Section 245 — Set Off and Withholding of Refunds in Certain Cases
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. As substituted by the Finance Act, 2023 (with effect from 1 April 2023) and amended by the Finance (No. 2) Act, 2024, the section now both (i) permits set-off of a refund against any sum remaining payable [sub-section (1)] and (ii) consolidates the power to withhold a refund pending assessment/reassessment up to sixty days from the date the assessment/reassessment is made [sub-section (2)].
FA 2026: Amended. The Finance Act, 2026 inserts in sub-section (1), after the words "under this Act", the words and figures "or the Income-tax Act, 2025", deemed inserted with effect from 30 March 2026. A refund due under the 1961 Act may therefore be set off against a sum remaining payable under either the 1961 Act or the Income-tax Act, 2025 (cross-Act set-off).
A. SECTION COMMENTARY
Section 245 serves two functions. Sub-section (1) is the set-off power: where a refund becomes due to any person, the Assessing Officer or the Commissioner/Principal Commissioner/Chief Commissioner/Principal Chief Commissioner may, in lieu of payment, set off the amount (or part) against any sum remaining payable by that person under the Act, after giving the person an intimation in writing of the proposed action. Sub-section (2), as recast, is the withholding power: where a refund becomes due and proceedings for assessment or reassessment are pending, the Assessing Officer may, with the previous approval of the Principal Commissioner/Commissioner and for reasons recorded in writing, withhold the refund up to sixty days from the date on which the assessment or reassessment is made. The Finance (No. 2) Act, 2024 omitted the earlier requirement that the officer be "of the opinion that the grant of refund is likely to adversely affect the revenue" and substituted the "sixty days from" limit; this withholding power absorbs what was earlier in section 241A.
Finance Act, 2026 amendment (flagged): in sub-section (1), after "under this Act", the words "or the Income-tax Act, 2025" are inserted, deemed effective from 30 March 2026. The effect is to permit cross-Act set-off — a refund due under the Income-tax Act, 1961 may be adjusted against a sum remaining payable under the Income-tax Act, 2025 (and, under the corresponding provision of the 2025 Act, vice versa). This is a transition measure that prevents the anomaly of a refund falling due under one Act while a demand subsists under the other; it does not alter the procedural safeguards of prior written intimation.
The procedural safeguard is the heart of the section's litigation. The exercise of the set-off power is discretionary ("may"), and prior intimation in writing is mandatory. The Delhi High Court in Court On Its Own Motion v. Union of India (2013) 352 ITR 273 directed that no refund may be adjusted against an outstanding demand without first serving a prior intimation under section 245 and affording the assessee an opportunity to object, the objections to be considered before any adjustment — a direction implemented by CBDT Instruction No. 12/2013. A simultaneous intimation-and-adjustment will not do (Tata Communications Ltd. v. DCIT).
The power is confined to a sum actually "remaining payable". Where the demand sought to be adjusted has been stayed (by the Assessing Officer or the Commissioner under section 220(6), or by a Tribunal or court), nothing is "remaining payable", and no set-off is permissible (Hindustan Unilever Ltd. v. DCIT). Equally, an intimation under section 143(1) proposing to adjust a refund is not a substitute for the section 245 procedure; the dedicated intimation under section 245, with an opportunity to object, must be followed.
In sum, set-off under section 245 requires (a) a sum genuinely remaining payable; (b) a prior — not simultaneous — written intimation; and (c) consideration of the assessee's objections before adjustment, with reasons communicated. The recast sub-section (2) additionally permits a time-bound withholding (sixty days post-assessment) with PCIT/CIT approval and recorded reasons, and the Finance Act, 2026 extends the set-off reach across the 1961 and 2025 Acts.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025). Note: '***' marks words or a sub-section omitted by amendment, retained only to show the omission.
245. (1) Where under any of the provisions of this Act, a refund becomes due or is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this sub-section.
(2) Where a part of the refund is set off under the provisions of sub-section (1), or where no such amount is set off, and refund becomes due to a person, and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of such person, *** he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, as the case may be, withhold the refund up to sixty days from the date on which such assessment or reassessment is made. Act No. 15 of 2024, w.e.f. 1-10-2024.
C. AUTHORITIES
Section 245 is heavily litigated on procedure. The authorities establish (1) that prior written intimation and consideration of objections are mandatory before any set-off, and (2) that only a sum actually "remaining payable" may be adjusted (a stayed demand cannot).
