Your refund was adjusted against an old demand. Did they have to tell you first?
Yes, and beforehand. Intimation under s.245 must be given before the set-off is effected — not at the same time, and not afterwards. Failure to do so made the adjustment wholly illegal, and the refund was ordered with interest.
Decided by the High Court (Bombay High Court — K.R. Shriram J and Abhay Ahuja J) on 2021-08-09, reported as [2021] 131 taxmann.com 119 (Bombay); 2021 SCC OnLine Bom 1799; Writ Petition No. 40 of 2021. It bears on section 245, section 143(1), section 244A, section 220(6) of the Income Tax Act 1961, in Demand, Recovery & Stay matters.
Refund adjustment is the quietest form of recovery — it happens on the portal with no hearing. The sequencing point is what makes it challengeable: the notice must come first, and often it does not.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2019-20 an intimation under s.143(1) dated 17 March 2020 determined a refund of Rs 44,24,54,040. On 13 May 2020 the Centralized Processing Centre issued an intimation under s.245 saying the refund would be adjusted against outstanding demands — Rs 1,48,02,770 for 2015-16, Rs 31,31,82,800 for 2016-17 and Rs 64,37,110 for 2018-19 — and gave 30 days to respond. The petitioner replied on 21 May 2020 that nothing was adjustable because the demands were stayed in pending appeals or were awaiting rectification; the 2018-19 demand was later rectified and dropped out. Form 26AS showed that the adjustments for 2015-16 and 2016-17 had in fact been made on 5 May 2020, eight days before the intimation was issued. The department accepted that the intimation went out only on 13 May 2020, explaining that the process had been started on 17 March 2020 but that a technical error had held it up. Appeals against the 2015-16 and 2016-17 demands were pending and 20 per cent of each demand had been deposited, so stays were in force. Rs 37,63,57,620 remained unrefunded when the petition was filed.
The petition succeeded on two grounds. First, s.245 permits the officer to set off the refund only after giving an intimation in writing of the action proposed, so the intimation must precede the set-off; it can be neither simultaneous nor subsequent, and the department's failure to comply with that mandatory prior requirement made the adjustment wholly illegal (paras 8 and 9). Second, 20 per cent of the disputed demands for 2015-16 and 2016-17 having been deposited under the Office Memorandum of 29 February 2016 as amended, a stay of demand was in force, which extends the time to pay so that the petitioner is not deemed to be an assessee in default and the recovery machinery cannot be set in motion (para 10). The department was directed to refund the amount determined for 2019-20 with interest as per law within four weeks (para 11), and the Commissioner (Appeals) was asked to dispose of the pending appeals expeditiously (para 13). The Court did not accept, or need to address, the department's explanation that a technical error had delayed the intimation.
The Court read s.245 closely. The officer may set off the amount to be refunded, or part of it, against a sum remaining payable, but only after giving an intimation in writing of the action he proposes to take — so the section requires the intimation to come first (para 8). It found support in Suresh B. Jain, confirmed on appeal by a Division Bench in A.N. Shaikh v. Suresh B. Jain, and in Hindustan Unilever. On the facts the department's own affidavit put the intimation at 13 May 2020 while Form 26AS put the adjustment at 5 May 2020, so the requirement had simply not been met and the adjustment was illegal (para 9). On the second ground, the Court noted that under the Office Memorandum of 29 February 2016, as amended on 25 August 2017, a stay follows on a deposit of 20 per cent of the disputed demand; the deposit having been made and accepted, the stays were in force for both years, and the effect of the deposit, following Hindustan Unilever, is that the time to pay stands extended and the assessee is not in default (para 10). It brushed aside a dispute about whether an extension to deposit for 2016-17 had been granted, since the money had been paid and taken (para 4).
it clearly requires the intimation to be given prior to the officer sets off the amount payable against the amount to be refunded. It can be neither simultaneous nor subsequent.
