The Judgment of the Court was delivered by
Y.R Meena, J.:— By this appeal, the appellants have challenged the impugned judgment of a learned single judge dated January 28, 1999 (see [1999] 238 ITR 820), and prayed that the impugned judgment be set aside.
2. The petitioner/respondent is a company within the meaning of the Companies Act, 1956. The respondent-company filed the declaration under the Kar Vivad Samadhan Scheme for the assessment years 1991-92 and 1992-93 to settle the tax arrears for the said assessment years. On account of settlement of the tax liability under the Kar Vivad Samadhan Scheme, there was a refund due. Instead of refunding that amount part of the amount of refund due was adjusted against the tax liability and withheld that refund due to the petitioner and there was no tax arrear within the meaning of the Kar Vivad Samadhan Scheme, 1998. The petitioner has wrongly been deprived of his right, to get the refund due. Against the balance demands payable for the assessment years 1991-92 and 1992-93, respondent No. 2 had set off refunds. An intimation was sent to the petitioners by respondent No. 2. On receipt of the intimation, the petitioner raised objection to the set off by respondent No. 2, specially pointed out to respondent No. 2 that the refund due to the assessee cannot be adjusted against the amount seized from the residence of Shri A.K Chhajer unilaterally but the request of the petitioner/respondent was rejected and the full amount of refund due has not been refunded to the petitioner-respondent. Then the petitioner/respondent filed this writ petition before this court. Learned single judge discussed the views expressed by various High Courts and has taken the view that no adjustment can be made of the refund due to the assessee, against any tax arrears, without intimation to the assessee as required under section 245 of the Act.
3. Learned counsel for the appellants, Shri Roy Chowdhury submits that though the intimation was not given before setting off the amount due against the assessee but after setting off the amount against tax arrears the intimation was given and the assessee has not raised any objection for some time. Therefore, now the assessee cannot take the plea that the set off was illegal.
4. On the other hand, learned counsel for the assessee/respondent, Dr. Pal submits that there are a number of decisions of various High Courts and in one case the decision is challenged before the Supreme Court, the Supreme Court has rejected even the special leave petition. Not even a single decision has been shown by counsel for the Revenue in favour of the Revenue which support the case of the Revenue that without intimation the amount due can be set off against the tax arrears.
5. The facts are not in dispute that the respondent-company's assessment for the years 1990-91, 1993-94, 1994-95, 1995-96 and 1996-97 resulted in refunds of Rs. 5,77,94,371, the break-up of which is given as under:
Assessment year of refund
Assessment year of demand
Amount of refund (Rs.)
Date of purported set off
1990-91
1991-92
3,21,706
28-12-1995
1993-94
1991-92
23,87,516
31-01-1996
1994-95
1992-93
1,20,32,585
05-02-1996
1995-96
1992-93
2,37,61,939
30-07-1996
1996-97
1992-93
1,92,90,625
27-01-1997
Total
5,77,94,371
6. This amount of refund due to the respondent was set off against the outstanding demand for the assessment years 1991-92 and 1992-93, without giving any intimation in writing to the respondent-company, as required under section 245 of the Income-tax Act, 1961. The details of amount of refund, dates of order of set-off and dates of communication of set-off, are as under:
Amount of refund (Rs.)
Date of purported set off
Date of communication set off/adjustment
3,21,706
28-12-1995
11-09-1996
23,87,516
31-01-1996
11-09-1996
1,20,32,585
05-02-1996
21-11-1996
2,37,61,939
30-07-1996
12-08-1996
1,92,90,625
27-01-1997
14-02-1997
5,77,94,371
7. It is also brought to our notice that in an order under section 132(5) which was passed by the assessing authority in the case of Mr. A.K Chhajer, at Delhi, on April 15, 1994, in respect of the amount seized from the residence of Mr. A.K Chhajer should be taxed in the hands of A.K Chhajer but that has been wrongly taxed and the tax liability adjusted against the refund due in the assessment year 1991-92. No intimation or an opportunity was given to the assessee how the amount due can be adjusted against tax liability of Shri A.K Chhajer.
8. Before going into that controversy, we would like to consider whether the amount due can be set off against tax liability without prior intimation as required under section 245 of the Act. The same issue has been considered by various High Courts wherein the view has been taken that before setting off any amount due to the assessee, the prior intimation is necessary.
