Withholding prior written intimation before set-off violates mandatory section 245; stay under section 220(6) persists until appeal disposal

HC held that withholding prior written intimation before setting off refunds against outstanding demands violated mandatory section 245 procedures and rendered the adjustments illegal. The court ruled that a stay under section 220(6) continues until disposal of the appeal, extending the payment timeline. Consequently, adjustments made for AY 2021-22 against earlier demands and for AY 2017-18 against 2016-17 are quashed and set aside. The respondent must pay the refunded or additional amounts to the petitioner within two weeks, with interest under section 244A until payment.

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Issues involved:
The issues involved in the judgment are the adjustment of refunds against outstanding demands without prior intimation under the Income-tax Act 1961.

Judgment Details:

Issue 1: Adjustment of refund for AY 2021-22 against demands for AY 2015-16 and 2016-17

The Petitioner raised a grievance regarding the Respondents unlawfully adjusting a refund due for AY 2021-22 against demands for AY 2015-16 and 2016-17 without prior intimation under section 254 of the ITA. The Petitioner contended that the demands for AY 2015-16 and 2016-17 were stayed by orders, and the adjustment was made without following the required procedures. The Respondent's counsel argued that the adjustment was justified due to the expiry of the stay period for the demand of AY 2015-16. However, the Court held that the stay should continue until the disposal of the appeal and not just for a limited period as per section 220(6) of the ITA. The Court also emphasized the mandatory requirement of prior intimation before adjusting the refund, citing relevant case laws. Consequently, the Court quashed the adjustment and ordered the refund to be paid to the Petitioner with interest.

Issue 2: Adjustment of refund for AY 2017-18 against demand for AY 2016-17

The Petitioner also contested the adjustment of a refund for AY 2017-18 against the demand for AY 2016-17 without prior intimation under section 245 of the Act. The Respondent admitted a procedural lapse in this adjustment but argued that it did not invalidate the adjustment due to the outstanding demand for AY 2016-17. However, the Court reiterated the necessity of prior intimation before such adjustments, as established in previous judgments. The Court found the adjustment to be wholly illegal and ordered the quashing of the adjustment, directing the refund to be paid to the Petitioner along with interest.

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