Unlawful Refund Adjustment Without Prior Intimation U/s. 245 Of Income Tax Act Is Unsustainable: Bombay HC

The Bombay High Court has provided a major relief to Bharat Petroleum Corporation Limited (petitioner) by quashing the adjustment of refund made by the tax authorities.

A Division Bench of Justice Dhiraj Singh Thakur and Justice Kamal Khata therefore, ordered that a refund of INR 211,42,98,781 or any additional amount determined, be paid to the petitioner, along with interest under Section 244A of the Income Tax Act.

Senior Advocate J. D. Mistri appeared for the Petitioner, whereas Advocate N. C. Mohanty appeared for the Respondent.

The brief facts are that the petitioner had raised a grievance regarding the unlawful adjustment of a refund that was due to them, without prior intimation under Section 254 of the Income Tax Act. The respondent's counsel argued that the order under Section 220 (6) of the Act was stayed for six months or until the Appellate Authority's order, whichever was earlier. They claimed that since the stay expired on 28th June 2022, the demand was justified. Additionally, the counsel acknowledged a procedural lapse in adjusting the refund without prior intimation under Section 245 of the Act. However, they contended that the adjustment was valid due to the existence of an outstanding demand.

Disagreeing with the respondent's counsel, the bench observed that a stay granted under Section 220(6) of the Income Tax Act continues until the disposal of the appeal, and was not limited to a period of six months.

Further, the bench emphasized that the non-giving of written intimation before setting off the amount payable against the amount to be refunded, was a fatal flaw.

The Bench also referred to the case of Jet Privilege Private Limited v. Deputy Commissioner of Income Tax [(2015) 60 taxmann.com 326] wherein it was held that the requirement of prior intimation under Section 245 of the Income Tax Act was mandatory, and failure to comply with this requirement rendered the entire adjustment of the refund illegal.

Cause Title: Bharat Petroleum Corporation Limited v. Assistant Director of Income Tax and Ors. [Neutral Citation No. : 2023:BHC-OS:5585-DB]

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