9. In A.N Shaikh v. Suresh B. Jain, [1987] 165 ITR 86, the Bombay High Court has taken the view that the intimation, which is required under section 245 of the Act, is a prior intimation of the proposed action for adjustment. In the case of Suresh B. Jain v. A.N Shaikh, Sixteenth ITO, [1987] 165 ITR 151, the Bombay High Court observed at page 153 as under:
“A mere perusal of this section makes it clear that the Income-tax Officer may, in lieu of payment of refund, set off the amount to be refunded against the sum payable by the person, but only after giving intimation in writing to such person of the proposed action. Shri Devadhar, learned counsel appearing on behalf of the respondents, had to concede that the Income-tax Officer did not give any intimation to the petitioner before making adjustment while passing the assessment order for the assessment year 1983-84. In my judgment, the action of the Income-tax Officer is wholly illegal and the respondents were clearly in error in not refunding the amount of Rs. 4,26,090 to the petitioner forthwith.”
10. In the case of Hira Lal and Sons v. ITO, [1985] 156 ITR 30, the Allahabad High Court has observed at page 32 as under:
“The petitioner's grievance in this respect is well founded. It is, therefore, necessary to quash that part of the impugned order which contains an adjustment of a sum of Rs. 2,02,931 from out of the sum of Rs. 4,44,600.97 refundable to the petitioner towards the tax liabilities of Hiralal Mithal in his capacity as an individual assessee. The matter deserves to be left to be re-determined, if the respondents so desire, after notice to the petitioner firm.”
11. The view that the proceedings for adjusting an amount towards tax liability under section 245 out of any sum due to an assessee by way of refund, are quasi-judicial in nature. Without anything more, the assessee is entitled on the principles of natural justice to a reasonable notice to represent his case before the authority before an order of adjustment is passed.
12. In the case of Vijay Kumar Bhati v. CIT, [1994] 205 ITR 110, the Delhi High Court observed at page 120 as under:
“For the purpose of any set off an intimation has to be given in writing to the assessee of the action proposed to be taken under this section. Earlier to this order it has never been the case of the Revenue to claim any set off. This order purporting to be under section 245 of the Act is neither fair, nor just, nor reasonable and has to be ignored.”
13. The prior intimation of the proposed action is the requirement of observing principles of natural justice. Any such set off without any prior intimation or opportunity is not only illegal but void and non est in the eye of law and the respondent-company is entitled to challenge the same, as, any void action is non est in the eye of law. Such illegal setting off of the amount refundable against the outstanding demand is, therefore, to be ignored. Against the decision of the Delhi High Court, a S.L.P was filed in the Supreme Court and the Supreme Court has dismissed the S.L.P which is reported in CIT v. Vijay Kumar Bhati, [1993] 203 ITR (St.) 1. The same view has been taken by the Punjab and Haryana High Court in State Bank of Patiala v. CIT, [1999] 239 ITR 421.
14. In Shiv Narain Shivhare v. Asst. CIT (Investigation), [1996] 222 ITR 620, the Madhya Pradesh High Court has observed at page 622 as under:
“Therefore, the so-called order passed on June 9, 1992, appears to be without jurisdiction as no notice was given to the petitioner-assessee nor Shri Jain could point out that any notice was given before proceedings were taken up. This is in breach of principles of natural justice as no notice as required under section 154(3) as well as under section 245 of the Act were served on the petitioner. Hence, the respondents are directed to refund the amount due forthwith. If they want to take recourse to set off, it is open to them to proceed in accordance with law.”
15. The requirement under section 245 is denied, then such an order is void and without jurisdiction.
16. In the case of R.B Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT), [1989] 176 ITR 169 (SC) the issue before their Lordships that the order passed in violation of principles of natural justice. The order is a nullity. At page 175, their Lordships have observed as under:
“We are of the opinion that in view of the facts and circumstances of the case and in the context in which these objections had been made, it is necessary, as a concomitant of the fulfilment of natural justice, that the appellant should be heard on the objections made by the Commissioner. It is true that in the relevant orders for the years for which the Commissioner had objected, concealment had been upheld in the appeal before the appropriate authorities. But it may be that in spite of this concealment, it may be possible for the appellant to demonstrate or to submit that in disclosure of concealed income for a spread-over period, settlement of the entire period should be allowed and not bifurcated in the manner sought to be suggested by the Commissioner's objections. This objection the appellant should have an opportunity to make. In exercise of our power of judicial review of the decision of the Settlement Commission, we are concerned with the legality of procedure followed and not with the validity of the order.”
17. In Government Of India v. Maxim A. Lobo, [1991] 190 ITR 101, the Madras High Court has observed at page 114 as under:
“One principle which is now well-settled by a catena of authorities is that even if the statute is silent with regard to grant of hearing to the person affected but the decision taken by the authority involves civil consequences or adverse consequences, at least a minimal hearing is essential, and not only desirable. An order suffering from non-observance of the principles of natural justice would, under the circumstances, be void and a nullity.”
18. From the observations referred to above it is clear that before any order under section 245 of the Act the opportunity of being heard should be given to the assessee. Without notice/intimation to the assessee before adjustment the order under section 245 is nullity.
