When Department cannot provide evidence of service of demand notice cannot adjust refunds againt the demand outstanding or when demand notice is not served the recovery proceedings cannot be initiated by adjustment of refunds.

Where the Assessing Officer adjusted the refund due by outstanding demand for the assessment year 2003-04 to the extent of Rs. 62 lakhs and for the assessment year 2009-10 to the extent of Rs. 90,92,528, the assessee claimed that the demand notices for these two years have not been received, so that adjustment was erroneous. Since the Assessing Officer declined to rectify his order on the ground that the assessee must have received the order because an appeal against penalty for the assessment year 2003-04 had been filed by the assessee, on penalty consequent on the assessment for the year, which could not be done unless the order of assessment had been received. The assessee thereupon filed a writ petition. The High Court asked for evidence of service of demand notice, but since they were not produced before it, but an adjournment, so as to enable the Department to trace the records, was asked for. The High Court was not impressed by the argument that the records were not readily available and that efforts were being made to trace them. It, therefore, required the Deputy Commissioner concerned to be present in the court along with all the records.

The Deputy Commissioner was then present though he was not holding charge of the same jurisdiction at the relevant time. He admitted that evidence of service of notice is not available in the records. The High Court, therefore, felt that the adjustment of the demands was unwarranted and that when the assessee pressed for refund in absence of service of any  demand notice, it should have been allowed.

Nu-Tech Corporate Services Ltd. v. Income Tax Officer  [2018] 98 taxmann.com 454 (Bombay)