21.1 RECOMMENDATION FOR AMENDMENT OF SECTION 245 TO RATIONALIZE THE PROVISIONS IN REGARD TO SET OFF OF REFUNDS DUE TO AN ASSESSEE
Adjustment of Refunds due to assessees against erroneous demands shown outstanding in their cases causes great heartburning. Even where the assessee lodges his objection on the CPC Portal pointing out that the demand sought to be adjusted against the refund was not outstanding and therefore is being erroneously adjusted, there is no remedy by which the CPC can take note of the same.
In view of the above, Section 245 is proposed to be suitably amended so as to provide that no set off of refund under this section shall be made by any income-tax authority without giving intimation in writing to such person of the action proposed to be taken under this section and without dealing with the objections if any, filed by such person in response to such intimation served on him.
Moreover, it is settled by several judicial pronouncements that where any demand outstanding against the assessee relates to a point, which stands squarely covered by a decision in favour of the assessee, such demand cannot be adjusted against any refund due to the assessee. Courts have logically explained in this regard that the assessee in such a case would have been undisputedly entitled to stay on recovery of such demand and merely because the Department is in possession of the assessee’s funds due to him as his legitimate refund, the same cannot be adjusted against such a demand.
The revenue cannot defend such erroneous adjustments merely on the ground that the system does not provide for any such mechanism. Suitable systems shall be required to be put in place to provide remedy keeping in mind that the assessee’s money are being adjusted without the authority of law.
21.2 To give due effect to this settled interpretation of Section 245 and avoid any litigation on this aspect, Section 245 is recommended to be amended as follows with effect from 1.4.2017:
Set off of refunds against tax remaining payable
245. (1) 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 Principal Chief Commissioner or Chief Commissioner or Principal 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.
Provided that no set off of any refund due to the person shall be made against any demand remaining payable under this Act, where in respect of such demand the relevant issue is covered in favour of the person by a judicial decision rendered in his own case by the Commissioner (Appeals) or Income-tax Appellate Tribunal or High Court or the Supreme Court.
(2) No set off of refund under this section shall be made by any income-tax authority without giving intimation in writing to such person of the action proposed to be taken under this section and without dealing with the objections if any, filed by such person in response to such intimation served on him.