1. Prior intimation and opportunity to object are mandatory
Glaxo Smith Kline Asia (P) Ltd. v. CIT (2007) 290 ITR 35 (Delhi) — section 245
Court: High Court of Delhi; (2007) 290 ITR 35.
Held: Adjustment of a refund against an outstanding demand without giving the assessee a prior intimation in writing and an opportunity of being heard is in gross violation of section 245. The intimation contemplated by section 245 is a mandatory pre-condition to any set-off, not an empty formality.
Significance: An early and frequently-cited authority establishing that the section 245 intimation is mandatory; a forerunner of the directions later issued in Court On Its Own Motion v. Union of India.
Court On Its Own Motion v. Union of India (2013) 352 ITR 273 (Delhi)
Court: High Court of Delhi; judgment dated 14 March 2013 in W.P.(C) 2659/2012 (2013) 352 ITR 273 / 214 Taxman 335.
Held: Issuing a series of mandamuses to the CBDT on taxpayer grievances, the Court directed, on section 245, that no refund may be adjusted against an outstanding demand without first serving on the assessee a prior intimation of the proposed adjustment under section 245 and affording an opportunity to file objections, which must be considered before any adjustment is made. Mere set-off without prior intimation and consideration of objections is impermissible.
Significance: The leading authority on the procedure for set-off under section 245; it led directly to CBDT Instruction No. 12/2013, which reiterates that prior intimation and disposal of objections are mandatory before any refund is adjusted against demand.
Jet Privilege (P) Ltd. v. DCIT (Bombay High Court) — section 245
Court: High Court of Bombay (writ jurisdiction).
Held: Failure to follow the mandatory requirement of a prior intimation under section 245 before adjusting a refund against an outstanding demand makes the adjustment wholly illegal; such an adjustment is liable to be set aside.
Significance: Reinforces, in the Bombay jurisdiction, that the prior-intimation requirement of section 245 is mandatory and that an adjustment made in breach of it is void.
Tata Communications Ltd. v. DCIT (Bombay High Court) — section 245
Court: High Court of Bombay (writ jurisdiction).
Held: On the facts, where the intimation proposing adjustment and the intimation effecting the set-off were received by the assessee on the same day, the Court treated the prior-intimation requirement of section 245 as not having been satisfied, the assessee having been given no real opportunity to object before the adjustment was made.
Significance: Illustrates the practical content of the "prior intimation" rule of Court On Its Own Motion — the intimation must genuinely precede the adjustment and afford a real opportunity to object; a simultaneous intimation-and-adjustment does not suffice.
2. Only a sum "remaining payable" may be set off — stayed demand excluded
Hindustan Unilever Ltd. v. DCIT (Bombay High Court) — section 245
Court: High Court of Bombay (writ jurisdiction).
Held: Where the demand for certain assessment years has been stayed (whether by the Assessing Officer or by the Commissioner under section 220(6)), there is no sum "remaining payable" within the meaning of section 245, and the stayed demand cannot be set off against a refund due for another assessment year. As nothing is payable while the demand stands stayed, the occasion for adjustment does not arise, and the full refund (including the amount wrongly adjusted) must be paid.
Significance: Defines the outer limit of the set-off power: section 245 can be invoked only against a sum actually "remaining payable"; a stayed or non-enforceable demand is not such a sum.
3. Set-off is "recovery"; covered-issue refunds, the 20% stay norm, and structured discretion
Maruti Suzuki India Ltd. v. DCIT (Delhi High Court) — section 245
Court: High Court of Delhi.
Held: An adjustment of refund under section 245 is a mode of recovery (the term recovery being comprehensive and including adjustment). Where an issue has been decided in the assessee's favour in an earlier year, giving rise to a refund, that refund cannot be adjusted under section 245 against a demand on the very same issue in a subsequent year; reliance on an adverse DRP order is not a valid ground to refuse stay or to make such an adjustment where the issue is covered by orders of the CIT(A) or the Tribunal.
Significance: Establishes that set-off is recovery and cannot be used to defeat a refund on an issue already decided for the assessee, nor to circumvent the demand-stay norms.
Court: High Court of Delhi (2023) 154 taxmann.com 649.
Held: Adjustment of a refund for assessment year 2022-23 against disputed demands for earlier years, while appeals were pending before the CIT(A), was hasty and contrary to law: under the CBDT Office Memorandum dated 29 February 2016 (as amended on 31 July 2017) the Assessing Officer should ordinarily have adjusted not more than twenty per cent of the disputed demand pending first appeal.
