Refund adjustment based on portal demands without a valid assessment order is completely illegal.
Issue
Whether the revenue department can legally sustain an outstanding demand on the ITBA portal and adjust refunds under section 245 in the absence of an available or served assessment order and a notice of demand under section 156.
Facts
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For the assessment year 2017-18, an outstanding tax demand against the assessee was reflected on the Income Tax Business Application (ITBA) portal.
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The revenue department acted on this portal entry and adjusted the assessee’s eligible tax refunds against this outstanding liability under section 245.
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No formal assessment order or corresponding notice of demand under section 156 was available or ever served upon the assessee for the period in question.
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The assessee challenged the refund adjustments, asserting that a tax liability cannot exist solely as a digital entry without a foundational legal order.
Decision
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No Legally Enforceable Demand: The court held that in the absolute absence of an assessment order and a demand notice, no legally enforceable demand could exist and subsist against a taxpayer.
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Portal Adjustments Quashed: Since no assessment order was available or served, the automated portal intimations and subsequent refund adjustments executed under section 245 were declared illegal and liable to be quashed.
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Deletions and Refunds Ordered: The revenue department was directed to delete the outstanding demand entry from the ITBA portal and return the adjusted refund amount along with applicable statutory interest.
Key Takeaways
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Portal Entries Lack Statutory Weight: A digital entry showing on the ITBA portal does not create a binding legal obligation unless it is backed by a valid, legally issued assessment order.
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Strict Service Requirements: For a tax demand to become enforceable, the underlying assessment order and the section 156 demand notice must be officially served upon the assessee in accordance with due process.
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Prerequisite for Section 245: The tax department cannot exercise its power to set off or adjust an assessee’s refund unless the matching tax debt is fully established, finalized, and legally enforceable.