Syed Habeebur Rehman vs Deputy Commissioner of Income Tax Circle 28(1) & Ors. – Refund Adjustment Without Notice under Section 245 of Income Tax Act

Facts of the Case

The petitioner, Syed Habeebur Rehman, filed a writ petition seeking issuance of directions to the Income Tax Department for refund of approximately ₹46 lakhs relating to Assessment Years (AY) 2010–11 and 2014–15 along with applicable interest.

The grievance arose due to the action of the Revenue authorities who adjusted the refund amount against a demand raised for AY 2015–16 without issuing prior notice under Section 245 of the Income Tax Act.

The petitioner had already deposited 20% of the demand for AY 2015–16 and had filed an appeal before the Commissioner of Income Tax (Appeals), which remained pending adjudication.

Issues Involved

1. Whether the adjustment of refund against outstanding demand without issuing notice under Section 245 is valid in law.
2. Whether the petitioner is entitled to refund of the adjusted amount.
3. Whether interest is payable on such refund.

Petitioner’s Arguments

• The refund amount aggregating to approximately ₹46 lakhs was unlawfully adjusted against the demand for AY 2015–16 without issuing mandatory notice under Section 245.
• The petitioner had already complied with the requirement of depositing 20% of the disputed demand and had filed an appeal before the CIT(A).
• The remaining amount, including refund and balance demand, ought to be released.
• Interest should be granted on the refund amount.

Respondent’s Arguments

• The Revenue contended that the refund had already been adjusted against the outstanding demand.
• It was submitted that the refundable amount had been computed at ₹44.60 lakhs.
• The claim for interest was opposed, especially since the refund adjustment had already been effected and interest at 18% was beyond statutory limits.

Court’s Findings / Observations

• The Court noted that the refundable amount had already been computed by the Revenue at ₹44.60 lakhs.
• It acknowledged the dispute regarding the exact amount of refund and entitlement to interest.
• The Court observed that the issue of interest and balance refund involved contested facts and should be adjudicated through appropriate statutory remedies.

Court Order

1. The Revenue authorities were directed to remit ₹44.60 lakhs to the petitioner within two weeks.
2. The petitioner was granted liberty to pursue statutory remedies for:
• Claim of interest
• Balance refund amount
3. The competent authority was directed to adjudicate such claims in accordance with law.

Important Clarifications

• The Court did not adjudicate on entitlement to interest and left it open for determination under statutory provisions.
• The order clarified that previous proceedings would not prejudice the petitioner’s right to seek such remedies.
• The Court implicitly emphasized procedural compliance under Section 245, especially regarding notice before adjustment of refunds.

Link to download the order -

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