under Section 245, which they can validly exercise, if the objections raised by the assessee are not valid. In this case, the petitioner has not been able to point out any valid objection against the adjustment now made. Further, immediately after issue of Ext.P5 on 7-9-1998, wherein refund was ordered to be adjusted against refund for the assessment year 1989-90, the petitioner had on 6-10-1998 filed Ext.R(A) seeking modification of Ext.P5, in which he did not raise any objection against the adjustment of refund without prior intimation, although the adjustment was intimated by Ext.P5 itself. It was only on 26-11-1998 the petitioner filed Ext.P4 revision under Section 264 of the Income-tax Act, on which Ext.R(B) order was passed on 22-2-2000. Further, the petitioner filed Ext.P2 declaration under the Kar Vivad Samadhan Scheme on 24-12-1998, after being made aware of the adjustment of the refund by Ext.P5 dated 7-9-1998, which was served on the petitioner on 24-9-1998. Therefore, lack of prior intimation regarding the proposal of adjustment of refund is another technicality. Therefore, as between the two technicalities before me, I am inclined to accept the technicality raised by the revenue on this point. Therefore, since the petitioner has not chosen to challenge the order in revision, the petitioner is not entitled to succeed in this original petition as rightly pointed out by the counsel for revenue.

Accordingly, the original petition is dismissed.