Facts of the Case

The petitioner, Travelport International Operations Limited (UK), challenged an order dated 17.11.2022 whereby the respondents adjusted an amount of ₹6,27,20,736/- against a prior outstanding demand relating to Assessment Year 2019–20 under Section 245 of the Income Tax Act.

An intimation dated 03.11.2022 was issued to the petitioner granting 30 days to respond as to why such adjustment should not be made. However, before the expiry of the said period, the respondents proceeded to adjust the amount and issued the balance refund.

The petitioner contended that the entire refund of ₹31,21,36,560/- ought to have been granted without any adjustment 

Issues Involved

  1. Whether the Revenue can adjust a refund under Section 245 before expiry of the response period granted in the notice.
  2. Whether adjustment is permissible when the demand for the relevant assessment year is already stayed by the appellate authority.
  3. Whether noting “no response” by the department is valid when the response period has not expired.

Petitioner’s Arguments

  • The demand for Assessment Year 2019–20 was already stayed by the Income Tax Appellate Tribunal (ITAT) vide order dated 22.07.2022.
  • The department’s own portal reflected the stay as on 15.11.2022.
  • The adjustment was made before expiry of the 30-day response period, violating principles of natural justice.
  • The remark “no response” under Section 143(1) was misleading since the petitioner was still within the response period.
  • Therefore, adjustment under Section 245 was illegal and the petitioner was entitled to full refund.

Respondent’s Arguments

  • The Revenue relied on the intimation under Section 143(1), which indicated that there was “no response” from the petitioner.
  • It was argued that the adjustment was made in accordance with statutory provisions.

Court’s Findings / Order

  • The Court noted that although 30 days’ time was granted, the department proceeded to adjust the refund before expiry of that period.
  • The Court found this action improper and contrary to procedural fairness.
  • Accordingly, the Court:
    • Set aside the adjustment of ₹6,27,20,736/- made under Section 245
    • Remanded the matter back to the concerned authority for fresh consideration
    • Directed that the petitioner’s writ petition be treated as its response to the notice dated 03.11.2022
    • Directed the authority to decide the matter within four weeks

Important Clarification

  • The judgment reinforces that Section 245 cannot be invoked mechanically.
  • The assessee must be given full opportunity to respond, and such time period must be meaningfully honored.
  • Adjustment of refunds despite stay of demand raises serious legal concerns and must be carefully examined.
  • Procedural compliance and natural justice are mandatory before invoking set-off provisions.

Sections Involved

  • Section 245, Income Tax Act, 1961 – Set-off of refunds against tax demand
  • Section 143(1), Income Tax Act, 1961 – Intimation after processing of return

 

Link to download the order -

https://delhihighcourt.nic.in/app/showFileJudgment/VIB26052023CW71402023_150815.pdf

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