Patna H.C : The petitioner has challenged the order dt. 25th Feb., 1999, passed by the CIT, Ranchi, Camp-Jamshedpur (respondent No. 1), rejecting the decision under the scheme on the ground that the petition filed before the Tribunal under s. 254(2)

High Court Of Patna : Ranchi Bench

Md. Ali Khan vs. Commissioner Of Income Tax & Anr.

Sections 245, 254(2), FA 95(i)(c)

Asst. years 1984-85, 1995-96

Nagendra Rai & A.K. Sinha, JJ.

CWJC No. 3317 of 1999

15th December, 1999

Counsel Appeared

D.V. Pathy, A. Singh & S.N. Prasad, for the Petitioners : K.K. Jhunjhunwala, for the Respondent

JUDGMENT

NAGENDRA RAI, J. :

In both the applications the petitioners have challenged the orders rejecting their declaration under the Kar Vivad Samadhan Scheme, 1998 (hereinafter referred to as “the Scheme”), and as such they have been heard together and are being disposed of by this common order. In CWJC No. 3317 of 1999(R), the petitioner has challenged the order dt. 25th Feb., 1999, passed by the CIT, Ranchi, Camp-Jamshedpur (respondent No. 1), rejecting the decision under the scheme on the ground that the petition filed before the Tribunal under s. 254(2) of the IT Act, 1961, (hereinafter referred to as “the Act”), cannot be considered as a pendency of appeal in terms of cl. 95(i)(c) of the Scheme. In CWJC No. 3318 of 1999(R), the petitioner has challenged the order of the same date passed by respondent No. 1 rejecting the declaration under the scheme on the ground that there is no outstanding demand as the same has been collected through the adjustments of refunds of the asst. yr. 1994-95. Photocopies of the order in both the applications have been annexed as annexure-2 to the writ applications. The petitioner of CWJC No. 3317 of 1999(R) is engaged in the business of scrap, etc. He is an assessee under the IT Act. He filed a return for the accounting period relevant to the asst. yr. 1984-85 showing total income of Rs. 1,20,258. The assessing authority of Jamshedpur completed the assessment at a total income of Rs. 3,80,288. The petitioner preferred an appeal before the CIT(A), Jamshedpur, which was allowed in part. Thereafter, the petitioner filed a second appeal before the Tribunal, Patna, which was disposed of on 30th April, 1998, whereby the Tribunal allowed certain claims of the petitioner but certain additions made by the assessing authority were upheld. On 30th April, 1998, the petitioner filed an application before the Tribunal under s. 254(2) of the Act for rectification of the mistake apparent from the record. While the said application was pending the petitioner filed an application on 31st Jan., 1999, under the aforesaid scheme, which has been rejected on 25th Feb., 1999, vide annexure 2. The application filed by the petitioner under s. 254(2) was rejected as withdrawn by the Tribunal on 20th April, 1999, vide annexure A to the counter-affidavit.

According to the petitioner, the Tribunal has wrongly rejected the application by taking a narrow view with regard to the application filed under s. 254(2) of the Act. As the application was filed to rectify the mistake apparent on the record, the same has to be treated as an appeal filed before the Tribunal or at least in continuation of theappeal, which was disposed of earlier. If the aforesaid application under s. 254(2) is treated as an appeal then the petitioner’s declaration under the scheme cannot be held to be not maintainable.

5. The stand of the respondent-Department on the other hand is that the application under s. 254 (2) of the Act cannot be treated as an appeal pending before the Tribunal and as no appeal was pending the petitioner is not entitled to take the benefit under the scheme. The further stand of the Department is that, according to the terms of the scheme, the assessee can take the benefit on fulfilment of four conditions, namely : (i) a demand should be raised on or before 31st March, 1998; (ii) such demand or part of such demand should remain outstanding on the date of filing of declaration under the scheme; (iii) appeal/reference/writ petition or revision should be pending in respect of such demand on the date of filing of declaration; and (iv) the application should not come within the purview of cl. 95 of the Act, which contains category to which the provision of the scheme shall not apply. In the case of the petitioner cl. 95(i)(c) is attracted and as no appeal was pending before the appellate authority on the date of filing of declaration he was not entitled to the benefit under the scheme.

