Refund adjustment requires prior notice; invalid set-off under tax law supports refund entitlement and statutory interest.

Statutory adjustment of a refund under section 245 of the Income-tax Act requires prior intimation to the assessee and an opportunity to object; absent that notice, the adjustment is invalid. A certificate issued under the Kar Vivad Samadhan Scheme is conclusive and cannot ordinarily be reopened except for a false declaration or an obvious patent error. On the facts recorded, the Department did not establish that the 1997-98 refund had been validly set off against the earlier 1992-93 demand before the scheme declaration, supporting the assessee's claim to the refund. Statutory interest under section 244A follows the refund entitlement, while any dispute for the pre-processing period was left to rectification proceedings.

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Issues: Whether the assessee's refund for assessment year 1997-98 had been validly adjusted against the earlier demand for assessment year 1992-93 before the declaration under the Kar Vivad Samadhan Scheme, and whether the assessee was therefore entitled to refund and interest.

Analysis: The statutory adjustment of refund under section 245 of the Income-tax Act, 1961 is mandatory and requires prior intimation to the assessee; without such intimation and an opportunity to object, the adjustment is bad in law. The certificate issued under the Kar Vivad Samadhan Scheme is conclusive and cannot be reopened except for a false declaration or an obvious patent error. On the record, the Department continued to pursue the 1992-93 demand without showing a prior adjustment of the 1997-98 refund, which supported the assessee's case that no valid adjustment had been made. The claim for interest under section 244A follows the statutory mandate, while any separate dispute for the pre-processing period was left to be examined through the appropriate rectification route.

Conclusion: The adjustment was not validly established, and the assessee was entitled to the refund of Rs. 1,17,184 with consequential statutory interest in accordance with law.

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