Allahabad H.C : The petitioner’s case is that by s. 89 of the Finance (No. 2) Act, 1998, a scheme for settlement of tax disputes was introduced and the petitioner, which is an HUF, filed declarations for the asst. yrs. 1988-89 to 1992-93.

Counsel Appeared

V. B. Upadhya & Abhinav Upadhya, for the Petitioner : Shambhu Chopra, for the Respondent

EDITORIAL COMMENTS

In J.K. Industries Ltd. vs. CIT (1999) 156 CTR (Cal) 249 : (1999) 238 ITR 820 (Cal) also, a view similar to that of Bank of Tokyo’s case has been taken by a single Judge. That decision stands affirmed by the Division Bench in CIT vs. J.K. Industries Ltd. (2000) 245 ITR 475 (Cal). The M.P. High Court also in a single Judge case has taken similar view in Pithambardas Dulichand & Ors. vs. Union of India (2000) 162 CTR (MP) 219 that action for set off under s. 245 can be taken only after giving an intimation in writing to the assessee of the action proposed to be taken. Order passed straightway without intimating the assessee about the proposed action for set off quashed. Concurring with the above decisions, a Division Bench of the Karnataka High Court has held in Fasroc Chemicals (India) Ltd. vs. CIT (2000) 164 CTR (Kar) 518 that an order passed purporting to set off an amount of refund due to the assessee without a prior intimation would be against the express provisions of law and therefore, bad in law; the provisions of s. 245 are mandatory in nature.

JUDGMENT

M.C. AGARWAL, J. :

By this petition under Art. 226 of the Constitution of India, the petitioner challenges the orders dt. 17th March, 1999, passed by the Designated Authority, i.e., CIT(A), Meerut (Respondent No.1), whereby the petitioner’s declarations under the Kar VivadSamadhan Scheme have been rejected for the reason that there were no arrears of tax due from the petitioner on the date of the declaration, i.e., 31st Dec., 1998.

1. The petitioner’s case is that by s. 89 of the Finance (No. 2) Act, 1998, a scheme for settlement of tax disputes was introduced and the petitioner, which is an HUF, filed declarations for the asst. yrs. 1988-89 to 1992-93. Under the scheme only an assessee against whom tax was in arrears could approach for the settlement of the dispute in accordance with the provisions of this Act. Sec. 88 provides for settlement of tax payable in respect of tax arrears and there is no dispute between the parties that if in a case there is no tax arrears, then an assessee cannot make a declaration and no settlement can be made under the scheme. “Tax arrear” has been defined in s. 87 to mean in relation to direct tax enactment, the amount of tax, penalty or interest determined on or before 31st March, 1998, under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration.

2. As mentioned above, the petitioner’s declarations which were five in number have been rejected by the Designated Authority on the ground that when the declarations were made on 31st Dec., 1998, there was no tax arrears, i.e., tax remaining unpaid against the petitioner.

