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November, 12th 2014

                                             Judgment delivered on: 16.10.2014

W.P.(C) 6172/2014 & CM 14938/2014

THE ORIENTAL INSURANCE CO. LTD.                                       ..... Petitioner


                                       ..... Respondents

Advocates who appeared in this case:
For the Petitioner  : Mr M.S.Syali, Sr. Advocate with Mr Tarandeep Singh and Mr Mayank
For the Respondents : Ms Suruchi Aggarwal.




1.      In this writ petition the following prayers have been made:-

                  "a) A Writ of Certiorari or Writ, order or direction in the
                      nature of Certiorari, or any other appropriate Writ,
                      order of direction under Article 226/227 of the
                      Constitution of India quashing adjustment of refund of
                      Rs 89,16,28,190/- pertaining to AY 2013-14 against
                      outstanding penalty demand of AY 2005-06 and
                      directing the Respondents to grant the said refund to

WP(C) 6172/2014                                                              Page 1 of 4
                  b) A Writ of Mandamus or Writ, order or direction in the
                     nature of Mandamus, or any other appropriate Writ,
                     order of direction under Article 226/227 of the
                     Constitution of India directing the Respondents to
                     dispose off the petition u/s 220(6) filed by the
                     Petitioner on 28.04.2014 by passing a speaking order
                     either accepting / rejecting the prayers made therein
                     after granting a proper opportunity of being heard to
                     the Petitioner."

2.      Insofar as prayer (b) is concerned the petition under Section 220(6) of

the Income Tax Act, 1961 has already been decided by a speaking order

dated 23.09.2014. Mr Syali, the learned senior counsel appearing for the

petitioner, states that in view of this development, prayer (b) does not

survive. He will take his independent remedy under Section 264 of the said

Act. With regard to prayer (a), he submits that the adjustment was made

without giving an opportunity to the assessee as is the requirement under

Section 245 of the said Act as interpreted by this court in Glaxo Smith Kline

Asia (P.) Ltd v. CIT: 290 ITR 35 (Del). The same sentiment is reiterated in

Genpact India v. ACIT: 205 Taxman 51 (Del) and Court on its Own

Motion v. CIT: 352 ITR 273 (Del).

3.      In Glaxo Smith Kline Asia (P.) Ltd (supra) a Division Bench of this

court held as under:-

                  "25. In our view, the power under section 245 of the Act,
                  is a discretionary power given to each of the tax officers in

WP(C) 6172/2014                                                             Page 2 of 4
                  the higher echelons to "set off the amount to be refunded or
                  any part of that amount against the same, if any, remaining
                  payable under this Act by the person to whom the refund is
                  due." That this power is discretionary and not mandatory is
                  indicated by the word ,,may. Secondly, the set off is in lieu
                  of payment of refund. Thirdly, before invoking the power,
                  the officer is expected to give an intimation in writing to
                  the assessee to whom the refund is due informing him of
                  the action proposed to be taken under this section.

                  26.        xxxx           xxxx          xxxx          xxxx
                  27. As already noticed, this discretionary power has to be
                  exercised after giving an opportunity to the assessee of
                  being heard preceded by an intimation to the assessee in
                  writing of the action proposed to be taken under section
                  245. A further implicit requirement is that the revenue will
                  have to be satisfied that the assessee will not be in a
                  position to satisfy the demand of tax and that but for the set
                  off, the outstanding tax amount cannot be recovered at all."

4.      In Genpact India (supra) this court held as under:-

                  "3. It is not in dispute that no such notice under Section
                  245 of the Act was issued. It was also conceded by learned
                  counsel for the respondent at the time of hearing that the
                  procedure prescribed under Section 245 of the Act, namely,
                  advance intimation and opportunity of hearing, is
                  mandatory. It, therefore, clearly follows that the impugned
                  adjustment was made in violation of the provisions of
                  Section 245 of the Act and this adjustment is liable to be
                  quashed on this ground itself."

5.      In Court on its Own Motion (supra) this court held asunder:-

                  "20.........In one of the paragraphs of the counter affidavit,
                  the respondents have stated as under:
                  "Accordingly, it was again reiterated that the provisions of
                  section 245 of the I.T. Act, 1961 must be followed and
                  written intimation must be sent to the assessees before
                  adjusting refund of the outstanding demand and any lapse

WP(C) 6172/2014                                                              Page 3 of 4
                  in this regard shall be viewed seriously. The
                  CCsIT/DGsIT/CsIT were direct to ensure compliance of
                  the aforesaid direction. Thus, enough safeguards have been
                  provided not only in the I.T. Act, 1961 but also in the
                  Instructions issued by the CBDT" (emphasis supplied)
                  21. The aforesaid statement reflects the correct position in
                  law as Section 245 mandates and envisages prior intimation
                  to the assessee so that he/she can respond before any
                  adjustment of refund is made towards the demand relating
                  to any other assessment year. Thus, an opportunity of
                  response/reply should be given and after considering the
                  stand and plea of the assessee, justified and valid order or
                  direction for adjustment of refund can be made. The
                  Section postulates two stage action; prior intimation and
                  then subsequent action when warranted and necessary for
                  adjustments of the refund towards arrears."

6.      It is evident from the record of the case that on the same date on which

the intimation was issued the adjustment was made simultaneously. This is

contrary to the spirit of the provisions of Section 245 as interpreted by this

court in the above decisions inasmuch as no opportunity of hearing was

given to the assessee before the adjustment was made. Therefore, on this

ground alone the adjustment order would have to be quashed. It is so

directed. The writ petition is allowed to the aforesaid extent.

                                                 BADAR DURREZ AHMED, J

                                                      SIDDHARTH MRIDUL, J
OCTOBER 14, 2014/mk

WP(C) 6172/2014                                                            Page 4 of 4
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