6. The petitioner has filed a rejoinder to the counter-affidavit and asserted the very same fact which has been asserted in the writ application and has annexed the application filed under s. 254 (2) of the Act as annexure 3. The petitioner of CWJC No. 3318 of 1999(R) is a partnership firm engaged in the business of wholesale foodgrains. Certain taxes were outstanding against him as on 31st March, 1998, with regard to the asst. yr. 1995-96. After the coming into force of the scheme he filed a declaration for the voluntary settlement of the taxes for the aforesaid year. A copy of the said application has been annexed as annexure 1. The said application was rejected on 25th Feb., 1999, by the respondent-Commissioner on the ground that there is no outstanding demand against him as the demand has been collected through adjustment of refunds of the asst. yr. 1994-95. It is stated on behalf of the petitioner that the adjustment of the amount of refund by the authority was in total breach of provision of s. 245 of the IT Act as no prior intimation of adjustment of refund was given and as such the said adjustment cannot be treated as a valid adjustment out of the refunds and on the relevant date in terms of the scheme, there was outstanding demand against the assessee and the rejection of declaration under the scheme was wholly unjustified. The stand of the Department on the other hand is that one of the conditions for availing of the benefit of the scheme was that there should be a tax outstanding as on 31st March, 1998, and that should remain unpaid on the date of declaration under the scheme. The scheme opened on 1st Sept., 1998. On receipt of the appellate order of the CIT(A) on 13th Aug., 1999, the Department proceeded to give effect to the appellate order and outstanding tax against the assessee for the said assessment year was collected by way of adjustments from the refunds of the asst. yr. 199495 under s. 245 of the IT Act and the excess balance amount was refunded to the petitioner. The amount was adjusted on 26th Aug., 1998, must before the commencement of the scheme. It is further stated that before adjustment of the demand of the AO had sent notice to the assessee and as per report of the notice server the petitioner had not accepted the notice nor the petitioner had made any objection after receipt of the refund along with intimation of adjustment. After adjustment the excess amount was sent to the assessee on 31st Aug., 1998, and an application was filed on 31st Dec., 1998, and as such on the date when the application was filed there was no outstanding tax demand against the petitioner. As such no benefit under the scheme could be given to the petitioner.

10. The petitioner has filed a rejoinder to the counter-affidavit reiterating the very same fact which has been asserted in the writ application. The scheme was introduced by the Finance (No. 2) Act, 1998, and the same is contained in Chapter IV of the Finance Act and consists of ss. 86 to 98 (both inclusive) as also a Schedule. The scheme has been introduced by the Government for settling the tax arrears which remained unpaid due to litigation. In substance, the scheme is a recovery scheme and the object of the scheme was explained by the Finance Minister in his speech while introducing the same. The relevant speech is as follows: “Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, enable the Government to realise its reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly. I, therefore, propose to introduce a new scheme called ‘Samadhan’”. The Scheme came into force on 1st Sept., 1998, and remained effective till 31st Dec., 1998. According to the provisions of the scheme, if the declaration is in terms of the scheme then the tax payable is in terms of cl. 88 of the scheme. To avail of the benefit of the scheme the following conditions are to be fulfilled : (i) the demand should be raised on or before 31st March, 1998; (ii) demand or part of the same should remain outstanding on the date of filing of the declaration under the scheme; (iii) appeal/reference/writ petition or revision should be pending in respect of such demand on the date of filing of declaration under the scheme; and (iv) the case if not covered by any of the sub-clauses of cl. 95 of the scheme.

11. For the purpose of CWJC No. 3317 of 1999(R) cl. 95 is relevant which provides that the provisions of the scheme shall not apply in respect of the matters enumerated therein. Clause 95(i) (c) provides that the provisions of the scheme shall not apply to a case where no appeal or reference or writ petition is admitted and pending before any appellate authority or High Court or the Supreme Court on the date of filing of declaration or no application for revision is pending before the CIT on the date of filing declaration.

12. In CWJC No. 3318 of 1999(R), the question for consideration is as to whether on the date when the application under the scheme was filed an appeal was admitted and pending before any appellate authority or not.

13. Admittedly, the appeal was disposed of on 3rd April, 1998, and the application under the scheme was filed on 31st Jan., 1999. Prior to that the petitioner filed an application on 30th April, 1998, under s. 254(2) of the Act. The question is as to whether the said application has to be treated as continuation of the appeal or will be treated as pending appeal before the appellate authority on the relevant date. If the answer is in the affirmative then, in that case, cl. 95(i)(c) will not be attracted and the declaration cannot be rejected on the grounds of applicability of the aforesaid clause.

14. An appeal before the Tribunal is filed under s. 253 of the Act and under s. 254(1) of the Act, the appellate authority passes a final order after hearing the appeal. Sub-s. (2) of s. 254 provides that the Tribunal within four years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-s. (1) and shall make such amendment if the mistake is brought to its notice by the assessee or the AO. The Tribunal has only been given the power to rectify the mistake apparent on the record. The power is very limited one and it has only to see as to whether any mistake has been committed which is apparent from the record. The same cannot be treated by any stretch of imagination as continuation of the appeal nor can it be treated as an appeal at all. Here the Tribunal has only limited scope to see as to whether any mistake apparent on the record has been committed or not. The scheme, as stated above, has been framed for the recovery of the taxes and it is not a litigation settlement scheme. No person should be allowed to act mala fide to avail of the remedy under the scheme.