3. The petitioner’s contention is that there was an HUF in the name and style of Seth B.D. Gupta, HUF, which was being assessed to income-tax and wealth-tax. There was a partition in that family under which an industrial unit, viz., Modern Industries, fell to the share of Sri B.B. Bindal, a coparcener. The said Sri B.B. Bindal was the Karta of the present petitioner and under the terms of the partition, Sri B.B. Bindal was liable to any tax liability or refund of the erstwhile Sri B.D. Gupta, HUF. It is claimed that for the asst. yrs. 1988-89, 1989-90, 1990-91, 1991-92 and 1992-93 wealth-tax assessments were made on the petitioner resulting in a demand of Rs.1,65,85,798 out of which sums amounting to Rs. 1,16,27,689 had been paid up to 19th Feb., 1996, and the balance amount of Rs. 49,58,109 remained due. It is further averred that the petitioner was entitled to a refund from its income-tax assessment for the years 1988-89, 1989- 90, 1990-91, 1991-92, 199293 and 1996-97 to the tune of Rs. 29,66,213. The petitioner was also entitled to a refund of income-tax out of the tax deposited in the case of B.D. Gupta, HUF, for the asst. yrs. 1970-71, 1971-72, 1974-75, 1985-86 and 1986-87 to the tune of Rs. 20,12,407. These figures find place in paras. 5 and 6 of the writ petition and it is specifically mentioned that while the amount remaining due in respect of the wealth-tax was Rs. 49,58,109, the refund of income-tax amounted to Rs. 49,78,620. In other words if the two amount figures were adjusted, the petitioner was entitled to a net refund of Rs. 20,411. The aforesaid amounts of refund were adjusted towards the outstanding amount of Rs. 49,58,109. It is claimed that before making these adjustments, no notice of any kind or intimation was given to the assessee by the WTO. On 25th Nov., 1998, the petitioner moved applications before the Joint Commissioner, Meerut, claiming that adjustments of income-tax refund toward the wealth-tax liability was legally not correct and it appears to have been done by mistake and this mistake should be rectified and the process of adjustments may be revised and the outstanding demand may be ascertained and intimated to the assessee. The Joint Commissioner rejected those applications by an order dt. 30th Dec., 1998, saying that the adjustments were rightly made as the AO was entitled to realise the amount under s. 226 of the IT Act, 1961. It is claimed that in the meantime, the petitioner made declarations under s. 89 of the Finance (No. 2) Act of 1998, known as “Kar Vivad Samadhan Scheme, 1998 (hereinafter referred to as KVSS) with regard to the wealth-tax liability of the petitioner-HUF for the asst. yrs. 1988-89 to 1992-93. These declarations were made on 31st Dec., 1998. The petitioner filed appeals against the order dt. 30th Dec., 1998, passed by the Joint Commissioner refusing to allow the petitioner’s application under s. 154. The CIT(A) by a consolidated order dt. 28th Jan., 1999, allowed the appeals and held that the impugned adjustment of refund under the IT Act against the wealth-tax demand for different years and in some cases of different assessees, were not legally correct. The CIT, therefore, cancelled the adjustments and the AO was directed to make fresh adjustments after following the procedure under s. 245 of the IT Act. After the decision of the CIT(A), the petitioner moved an application before the Designated Authority under the Kar Vivad Samadhan Scheme claiming that since the adjustments had been cancelled, the wealth-tax demand became outstanding on the date of the filing of the declarations and, therefore, the declarations may be proceeded with. The declarations were, however, rejected by the Designated Authority on the ground that on the date of the declaration, no amount was in arrears. The contention of the petitioner is that this view taken by the Designated Authority is wrong because the order passed by the CIT(A) would relate back to the date on which the petitioner’s application under s. 154 was rejected by the JointCommissioner which was dt. 30th Dec., 1998, and, therefore, on 31st Dec., 1998, when the declarations were made the demands were outstanding.

5. In the counter affidavit, it has been stated that refunds relating to the erstwhile HUF, B.D. Gupta were adjusted long back in the years 1992 and 1993 as under : Then it is stated that a sum of Rs. 6,87,652, in respect of the asst. yr. 1989-90 (Rs. 3,28,923), the asst. yr. 1988-89 (Rs.1,80,914) and the asst. yr. 1987-88 (Rs. 1,77,815) was adjusted towards the wealth-tax demands against the assessee for the asst. yrs. 1990-91 and 199192 on 5th Jan., 1995. It is further stated that income-tax refund of the assessee amounting to Rs. 3,37,909 for the asst. yr. 1993-94 was adjusted against the wealth-tax demand for the asst. yr. 1992-93 on 29th Nov., 1995. At the same date a sum of Rs. 39,853 being income-tax refund due to the assessee for the asst. yr. 1994-95 was adjusted against the wealth-tax demand for the asst. yr. 1992-93 on 29th Nov., 1995. An income-tax refund of the assessee amounting to Rs. 2,98,362 for the asst. yr. 1989-90 was adjusted against the wealth-tax demand for the asst. yr. 1989-90 on 12th April, 1993. Likewise other amounts in respect of income-tax refunds due to the assessee for the asst. yrs. 1990-91, 1987-88, 1993-94, 1992-93, 1996-97 and 1993-94 were adjusted on various dates in the years 1995-96. Thus, according to the respondent, the adjustment of total amount of Rs. 49,73,597 was made several years ago and the petitioner never objected to the above adjustment. It is averred that the petitioner raised his objection only in November, 1998, for availing of the benefits of the Kar Vivad Samadhan Scheme which came into force on 1st Sept., 1998, as one of the conditions was that arrears of tax should be outstanding. It is claimed that the petitioner’s conduct in remaining silent for so long shows that there was deemed consent to the adjustments. It is claimed that since there were no outstanding dues, the declarations were rightly rejected. It is also averred that an intimation dt. 3rd July, 1992, was sent to the petitioner for adjustment of the refund of Rs. 4,83,619 relating to the bigger-HUF named B.D. Gupta. With regard to the order passed by the CWT(A), it is claimed that the CWT(A) was not competent to entertain the appeals and that in any case no appeal effect was given to the appellate order and, therefore, no demand can be said to be outstanding.

