Refund adjustment under Section 245 requires a real chance to object; unilateral set-off before expiry of notice period was impermissible.

Prior intimation under Section 245 must provide a meaningful opportunity to object before refund adjustment against a disputed demand. Unilateral adjustment the next day, without waiting for the notice period or considering the assessee's right to object, was held inconsistent with natural justice and the revenue's own stay guidelines, so the adjustment beyond 20% was illegal and refundable subject to the pending appeal. A belated challenge to an earlier adjustment was not entertained because the writ petition was filed after an unexplained delay of more than three years, and that adjustment remained undisturbed.

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Issues: (i) Whether the challenge to the adjustment made on 25 October 2022 was barred by delay and laches. (ii) Whether the Revenue could adjust refunds against the disputed demand for assessment year 2018-19 in excess of 20% without first following the statutory procedure under Section 245 of the Income-tax Act, 1961 and considering the assessee's right to object.

Issue (i): Whether the challenge to the adjustment made on 25 October 2022 was barred by delay and laches.

Analysis: The adjustment against the refund for assessment year 2021-22 was made more than three years before the writ petition was filed. No satisfactory explanation was offered for the delay. In writ jurisdiction, belated challenges to monetary recovery measures are ordinarily not entertained when the delay is unexplained and the claim is akin to a time-barred money claim.

Conclusion: The challenge to the adjustment dated 25 October 2022 was not entertained and the petitioner did not succeed on this issue.

Issue (ii): Whether the Revenue could adjust refunds against the disputed demand for assessment year 2018-19 in excess of 20% without first following the statutory procedure under Section 245 of the Income-tax Act, 1961 and considering the assessee's right to object.

Analysis: Section 245 requires prior intimation before adjustment, and the intimation is meant to afford an effective opportunity to object. Such adjustment power must be exercised fairly, reasonably and consistently with natural justice. The Court held that the petitioner's failure to file a stay application did not authorise immediate unilateral adjustment in disregard of the 21-day period granted in the notice under Section 245. The Revenue's action in adjusting the refund the very next day was inconsistent with the statutory procedure and the governing administrative instructions, and the reduction of refund beyond the 20% threshold was unjustified on the facts.

Conclusion: The adjustment made under the intimation dated 10 November 2023 was illegal to the extent it exceeded 20% of the disputed demand, and the petitioner succeeded on this issue.

Final Conclusion: The writ petition was allowed in part: the earlier adjustment was left undisturbed due to delay, but the later adjustment beyond the permissible threshold was directed to be refunded, subject to the outcome of the pending appeal.

Ratio Decidendi: Prior intimation under Section 245 of the Income-tax Act, 1961 must be a meaningful opportunity to object, and refund adjustment against disputed demand must conform to principles of natural justice and the revenue's own stay guidelines; unilateral adjustment before expiry of the response period is impermissible.

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