The first case under Section 245 itself is that of Suresh B Jain vs ITO, 165 ITR 151 (Bom). Here, a refund was due to the assessee for a particular assessment year as a result of an appellate order in his favour. As proceedings of the next year were pending, the assessee requested the commissioner to grant the refund forthwith and pleaded that mere pendency of the subsequent year's assessment should not delay the refund.This was not done.

On writ, a single judge the high court held that a mere perusal of Section 245 made it clear that the assessing 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. Since no such intimation had been given, the high court held that the action of the assessing officer was wholly illegal and he was clearly in error in not refunding the amount due to the assessee. The appeal against this judgement was summarily dismissed by a Division Bench [165 ITR 86 (Bom)].

In Vijay Kumar Bhati vs CIT, 205 ITR 110 (Del), the assessee was a non-resident. A refund was due to him which was not paid over. An order had been passed under Section 241 of the Act for withholding the refund as there were pending proceedings in the form of an application under Section 256(1) before the Appellate Tribunal for referring certain questions of law for the decision of the highcourt.

A criminal complaint under sections 276C and 277 of the Act had also been filed against the assessee. The assessee filed a writ petition in the nature of mandamus seeking a direction for the refund. Before the writ could be heard both the issues, viz., the application before the Appellate Tribunal under Section 256(1) as well as the criminal complaint had been dismissed. So too was the petition of the Revenue under Section 256(2) of the Act dismissed by the high court. The withholding order under Section 241 was, however, extended every six months on the ground that a Special Leave Petition had been filed in the Supreme court.

In the meantime, the assessing officer assessed the assessee on the interest which had become due to the assessee under the provisions of Section 244 of the Act in respect of the refund due to him for the concerned year. This assessment was made in a subsequent year and penalty proceedings were also initiated for the concerned year. The assessee, therefore, amended his writpetition and also sought lifting of the attachment on his bank account.

The main plea of the department for not granting refund was the power under Section 241 which allowed the assessing officer to withhold the refund as a special leave petition had been filed in the Supreme Court. Rejecting this argument, the high court pointed out that in any event the filing of the SLP before the Supreme Court was under article 136 of the Constitution and not a proceeding as under Section 256(1), 256(2) and 261 of the Act. Therefore, Section 241 could not be invoked for withholding the refund.

The court, pointing out the provisions of Section 245 of the Act, stated that there was nothing on record to suggest that before passing the order for set off against the assessed interest in a subsequent year, the provisions of Section 245 had been complied with. The court also granted exemplary costs on the revenue for blatantly violating the provisions of the Act.

The special leave petition (SLP) against the aforementionedorder of the high court has also been rejected by the Supreme Court, reported in 203 ITR (St) 1 (SC).

Similarly, in Shiv Narain Shivhare vs ACIT, 222 ITR 620 (MP), the court held that the attempt to set off a pending demand against the refund due was without jurisdiction as no notice had been given to the petitioner-assessee and quashed the order of such set off.

The issue once again came up in JK Industries Ltd vs CIT, 238 ITR 820 (Cal). This was under the Kar Vivad Samadhan Scheme. One of the requirements for getting the benefits of the said scheme was that there should be an arrears of demand pending for a particular assessment year which is disputed in appeal or other proceedings and which are pending. The revenue had adjusted certain refunds against demands pending for other years and claimed that there were no arrears of tax in respect of those years thus shutting out the assessee from the benefits of the said scheme. It was adjudged that the adjustments were without prior notice as required bySection 245. Further, the court had this to say, at page 825, about the fact that the assessee never objected to the adjustments:

"If the revenue made adjustments without the essential perquisites (pre-requisites?), the revenue was keeping the matter uncertain; if the assessee never objected, well and good. If the assessee objected, everything gets undone, as it is getting undone today."

Thus the court went one step further and, in effect, has held that an unlawful act of withholding a refund cannot become lawful merely by the acquiescence of the assessee.

It is, however, a pity that despite such clear provisions in the law and the clear decisions of various high courts, the assessing officers and the department continue to flout this provision with impunity and it is only in writ petitions filed by assessees that these matters get settled in favour of assessees.

The author is a chartered accountant from Mumbai