1. We have heard Sri V.B. Upadhya, learned senior advocate, assisted by Sri Abhinav Upadhya, learned counsel for the petitioner, and Sri Shambhu Chopra, learned counsel for the respondent.

2. The short question arising in this appeal is whether in the circumstances mentioned above, it could be said that any tax was in arrears. Admittedly, the demands had been squared up by adjustment of the refunds due to the assessee whether they arose from the assessment of Sri B.D. Gupta, HUF, or of the present assessee for several years. In some instances for more than six years, the assessee raised no objection. After the scheme, i.e., Kar Vivad Samadhan Scheme was launched, the petitioner solely for acquiring eligibility to make a declaration challenged the adjustments of refunds towards the liabilities by moving separate applications for all the years. We may, for the sake of facility, reproduce below one of the applications which is for the asst. yr. 1988-89 as under : “Before the Dy. CIT (Asst), Meerut. In the matter of; Shri B.B.L. & Sons-Asst. yr. 1988-89, Sub : Petition for rectification of mistake arising out of wrong adjustments of refunds. Sir, For the abovementioned assessment year, against the demand created vide assessment order under the WT Act, certain adjustments have been made in respect of refunds becoming due under the IT and WT Acts of different assessees as under : Name of the assessee Status Tax Amount Rs. Seth B.D. Gupta (HUF) HUF (specified) L tax 4,76,473 Seth B.D. Gupta (HUF) HUF (specified) L tax 2,49,099 7,25,572 That the adjustment so made was without jurisdiction and illegal and such adjustment constitutes an apparent mistake of facts and law requiring rectification. It will be seen from the provisions of the IT Act contained in s. 245 of the IT Act, and also the provisions of the WT Act contained in s. 34A(5) of the WT Act that adjustment is permissible only in respect of the income-tax refund against income-tax dues in the case of the same assessee and likewise wealth-tax refund against the wealth-tax dues of the same assessee. In other words, the conditions necessary for adjustment are : (i) Income-tax refund can be adjusted against income-tax demand only; (ii) Wealth-tax refund can be adjusted against wealth-tax demand only; (iii) The adjustment of refund can be made against arrear demand in the case of the same assessee and not in the case of different assessees.

These are apparent and obvious requirements of law and the language of the two sections cited above is plain and simple which does not lead to two opinions. In the instant case the refund of different assessees had been adjusted against the arrear demand of the present assessee and moreover, income-tax refund had also been adjusted against wealthtax liability. Such adjustments, therefore, are contrary to the provisions of ss. 245 and 34A(5) of the IT Act and WT Act, respectively. Such adjustments, therefore, being wrong and based on mistaken view of specific statutory provisions, deserve to be reversed and the refund so adjusted deserve to be restored back to the file of the respective assessee who was entitled to refund. As a result of rectification, that is to say, reversal of the adjustments made whatever tax liability becomes due in the case of the present assessee may be intimated so that the same may be discharged by payment. It may also be stated that such refunds due to the respective assessee may be allowed only after the discharge of liability by the present assessee. In view of the above prayer, it is requested that the adjustment made may be reversed and the outstanding demand may be ascertained and intimated to the present assessee, to enable to avail the Samadhan Scheme in respect of disputes pending before the appellate Authority [Emphasis, italicised in print, supplied] Submitted for an early action.” We have underlined (italicised in print) the relevant portion of the application to show that the sole purpose of moving such applications was to enable the petitioner to avail of the benefits of the Kar Vivad Samadhan Scheme which provided that a defaulter could settle the matter by paying only 30 per cent of the dues. A close scrutiny of the applications would show that it was not the case of the assessee that it did not know about the adjustments. It was also not averred in these applications that no intimation or notice was sent to the petitioner before making these adjustment. It was subsequently at the appellate stage before the CWT(A) that the plea of want of notice/intimation was raised and the learned CWT(A) disposed of the appeals with the following observations : “4. I have considered the arguments of the learned authorised representative without going into the merits of different legal issues raised by the learned authorised representative, I agree with the contentions of the learned authorised representative on the main issue that under s. 245 of the IT Act, before making any adjustment of refund due to any person against any demand due from that person, the AO is obliged to issue an intimation in writing to such person of the action proposed to be taken under s. 245. Admittedly, in this case, no such intimation under s. 245 was issued to the applicant before any adjustment. Hence, the impugned adjustments of refund under the IT Act against the wealth-tax demands of different assessment years and in some cases of different assessees, as mentioned earlier, were not legally correct and, hence are cancelled. The AO is, however, free to make fresh adjustments after following the procedure laid down under s. 245.” 1 Sec. 245 of the IT Act, merely requires that the adjustments or set off will be made after giving an intimation in writing to such person of the action to be taken under this section. Therefore, what is required is merely an intimation so that the person concerned may choose to raise any objection and may not make unnecessary payments.