15. In this case, the petition under s. 254(2) of the Act has been appended with CWJC No. 3317 of 1999 (R). From a perusal of the same, it appears that the rectification has been sought for only on the ground of non-consideration of certain materials on the record and not on the ground that there was any mistake apparent from the record. The said petition was also withdrawn subsequently by making a false statement before the authority that thedeclaration has been accepted, which, as stated above, has already been rejected. In my view an application under s. 254(2) cannot be treated as an appeal and as no appeal was pending on the date when the application was filed for taking benefit of the scheme. Clause 95(i) (c) is attracted and as such the petitioner was not entitled to the benefit of the scheme. The respondents have rightly rejected the declaration under the scheme. In the case of CWJC No. 3318 of 1999(R), the question to be considered is as to whether there was any outstanding demand on the date of filing of the declaration under the scheme or not. There was a tax liability against the petitioner for the relevant assessment year. Certain amounts were refundable to the petitioner for the asst. yr. 1994-95. The authorities adjusted the aforesaid amount on 26th Aug., 1999, under s. 245 of the Act. The stand of the petitioner is that as the adjustment from the refunds of the previous year was not in terms of s. 245 of the Act the said adjustment is not adjustment in the eye of law and as such on the date of filing of the application the demand was outstanding against the petitioner and the respondents wrongly rejected the declaration made by the petitioner. To appreciate the aforesaid point, it is relevant to quote s. 245 of the Act which runs as follows : “Where under any of the provisions of this Act, a refund is found to be due to any person, the AO, Dy. CIT(A), CIT(A), Chief CIT or CIT, 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.” A bare reading of the aforesaid provisions shows that the authorities have power to adjust the refund against the tax payable by the assessee. However, before adjusting the refund an intimation in writing of the proposed adjustment is to be given to the person to whom the refund is due.

19. According to the Department, notice was given to the petitioner before the adjustment of the amount of the refund and the petitioner refused the same. As such the requirement of s. 245 of the Act was complied with. In this connection, the report of the notice server, vide annexure B shows that one notice was sent to the assessee. However, that is not clear either from annexure B or from the statements made in the counter-affidavit that any prior intimation in writing in terms of s. 245 was sent with regard to the proposed adjustment from the refunds to the assessee. It is difficult to accept the said stand of the Department that an intimation in writing was sent to the assessee prior to adjustment from the refunds and as such it has to be held that no prior intimation in writing was given to the assessee with regard to the adjustment from the refunds. As such the requirement of s. 245 has not been complied with. It has been consistently held by almost all the High Courts that the requirement of intimation in writing is mandatory and non-compliance of the same vitiates the adjustment made under s. 245 of the Act. It is not necessary to over burden this order by making reference to all the cases. Suffice it to refer to two cases, one of the Bombay High Court in the case of Suresh B. Jain vs. A.N. Shaikh (1986) 56 CTR (Bom) 47 : (1987) 165 ITR 151 (Bom) : TC 52R.1541 and the other of the Calcutta High Court in the case of J.K. Industries Ltd. vs. CIT (1999) 155 CTR (Cal) 249 : (1999) 238 ITR 820 (Cal) wherein it has been held that the provisions of s. 245 with regard to the intimation in writing prior to adjustment are mandatory and without giving prior intimation to the assessee adjustment from refunds cannot be made. As I have held that in case no prior intimation in writing was given to the assessee with regard to the adjustment, the adjustment made is in breach of provision of s. 245 of the Act. The said adjustment cannot be treated as a valid adjustment in the eye of law. Accordingly, the tax liability was outstanding on the date of filing of the application under the scheme and the respondent-CIT has wrongly rejected the application on the ground that no demand was outstanding against the petitioner. However, I may clarify that no direction can be given for refund of the amount already adjusted as the Department has power under s. 245 of the Act to adjust the amount. However, for the purpose of benefit of the scheme it has to be treated that the assessee was in arrear of tax on the date of filing of the application.

In the result, the application being CWJC No. 3317 of 1999(R) is dismissed and the application being CWJC No. 3318 of 1999(R) is allowed and the order contained in annexure 2 is quashed and the CIT is directed to consider the matter in terms of the scheme.

A.K. SInha, J.: I agree.

[Citation : 248 ITR 753]

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