My refund was simply taken against another year's demand and I was never told. Does the notice have to come first?
Yes. Section 245(1) permits a set-off only after an intimation in writing of the proposed action. The Bombay High Court held that adjustments made without that intimation are contrary to the words of the statute and to its own settled decisions, made the rule absolute and ordered the refunds paid within four weeks. It also noted that no reasons had been recorded under s.245(2) either.
Decided by the High Court (G.S. Patel J and Kamal Khata J) on 2024-03-05, reported as 2024:BHC-OS:3896-DB; Writ Petition No. 879 of 2024 (Bombay)(HC). It bears on section 245, section 220(6), section 154, section 143(1) of the Income Tax Act 1961, in Refunds, Interest & Condonation matters.
This is the current Bombay position after s.245 was recast by the Finance Act 2023 into a set-off power in sub-section (1) and a separate withholding power in sub-section (2). It is useful where the department has done both things at once: adjusted without notice and then held on to what was left.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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On 9 March 2023 the refund of Rs 3,53,99,815 determined for AY 2017-18 was adjusted against the demand for AY 2018-19. On 10 March 2023 refunds of Rs 2,30,52,355 and Rs 80,74,925 for AY 2022-23 were likewise adjusted against the same demand. In both instances no intimation under s.245 had been issued, a stay application dated 23 September 2021 for AY 2018-19 was pending and undecided, and rectification applications were pending for AYs 2017-18, 2018-19 and 2022-23. The petitioner's case was that the issues underlying the AY 2018-19 demand were covered in its favour by orders of the Tribunal for AYs 2016-17 and 2017-18. The Revenue's affidavit in reply, at sub-paragraph (1) of para 5.5, stated in terms that the adjustment by the Centralised Processing Centre was effected without issuing a notice under s.245.
Rule was made absolute in terms of the prayers. Unilateral adjustments made without prior intimation are contrary to the specific wording of the statute and to the settled decisions of the Court. All refunds were to be processed and paid within four weeks and the rectification applications decided preferably within eight weeks. The Court also recorded that no reasons had been recorded in compliance with s.245(2) (paras 24, 26, 28, 29 and 30).
The Court set out s.245 as it now stands: sub-section (1) permits set-off of a refund against a sum remaining payable, but only 'after giving an intimation in writing to such person of the action proposed'; sub-section (2), introduced by amendment, separately allows the Assessing Officer, where assessment or reassessment proceedings are pending and he is of opinion that the refund would adversely affect the revenue, to withhold it for reasons recorded in writing with the previous approval of the Principal Commissioner or Commissioner, up to the date the assessment or reassessment is made (paras 8 and 9). Whether the intimation is mandatory was treated as the whole of the case (para 7). It was undisputed on the Revenue's own affidavit that no intimation had been given (para 11). The Court set out its earlier Division Bench decisions in Hindustan Unilever Ltd. and Jet Privilege (P) Ltd., which hold that prior intimation is mandatory, that the power is discretionary, that objections raised in response must be considered and reasons given before or at the time of adjustment, and that a stay of recovery in absolute terms must be honoured (paras 19 to 23). It then identified two issues: the unilateral adjustments without prior intimation, and the failure to dispose of the stay and rectification applications, which it held could not be kept pending indefinitely and for which no justification appeared in the affidavit in reply (paras 24 and 25).
The first is that these unilateral adjustments without prior intimation are contrary to the specific wording of the statute itself. They are contrary to settled decisions of this Court.
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Handle my notice → Ask a CA on WhatsAppYes. Section 245(1) permits a set-off only after an intimation in writing of the proposed action. The Bombay High Court held that adjustments made without that intimation are contrary to the words of the statute and to its own settled decisions, made the rule absolute and ordered the refunds paid within four weeks. It also noted that no reasons had been recorded under s.245(2) either. This was decided by the High Court (G.S. Patel J and Kamal Khata J) and bears on section 245, section 220(6), section 154, section 143(1) of the Income Tax Act 1961. It is reported as 2024:BHC-OS:3896-DB; Writ Petition No. 879 of 2024 (Bombay)(HC). This is the current Bombay position after s.245 was recast by the Finance Act 2023 into a set-off power in sub-section (1) and a separate withholding power in sub-section (2). It is useful where the department has done both things at once: adjusted without notice and then held on to what was left. If it applies to you, the first step is this: Establish the negative: put on record, from Form 26AS, the OLTAS challan status and the portal, that the adjustment was made and on what date, and that no intimation preceded it.
On 9 March 2023 the refund of Rs 3,53,99,815 determined for AY 2017-18 was adjusted against the demand for AY 2018-19. On 10 March 2023 refunds of Rs 2,30,52,355 and Rs 80,74,925 for AY 2022-23 were likewise adjusted against the same demand. In both instances no intimation under s.245 had been issued, a stay application dated 23 September 2021 for AY 2018-19 was pending and undecided, and rectification applications were pending for AYs 2017-18, 2018-19 and 2022-23. The petitioner's case was that the issues underlying the AY 2018-19 demand were covered in its favour by orders of the Tribunal for AYs 2016-17 and 2017-18. The Revenue's affidavit in reply, at sub-paragraph (1) of para 5.5, stated in terms that the adjustment by the Centralised Processing Centre was effected without issuing a notice under s.245. The matter was decided on 2024-03-05 by the High Court (G.S. Patel J and Kamal Khata J). On those facts the High Court held as follows. Rule was made absolute in terms of the prayers. Unilateral adjustments made without prior intimation are contrary to the specific wording of the statute and to the settled decisions of the Court. All refunds were to be processed and paid within four weeks and the rectification applications decided preferably within eight weeks. The Court also recorded that no reasons had been recorded in compliance with s.245(2) (paras 24, 26, 28, 29 and 30).
