Introduction
The Orissa High Court in its judgment dated 11 August 2025 in Reliable Security and Intelligence Services (Orissa) (P.) Ltd. v. NFAC addressed the scope of powers of the Assessing Officer under Section 245 of the Income-tax Act, 1961. The dispute arose when the AO adjusted refunds due to the assessee against outstanding tax demands without issuing any further communication after an initial intimation. The assessee challenged this action as a violation of natural justice, contending that fresh consent or intimation was required before making such adjustments. The Court, however, upheld the AO’s action, holding that once an assessee admits receipt of intimation under Section 245 and fails to respond, the AO is legally empowered to set off refunds against existing liabilities. This ruling reinforces the principle that the statutory duty lies on the assessee to respond, and the AO need not issue repeated notices before making adjustments.
Reliable Security and Intelligence Services (Orissa) (P.) Ltd. v. National Faceless Appeal Centre (NFAC):
Factual Background
- The assessee’s return for AY 2018-19 was scrutinized and a demand was raised and confirmed by the Commissioner (Appeals).
- The assessee applied under Section 220(6) for a stay, depositing 20% of the demand. The AO granted the stay but retained the right to adjust any refund due to the assessee, per Section 245.
- Subsequently, the AO passed a Section 148 notice raising additional demand and then adjusted refunds due for AYs 2021-22, 2022-23, 2023-24, and 2024-25 against the outstanding liability of AY 2018-19.
- The assessee challenged this, arguing that no intimation (as required under Section 245) was issued before making such adjustments.
Orissa High Court Judgment (Aug 11, 2025)
Key Holding:
- The court focused on whether natural justice requires that, after issuing the statutorily mandated intimation, the AO must await a response before adjusting refunds.
- It noted the significance of the term “an intimation” in Section 245: once it is admitted that such intimation was received by the assessee, the burden shifts to the assessee to respond.
- Since the assessee admitted it did not respond to the intimation, the AO was empowered to set off the refund (or part of it) against any outstanding tax demand “in lieu of payment of the refund,” per Section 245.
Interpretation:
- The court interpreted Section 245 as allowing refund adjustment if the assessee remains silent after receiving proper intimation. The duty to respond lies with the assessee, not the AO.
- Once the assessee admits the intimation was received and fails to contest, the AO is legally entitled to adjust the refund.
Statutory Context: Section 245
- Section 245 permits adjustment of refunds due to the assessee against earlier years’ tax demand, but only after giving the assessee written intimation.
- If the assessee does not respond to this intimation, the AO may proceed with the adjustment—thereby honoring the statutory framework.
Comparison with Other Jurisdictions
- Other High Courts (e.g., Mumbai, Kolkata, Delhi) have emphasized that failure to give prior intimation before set-off amounts to breach of natural justice, rendering such adjustment invalid.
- In contrast, here, the Orissa HC ruled that when intimation is indeed given—and the assessee simply doesn’t respond—the AO’s action is lawful.
Broader Implications
- AO’s Authority: When an assessee receives “an intimation” under Section 245 and fails to respond, the AO need not seek further confirmation before adjusting refunds.
- Responsibility of Assessee: The onus is firmly on the assessee to act. If no objection is raised in response to the intimation, AO’s adjustment cannot be faulted.
- Compliance Incentive: This reinforces the need for assessees to vigilantly monitor communications and respond promptly to avoid automatic set-offs.
Summary Table
| Aspect | Orissa HC Judgment (Aug 11 2025) |
|---|---|
| Issue | Can AO adjust refunds without further intimation when assessee fails to respond? |
| AO’s View | Yes—once intimation is given, non-response justifies adjustment |
| Court’s Finding | Section 245 usage lawful; once intimation received and no response, AO empowered to adjust |
| Assessee’s Role | Must respond to intimation under Section 245, else adjustment proceeds |
| Alignment with Jurisprudence | Consistent with statutory scheme; contrasts with cases denying set-off without intimation |
Conclusion
The Orissa High Court’s decision is clear: If the assessee receives the mandatory intimation under Section 245 and fails to act, the AO can lawfully adjust any refund without further communication. This ruling underscores the importance for assessees to engage in the procedure once notified.