Court rules adjustments made without prior intimation under Income Tax Act illegal. Respondents must follow statutory requirements.

The court held that adjustments made without prior intimation under Section 245 of the Income Tax Act are illegal. The respondents were directed to strictly adhere to the statutory requirement of issuing prior intimation and allowing the taxpayer to respond before making any adjustments. The adjustments in the writ petitions were set aside, granting the department the liberty to reissue intimation and proceed lawfully. The court allowed the writ petitions, overturning the adjustments made without prior intimation under Section 245, while permitting lawful action after providing due intimation and opportunity to respond.

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Issues Involved:
1. Whether, in the absence of intimation under Section 245 of the Income Tax Act, 1961, adjustment of refund can be made against outstanding demand for different Assessment Years.

Detailed Analysis:

Section 245 of the Income Tax Act:
Section 245 mandates that before adjusting any refund against outstanding tax demand, the taxpayer must be given prior intimation in writing. This section ensures that the taxpayer is aware of the proposed action and can respond accordingly.

CPC Instruction No. 1 and Standard Operating Procedure (SOP):
The CPC Instruction No. 1 dated 27th November 2012, and the SOP emphasize that:
1. Prior intimation must be issued to the assessee.
2. The assessee should be given an opportunity to file a reply.
3. The Assessing Officer must examine the reply before making any adjustment.
4. The final adjustment must be communicated to the assessee.

W.P. (T) No. 2073 of 2021:
The petitioner contested the adjustment of a refund amounting to Rs. 22,85,16,240/- for the Assessment Year 2020-21 against outstanding liabilities for the Assessment Years 2014-15, 2015-16, and 2016-17. The petitioner argued that:
1. No intimation was provided for adjustments against the demands for 2014-15 and 2015-16.
2. Even for the 2016-17 demand, the petitioner was not given the 30-day period to respond before the adjustment was made.

The respondents admitted that adjustments were made without the mandatory 30-day period and that no intimation was provided for the demands of 2014-15 and 2015-16. They also acknowledged that the intimation language used was incorrect.

W.P. (T) No. 2851 of 2021:
The petitioner challenged the adjustment of refunds due for the Assessment Years 2005-06, 2006-07, and 2007-08 against the outstanding liability for 2014-15 without any intimation under Section 245. The petitioner had already deposited 31.28% of the outstanding demand for 2014-15 and argued that any further adjustment beyond 20% was against the CBDT instructions.

The respondents did not dispute the lack of intimation for the adjustments against the refunds for 2005-06, 2006-07, and 2007-08.

Legal Precedents:
The court referred to several judgments from the Bombay High Court, including Tata Communications Ltd. and Jet Privilege Private Ltd., which held that adjustments without prior intimation under Section 245 are illegal. The court emphasized that the statutory requirement of prior intimation must be strictly followed.

Conclusion:
The court concluded that:
1. Adjustments made without prior intimation under Section 245 are illegal.
2. The respondents must follow the statutory mandate of issuing prior intimation and providing an opportunity for the taxpayer to respond before making any adjustments.
3. The adjustments made in both writ petitions were set aside, but the department was given liberty to reissue intimation and proceed according to law.

Final Judgment:
The court allowed the writ petitions, setting aside the adjustments made without prior intimation under Section 245, while permitting the department to act in accordance with the law after due intimation and opportunity to respond.

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