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I. T. A. No. 2072 of 1979‑80, decided on 6^th June, 1981.

‑‑---Ss. 18‑A, 28 (l‑B) (b) & 49‑E‑Set‑off against refund‑‑Word "may" in S. 49‑E‑To be read as "shall" where assessee wants his refund to be adjusted against tax due‑Provision of S. 49‑E meant for convenience of both Department as well as tax‑payer‑Assessee proving his entitlement to refund‑Income‑tax Officer, in such case, held, duty bound to allow set‑off under S. 49‑E‑Such set‑off, however, cannot be demanded by assessee if claim of refund barred by time.

Dawarkadas v. I.‑T. O. 1929 I T R 60; Mukarjee & Co. v. Union of India (1968) I T R 500 (S C) and Hindustan Construction Co. 1956 I T R 241 (S C) ref.

M H. Khokhar, I.‑T. P. for Appellant.

Date of hearing : 616 April, 1981.

In this appeal relating to assessment year 1978‑79 the assessee contests the penalty of Rs. 1,977 imposed under section 28(1‑B)(b) for default of payment of advance tax under section 18‑A. The base year in this case is the assessment year 1977‑78 for which income of the assessee was assessed at Rs. 32,550 on 12‑12‑1977 and super‑tax demand and of Rs. 1,009 was created. The assessee was supposed to make payment of advance tax on this basis which admittedly he failed to do. Consequently the I.‑T. O. imposed penalty under section 28(1‑B) (b) which was maintained by the A. A. C. The A. R. contested the impugned penalty only on one ground. He submitted that a refund of Rs. 1,476 was due against the Department and it was the duty of the I.-T. O. to make adjustment of this refund against the tax due from the assessee. It was submitted that for the year 1976‑77 income was assessed at Rs. 31,480 on 14‑9‑1976 and super‑tax demand of Rs. 898 was created against the assessee. The assessee had already paid tax amounting to Rs. 2,376 leaving a balance of 1,475 which was refundable to the assessee. The argument of the A. R. has considerable force. Under section 49‑E of the income‑tax Act the I.‑T. O. has been empowered to set oft' tax remaining payable by an assessee in lieu of payment of refund. Section 49‑E is reproduced below:-

49‑E. Where under the provisions of this Act, the E. P. T. Act, 1940 the Finance Act, 1942, the Excess Profit Tax Ordinance, 1943, the Excess Profit Tax Act, 1947 the Estate Duty Act, 19.50, the Sales Tax Act 1951, the Gift‑Tax Act 1963, or the Wealth Tax Act, 1963 a refund or repay ment is found to be due to any person, the I.‑T. O., the A. A. C. or the Commissioner, as the case may be may in lieu of the payment of the refund or the repayment, set‑off the amount to be refunded or repaid, or any part of that amount against the tax, if any remaining payable by the person to whom the refund or repayment is due.

This section is an empowering section and where certain refunds are due to an assessee under the various enactments mentioned in that section it could be adjusted against tax remaining payable by an assessee. However the word 'may' is to be read as shall' where the assessee wants his refund to be adjusted against the tax due. The provisions of this section are no merely for the benefit of the department but for the convenience both the Department as well as the tax payers. Thus it will be the duty of the I.‑T. O to allow set off under this section if the assessee could prove that he ill entitled to a refund. This view is supported by the case reported as Dawarkadas v. I.‑T. O. (1929 P T R 60) arid Mukarjee and Co. v. Union of India (1968 P T R 500 (S C)) However such a set off could not be demanded by an assessee if claim to refund is barred by time. Reference be made to the case Hindustan Construc tion Co. (1956 P T R 241 (S C)). In these circumstances the penalty is to be cancelled if it is found on verification that the assessee is entitled to the refund. If it is found that the assessee was not entitled to the refund the penalty would stand. The appeal stands disposed of as above.

Order accordingly.

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