The company's declaration of tax arrears to the tune of Rs 120 cr was rejected by the department on the grounds that no arrears existed on the date of filing of the declaration. The division bench of Justice Dr B P Saraf and Justice D G Deshpande declined to grant any interim relief to the petitioner.

The I-T department took the stand that no arrears existed because of the adjustment of refunds due to the company against the tax arrears. Additional solicitor general Dr D Y Chandrachud, who appeared for the department today submitted that the adjustments were made way back in 1996. In one case, the company itself hadwritten to the department in March 1998, requesting the adjustment of two separate amounts of refunds Rs 19 cr and Rs 18 cr which the department had done. Petitioners who have challenged the I-T department's action in rejecting KVSS declarations have been arguing that the department is bound to give prior intimation if it makes an adjustment of refunds against pending arrears. One of the petitioners, Indusind Enterprises and Finance Limited, won round one of the litigation this week when the court instructed the I-T department to issue the KVSS certificate during the pendency of the petition. The department has issued the certificate (of declaration under KVSS) subject to the final order of the High Court.

In the case of Indusind Enterprises, the intimation of adjustment made in July 1998 was given to the company only on January 15, 1999, a fortnight after it had filed its KVSS declaration. The assessing officer had taken the stand that the company's application for stay of the tax demand for that yearhad been rejected and the order of rejection had been communicated before making the adjustments. The Commissioner of I-T, Mumbai-II had also held that the adjustment made was irregular since it did not comply with section 245 of the I-T Act.