The intimation is certainly not a jurisdictional requirement and absence thereof is merely an irregularity which, if a person objects to, can be pointed out to the concerned officer and if need be, suitable amendments may be made. In case no intimation has been given and the person concerned has any objection, he can approach the officer concerned. Therefore, want of intimation does not vitiate the adjustment and it is merely an irregularity which can be ignored if no prejudice has been caused to the party concerned. In this case, no prejudice is even alleged to have resulted to the petitioner whose own money due as the refund was adjusted towards its own liabilities. The adjustments did not cause any prejudice to the petitioner and that it knew fully well of the adjustments is evident from the fact that no such averments were made in the applications purporting to be moved under s. 154 and no other action was ever taken by the petitioner. As is averred in para. 5 of the writ petition, the last payment was made on 19th Feb., 1996, and according to the figures given in paras. 5 and 6 by those payments and adjustments made, there was an over payment of Rs. 20,000 and odd. Why did the petitioner stop making payment after 19th Feb., 1996. The reason simply was that the entire demands stood wiped out by the adjustments. No other reason has been given in the writ petition or before us at the hearing. The fact that after 19th Feb., 1996, the petitioner made no payment, unequivocally indicates that the adjustments were made to the knowledge of the petitioner and even if there was no prior consent, he consented to the same by not raising any objection and by not making any payment thereafter on the assumption that the demands stood wiped out. Therefore, in our view, the adjustments were legally made and were final as between the parties. The petitioner’s application under s. 154 was an ingenious attempt to treat the law as an ass which partly succeeded in the CWT(A) cancelling the adjustments through a patently illegal order and without looking into the facts of the case. He did not even look into the question as to whether an appeal was maintainable against an order under s. 154 which neither enhanced the assessment nor reduced the refunds or whether the applications under s. 154 were within limitation.

2 Learned counsel for the petitioner placed reliance on a Single Judge judgment of theCalcutta High Court in Bank of Tokyo Mitsubishi Ltd. vs. CIT (1999) 156 CTR (Cal) 8 : (1999) 240 ITR 331 (Cal), in which it was held that adjustment of refund against tax arrears without prior intimation to the assessee was not valid. The learned Single Judge held that a prior intimation in that regard must generate from the Revenue and only thereafter the Revenue has jurisdiction to make the set off. With great respect to the learned Single Judge, we are unable to agree with the reasoning given in this judgment. Reliance is also placed on a judgment of the learned Single Judge of the Madras High Court in K.T. Kunjumon vs. CIT (1999) 155 CTR (Mad) 341 : (1999) 239 ITR 782 (Mad), in which cash seized during a search was adjusted against the existing liability. That was a case in which the Court held that the cash seized had to be applied first towards the liability arising out of a block assessment under s. 158BC and, therefore, the adjustment was invalid. In the present case before us, there is no lack of jurisdiction. The refunds were due to the assessee and were adjusted towards the assessee’s own liabilities and without any objection by the assessee. Therefore, the want of an intimation if at all it was there, was a mere irregularity that could not invalidate the adjustments made long back and consented to by the petitioner.

10. It was contended that in any case the adjustments having been cancelled by the CWT(A), the same no longer stand and, therefore, the demand would relate back to the date when the applications under s. 154 were rejected. This may be the consequence in a general manner but the provisions of the scheme require that the tax should actually be in arrears on the date of the declaration. The declarations were made on 31st Dec., 1998, and on that date, the appellate order was not even in existence. The scheme contains a special legislation granting substantial benefit to tax defaulters and, therefore, its provisions have to be strictly complied with, if a person wants to avail of the benefit of the scheme. The tax should have remained unpaid on the date of declaration and the tax that was not in arrears on the date of the declaration, cannot be treated to be in arrears on the relevant date by a sheer fraudulent device like the one adopted by the petitioner. Jurisdiction under Art. 226 of the Constitution of India is a special jurisdiction conferred on the High Court to do justice and it cannot be allowed to be a tool for encouraging a fraud on public revenue. In the present case, the round about turn taken by the petitioner without any genuine grievance was solely to harm the public revenue and to gain an unde-served advantage and the High Court cannot extend a helping hand to such attempt. For the above reasons, we find no force in this petition and the same is hereby dismissed with costs to the respondentthat we assess at Rs. 2,500.

[Citation :246 ITR 353]