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Handle my notice → Ask a CA on WhatsAppYes, and beforehand. Intimation under s.245 must be given before the set-off is effected — not at the same time, and not afterwards. Failure to do so made the adjustment wholly illegal, and the refund was ordered with interest. This was decided by the High Court (Bombay High Court — K.R. Shriram J and Abhay Ahuja J) and bears on section 245, section 143(1), section 244A, section 220(6) of the Income Tax Act 1961. It is reported as [2021] 131 taxmann.com 119 (Bombay); 2021 SCC OnLine Bom 1799; Writ Petition No. 40 of 2021. Refund adjustment is the quietest form of recovery — it happens on the portal with no hearing. The sequencing point is what makes it challengeable: the notice must come first, and often it does not. If it applies to you, the first step is this: Check the dates on the portal: when the s.245 intimation was issued, and when the adjustment was actually made.
For assessment year 2019-20 an intimation under s.143(1) dated 17 March 2020 determined a refund of Rs 44,24,54,040. On 13 May 2020 the Centralized Processing Centre issued an intimation under s.245 saying the refund would be adjusted against outstanding demands — Rs 1,48,02,770 for 2015-16, Rs 31,31,82,800 for 2016-17 and Rs 64,37,110 for 2018-19 — and gave 30 days to respond. The petitioner replied on 21 May 2020 that nothing was adjustable because the demands were stayed in pending appeals or were awaiting rectification; the 2018-19 demand was later rectified and dropped out. Form 26AS showed that the adjustments for 2015-16 and 2016-17 had in fact been made on 5 May 2020, eight days before the intimation was issued. The department accepted that the intimation went out only on 13 May 2020, explaining that the process had been started on 17 March 2020 but that a technical error had held it up. Appeals against the 2015-16 and 2016-17 demands were pending and 20 per cent of each demand had been deposited, so stays were in force. Rs 37,63,57,620 remained unrefunded when the petition was filed. The matter was decided on 2021-08-09 by the High Court (Bombay High Court — K.R. Shriram J and Abhay Ahuja J). On those facts the High Court held as follows. The petition succeeded on two grounds. First, s.245 permits the officer to set off the refund only after giving an intimation in writing of the action proposed, so the intimation must precede the set-off; it can be neither simultaneous nor subsequent, and the department's failure to comply with that mandatory prior requirement made the adjustment wholly illegal (paras 8 and 9). Second, 20 per cent of the disputed demands for 2015-16 and 2016-17 having been deposited under the Office Memorandum of 29 February 2016 as amended, a stay of demand was in force, which extends the time to pay so that the petitioner is not deemed to be an assessee in default and the recovery machinery cannot be set in motion (para 10). The department was directed to refund the amount determined for 2019-20 with interest as per law within four weeks (para 11), and the Commissioner (Appeals) was asked to dispose of the pending appeals expeditiously (para 13). The Court did not accept, or need to address, the department's explanation that a technical error had delayed the intimation.
The Court read s.245 closely. The officer may set off the amount to be refunded, or part of it, against a sum remaining payable, but only after giving an intimation in writing of the action he proposes to take — so the section requires the intimation to come first (para 8). It found support in Suresh B. Jain, confirmed on appeal by a Division Bench in A.N. Shaikh v. Suresh B. Jain, and in Hindustan Unilever. On the facts the department's own affidavit put the intimation at 13 May 2020 while Form 26AS put the adjustment at 5 May 2020, so the requirement had simply not been met and the adjustment was illegal (para 9). On the second ground, the Court noted that under the Office Memorandum of 29 February 2016, as amended on 25 August 2017, a stay follows on a deposit of 20 per cent of the disputed demand; the deposit having been made and accepted, the stays were in force for both years, and the effect of the deposit, following Hindustan Unilever, is that the time to pay stands extended and the assessee is not in default (para 10). It brushed aside a dispute about whether an extension to deposit for 2016-17 had been granted, since the money had been paid and taken (para 4). In the words reproduced by the source cited on this page: "it clearly requires the intimation to be given prior to the officer sets off the amount payable against the amount to be refunded. It can be neither simultaneous nor subsequent." The decision followed or applied Suresh B. Jain v. A.N. Shaikh, Sixteenth Income-tax Officer [1987] 165 ITR 151 (Bom.); A.N. Shaikh, Sixteenth Income-tax Officer v. Suresh B. Jain [1987] 165 ITR 86 (Bom.); Hindustan Unilever Ltd. v. Dy. CIT [2015] 60 taxmann.com 326 / 377 ITR 281 (Bom.).
