Facts of the Case

The Petitioner, Indus Towers Limited, challenged the intimation dated 01.09.2023 issued under Section 245 of the Income Tax Act, 1961, whereby the Respondent (Income Tax Department) adjusted the refund due for Assessment Year (AY) 2022–23 against alleged outstanding tax demands of earlier assessment years.

Initially, through emails dated 28.08.2023, the department proposed adjustment of refund against demands for AY 2021–22 and AY 2018–19. However, in the impugned intimation, the Respondents also adjusted the refund against demand for AY 2017–18, which was not part of the original proposal.

Further, the Petitioner contended that despite being granted 21 days to respond, the order was passed within just 4 days.

 Issues Involved

  1. Whether adjustment of refund under Section 245 of the Income Tax Act, 1961 can be made beyond the scope of prior notice/proposal.
  2. Whether passing the adjustment order before expiry of response time violates principles of natural justice.
  3. Whether adjustment can be made against disputed/stayed tax demands.

 Petitioner’s Arguments

  • The adjustment was beyond the scope of the initial proposal, as AY 2017–18 was never included in the notice emails.
  • There was a clear violation of principles of natural justice, since:
    • The Petitioner was given 21 days to respond.
    • The order was passed within only 4 days.
  • The tax demand for certain years was already stayed by the Court, making adjustment improper.
  • The action of the department was arbitrary and contrary to statutory provisions under Section 245.

Respondent’s Arguments

  • The Respondent relied on available records and justified the adjustment under Section 245, which permits set-off of refunds against outstanding demands.
  • No detailed counter-affidavit was filed; arguments were based on existing material.
  • Court Order / Findings
  • The Court observed that the Respondents deviated from the original proposal communicated to the Petitioner.
  • It acknowledged prima facie violation of natural justice, particularly:
    • Passing the order before expiry of response period.
    • Inclusion of additional assessment year (AY 2017–18) without prior notice.
  • Accordingly, the Court:
    • Set aside the impugned intimation/order dated 01.09.2023
    • Granted liberty to the tax authorities to proceed afresh in accordance with law

Important Clarifications

  • Authorities must strictly adhere to procedural fairness before invoking Section 245.
  • Any adjustment of refund must be:
    • Based on clear prior intimation
    • Within the scope of the proposal communicated
  • Adequate opportunity of hearing must be granted and respected.

Sections Involved

  • Section 245, Income Tax Act, 1961 – Set-off of refunds against tax remaining payable

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/60826092023CW127222023_181159.pdf

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