The Court set out s.245 as it now stands: sub-section (1) permits set-off of a refund against a sum remaining payable, but only 'after giving an intimation in writing to such person of the action proposed'; sub-section (2), introduced by amendment, separately allows the Assessing Officer, where assessment or reassessment proceedings are pending and he is of opinion that the refund would adversely affect the revenue, to withhold it for reasons recorded in writing with the previous approval of the Principal Commissioner or Commissioner, up to the date the assessment or reassessment is made (paras 8 and 9). Whether the intimation is mandatory was treated as the whole of the case (para 7). It was undisputed on the Revenue's own affidavit that no intimation had been given (para 11). The Court set out its earlier Division Bench decisions in Hindustan Unilever Ltd. and Jet Privilege (P) Ltd., which hold that prior intimation is mandatory, that the power is discretionary, that objections raised in response must be considered and reasons given before or at the time of adjustment, and that a stay of recovery in absolute terms must be honoured (paras 19 to 23). It then identified two issues: the unilateral adjustments without prior intimation, and the failure to dispose of the stay and rectification applications, which it held could not be kept pending indefinitely and for which no justification appeared in the affidavit in reply (paras 24 and 25). In the words reproduced by the source cited on this page: "The first is that these unilateral adjustments without prior intimation are contrary to the specific wording of the statute itself. They are contrary to settled decisions of this Court." The decision followed or applied Hindustan Unilever Ltd. v. Deputy Commissioner of Income Tax-1(1) (2015) 377 ITR 281 (Bombay) — followed and extracted; Jet Privilege (P) Ltd. v. Deputy Commissioner of Income Tax-5(2)(1), Mumbai (Bombay) — followed and extracted; A.N. Shaikh, Sixteenth ITO v. Suresh B. Jain (1987) 165 ITR 86 (Bombay) — the source of the rule that prior intimation is mandatory, as recorded in the passages extracted.
It was decided by the High Court on 2024-03-05 and is reported as 2024:BHC-OS:3896-DB; Writ Petition No. 879 of 2024 (Bombay)(HC). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 245, section 220(6), section 154, section 143(1), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Rule was made absolute in terms of the prayers. Unilateral adjustments made without prior intimation are contrary to the specific wording of the statute and to the settled decisions of the Court. All refunds were to be processed and paid within four weeks and the rectification applications decided preferably within eight weeks. The Court also recorded that no reasons had been recorded in compliance with s.245(2) (paras 24, 26, 28, 29 and 30). It arises in Refunds, Interest & Condonation matters, on section 245, section 220(6), section 154, section 143(1) of the Income Tax Act 1961, and was decided by G.S. Patel J and Kamal Khata J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Say so squarely in the petition; here the Revenue's own affidavit in reply conceded that the Centralised Processing Centre effected the adjustment without a notice under s.245, which decided the point. If a stay application or a rectification application is pending, ask for a direction that it be decided; the Court treated indefinite pendency as a second, separate ground of grievance. If the department says it is withholding rather than adjusting, ask for the reasons recorded and the approval required by s.245(2).
Still good law. No decision overruling or doubting it was located, and no record of any Supreme Court outcome on it was found on the sources used. It is one of the few reported decisions to set out s.245 in its post-Finance Act 2023 form, with the set-off power in sub-section (1) and the withholding power in sub-section (2); older s.245 authorities were decided on the unamended single-limb provision. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Paragraph 9 of the report contains a typographical slip, reading 'Sub-section (2) of Section 45' where s.245 is plainly meant. The long passages at paras 20 and 22 are block extracts from Hindustan Unilever Ltd. and Jet Privilege (P) Ltd. respectively and are not this Court's own words; nothing in them should be attributed to this Bench. Retrieval note, recorded here because this is the entry where it bit: the summarising retrieval layer truncates silently as well as refusing on volume. On the first request para 9 came back as a single sentence carrying no sign of the slip recorded above; the same paragraph requested a second time came back in full and the slip was in it. A paragraph that comes back shorter than expected is not a complete paragraph — re-request it before concluding anything from it, and never treat a short return as proof that something is absent. This finding survived only because the paragraph was pulled again. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Rule was made absolute in terms of the prayers. Unilateral adjustments made without prior intimation are contrary to the specific wording of the statute and to the settled decisions of the Court. All refunds were to be processed and paid within four weeks and the rectification applications decided preferably within eight weeks. The Court also recorded that no reasons had been recorded in compliance with s.245(2) (paras 24, 26, 28, 29 and 30).
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