It was decided by the High Court on 2021-08-09 and is reported as [2021] 131 taxmann.com 119 (Bombay); 2021 SCC OnLine Bom 1799; Writ Petition No. 40 of 2021. 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 143(1), section 244A, section 220(6), 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. The petition succeeded on two grounds. First, s.245 permits the officer to set off the refund only after giving an intimation in writing of the action proposed, so the intimation must precede the set-off; it can be neither simultaneous nor subsequent, and the department's failure to comply with that mandatory prior requirement made the adjustment wholly illegal (paras 8 and 9). Second, 20 per cent of the disputed demands for 2015-16 and 2016-17 having been deposited under the Office Memorandum of 29 February 2016 as amended, a stay of demand was in force, which extends the time to pay so that the petitioner is not deemed to be an assessee in default and the recovery machinery cannot be set in motion (para 10). The department was directed to refund the amount determined for 2019-20 with interest as per law within four weeks (para 11), and the Commissioner (Appeals) was asked to dispose of the pending appeals expeditiously (para 13). The Court did not accept, or need to address, the department's explanation that a technical error had delayed the intimation. It arises in Demand, Recovery & Stay matters, on section 245, section 143(1), section 244A, section 220(6) of the Income Tax Act 1961, and was decided by Bombay High Court — K.R. Shriram J and Abhay Ahuja 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. Respond to a s.245 intimation within the time given, stating whether the demand is disputed and stayed. If the adjustment came first, say so precisely with dates — that sequence is the entire ground.
Validity check could not be completed. The report carries no later-treatment note and no case review of this decision, and no case applying, following or affirming it was found on the full read. The Calcutta High Court has since reached the same conclusion on prior intimation in P.S. Srijan Height Developers v. Asstt. CIT [2026] 186 taxmann.com 1210 (Cal.), decided 4 May 2026, holding that intimation under s.245 must precede the adjustment so that the assessee can object, and directing refund where a 21-day notice was followed by adjustment the next day. That decision was read: its case review names the authorities it followed — Graphite India Ltd., Danieli India, Gaurav Enterprises, Golam Momen, Sun Pharmaceutical Industries and others — and this judgment is not among them. It is agreement in result reached on a separate line of Calcutta authority, not later treatment of this decision. Note also, if that case is cited alongside this one, that it refused interest under s.244A on the excess adjusted because the assessee came to court about two years later, and declined to disturb an earlier adjustment altogether on the ground of delay. 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.
The judgment itself has now been read; the wording quoted is the Court's own, at para 8. Two things worth carrying into practice. The decision rests on a stark fact — Form 26AS showed the adjustment made on 5 May 2020 while the s.245 intimation went out on 13 May 2020 — so it is authority on an adjustment that preceded the intimation, not on an intimation whose response period was cut short. And it has a second, independent ground: where 20 per cent of the disputed demand has been deposited and a stay is in force, the time to pay is extended, the assessee is not in default, and the recovery machinery cannot be set in motion at all. No later decision applying or following this judgment was identified. The department's explanation that a technical error delayed the intimation was not ruled on, so the judgment says nothing about whether such an explanation could ever save an adjustment. 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.
The petition succeeded on two grounds. First, s.245 permits the officer to set off the refund only after giving an intimation in writing of the action proposed, so the intimation must precede the set-off; it can be neither simultaneous nor subsequent, and the department's failure to comply with that mandatory prior requirement made the adjustment wholly illegal (paras 8 and 9). Second, 20 per cent of the disputed demands for 2015-16 and 2016-17 having been deposited under the Office Memorandum of 29 February 2016 as amended, a stay of demand was in force, which extends the time to pay so that the petitioner is not deemed to be an assessee in default and the recovery machinery cannot be set in motion (para 10). The department was directed to refund the amount determined for 2019-20 with interest as per law within four weeks (para 11), and the Commissioner (Appeals) was asked to dispose of the pending appeals expeditiously (para 13). The Court did not accept, or need to address, the department's explanation that a technical error had delayed the intimation.
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