19. Dr. Pal further submits that after adjustment if any intimation has been given under section 245 of the Act that has no meaning. If the provision provides for any right of any party is affected, hearing should be given to the party before any such order is passed. He placed reliance on the decision of the apex court in Institute of Chartered Accountants of India v. L.K Ratna, [1987] 164 ITR 1; (1986) 4 SCC 537 and United Planters Association of Southern India v. K.G Sangameswaran, [1997] 90 FJR 454; (1997) 4 SCC 741.
20. In the case of Institute of Chartered Accountants of India v. L.K Ratna, [1987] 164 ITR 1; (1986) 4 SCC 537 at page 551, their Lordships have observed as under (page 11):
“It is next pointed out on behalf of the appellant that while regulation 15 requires the Council, when it proceeds to act under section 21(4), to furnish to the member a copy of the report of the Disciplinary Committee, no such requirement is incorporated in regulation 14 which prescribes what the Council will do when it receives the report of the Disciplinary Committee. That, it is said, envisages that the member has no right to make a representation before the Council against the report of the Disciplinary Committee. The contention can be disposed of shortly. There is nothing in regulation 14 which excludes the operation of the principle of natural justice entitling the member to be heard by the Council when it proceeds to render its finding. The principles of natural justice must be read into the unoccupied interstices of the statute unless there is a clear mandate to the contrary.”
21. Their Lordships thus observed that even if the statute does not provide for pre-decisional hearing even then the principles of natural justice should be complied with to give the hearing or opportunity before ‘any order is passed against any person unless there is clear mandate to the contrary. While in the case in hand the provisions of section 245 require that opportunity should be given to the assessee before any adjustment is made.
22. In the case of United Planters Association of Southern India v. K.G Sangameswaran, [1997] 90 FJR 454; (1997) 4 SCC 741, at page 752, their Lordships have observed as under (page 463):
“The learned counsel, in support of his arguments that the defect is not curable has placed reliance on the decision of this court in Institute of Chartered Accountants of India v. L.K Ratna, [1987] 164 ITR 1; (1986) 4 SCC 537. It was, no doubt, laid down in this case that a post-decisional hearing cannot be an effective substitute of pre-decisional hearing and that if an opportunity of hearing is not given before a decision is taken at the initial stage, it would result in serious prejudice, inasmuch as if such an opportunity is provided at the appellate stage, the person is deprived of his right of appeal to another body.”
23. The admitted fact is that the provisions of section 245 of the Act require that an intimation should be given in writing to a person if the tax authorities want to set off any refund due against any sum payable by the assessee under this Act. No such intimation was given. All the decisions of various High Courts are in favour of the assessee that opportunity should be given to the assessee if any refund is set off against the tax liability under section 245 of the Act. The order without intimation is non est and their Lordships even have observed in some cases that unless the statute prohibits a pre-decisional hearing should be given to the person whose right is affected by that order.
24. It is also pertinent to note that there is no provision for appeal against the set off order under section 245 of the Act. Therefore, it is all the more necessary to give intimation to the assessee before setting off his amount of refund due.
25. In the light of the above observations, we found no infirmity in the impugned order of the learned single judge dated January (?) 28, 1999 (see [1999] 238 ITR 820). In the result, the appeal is dismissed.
26. Let a xerox copy of this judgment, duly countersigned by the Assistant Registrar of this court be given to the parties upon their undertaking to apply for and obtain certified copy of the same upon usual undertaking.
27. G.A No. 2150 of 2000—(July 7, 2000). Heard learned counsel on this review application. The applicant prays that the judgment dated March 14, 2000, be recalled, as written submission filed after delivery of the judgment was not considered. In the application, the applicants came with the prayer that written submissions should be considered, though they could not file the written submissions, before the judgment was delivered. The written submissions filed after the judgment should be considered and review the judgment dated March 14, 2000.
28. After hearing both the sides and on perusal of our record, the record reveals that the matter was listed on October 13, 1999, December 10, 1999 and on January 12, 2000, for hearing and the matter was heard in part.
29. After hearing both the parties on January 12, 2000, we specifically mentioned in the order-sheet that hearing is concluded and the judgment is reserved. However, liberty was given to counsel for the parties to file their written submissions, if they wish, within a fortnight. The fortnight expired on January 27, 2000, and the judgment is delivered on March 14, 2000. Till March 14, 2000, admittedly no such written submissions are filed by counsel of the appellant.
30. When the hearing was concluded and the judgment is delivered on the basis of the arguments advanced, no written submissions were filed, not only within the time allowed, but till March 14, 2000. Now our judgment cannot be reviewed on the basis of written submissions which are filed today. The application for review of the judgment is rejected.
31. All parties are to act on a signed xerox copy of this dictated order on usual undertaking.