Significance: Applies the 20-per-cent stay norm to section 245 adjustments: a refund cannot be fully adjusted against a disputed demand that is pending in appeal and is, by the Office Memorandum, recoverable only to the extent of twenty per cent.
CIT (TDS) v. State Bank of India (Uttarakhand High Court) — section 245
Court: High Court of Uttarakhand; judgment dated 12 October 2015.
Held: The power of adjustment under section 245 is discretionary and must be exercised by being guided by relevant considerations and ignoring irrelevant ones; a simple, absolute stay of recovery bars recovery of the demand by way of adjustment, and the Revenue must respect the stay and not circumvent it through a set-off.
Significance: Confirms that the section 245 discretion is structured (relevant considerations only) and that a stayed demand cannot be adjusted against a refund.
Refund cannot be withheld under section 245 without an established liability (Calcutta High Court)
Court: High Court of Calcutta (writ jurisdiction).
Held: A refund cannot be withheld or set off under section 245 unless the Department establishes a real, ascertained tax liability or demand against which the refund may be adjusted; section 245 is not a blanket tool to retain refunds. Where, during a pending first appeal, a refund has been adjusted in excess of twenty per cent of the disputed demand, the excess adjustment is contrary to the Office Memorandum and violative of natural justice, and the excess must be refunded.
Significance: Confirms that an unascertained or unproven demand cannot found a section 245 set-off, and applies the 20-per-cent stay norm to limit adjustments while an appeal is pending.
4. Recent reaffirmation of the procedural safeguards
Genpact India (P) Ltd. v. DCIT (Delhi High Court, 2024) — section 245
Court: High Court of Delhi; judgment dated 27 February 2024.
Held: Adjustment of a refund against an outstanding demand under section 245 must comply with the prior-intimation requirement and a proper application of mind; an adjustment made without following the prescribed procedure and without considering the assessee's objections is unsustainable.
Significance: A recent reaffirmation of the section 245 procedural safeguards in the Delhi jurisdiction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the local Act (base text amended up to the Finance Act, 2025); the publisher's footnote apparatus and amendment-marker brackets have been removed, and three asterisks (***) denote words or a sub-section omitted by amendment and retained only to mark the omission. Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported. Where a section has not been the subject of a direct reported decision, that is stated candidly and the nearest governing authority or circular is given. This digest is for professional reference and is not legal advice.
CHAPTER XIX — REFUNDS
Section 245 — Set Off and Withholding of Refunds in Certain Cases
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. As substituted by the Finance Act, 2023 (with effect from 1 April 2023) and amended by the Finance (No. 2) Act, 2024, the section now both (i) permits set-off of a refund against any sum remaining payable [sub-section (1)] and (ii) consolidates the power to withhold a refund pending assessment/reassessment up to sixty days from the date the assessment/reassessment is made [sub-section (2)].
FA 2026: Amended. The Finance Act, 2026 inserts in sub-section (1), after the words "under this Act", the words and figures "or the Income-tax Act, 2025", deemed inserted with effect from 30 March 2026. A refund due under the 1961 Act may therefore be set off against a sum remaining payable under either the 1961 Act or the Income-tax Act, 2025 (cross-Act set-off).
A. SECTION COMMENTARY
Section 245 serves two functions. Sub-section (1) is the set-off power: where a refund becomes due to any person, the Assessing Officer or the Commissioner/Principal Commissioner/Chief Commissioner/Principal Chief Commissioner may, in lieu of payment, set off the amount (or part) against any sum remaining payable by that person under the Act, after giving the person an intimation in writing of the proposed action. Sub-section (2), as recast, is the withholding power: where a refund becomes due and proceedings for assessment or reassessment are pending, the Assessing Officer may, with the previous approval of the Principal Commissioner/Commissioner and for reasons recorded in writing, withhold the refund up to sixty days from the date on which the assessment or reassessment is made. The Finance (No. 2) Act, 2024 omitted the earlier requirement that the officer be "of the opinion that the grant of refund is likely to adversely affect the revenue" and substituted the "sixty days from" limit; this withholding power absorbs what was earlier in section 241A.
Finance Act, 2026 amendment (flagged): in sub-section (1), after "under this Act", the words "or the Income-tax Act, 2025" are inserted, deemed effective from 30 March 2026. The effect is to permit cross-Act set-off — a refund due under the Income-tax Act, 1961 may be adjusted against a sum remaining payable under the Income-tax Act, 2025 (and, under the corresponding provision of the 2025 Act, vice versa). This is a transition measure that prevents the anomaly of a refund falling due under one Act while a demand subsists under the other; it does not alter the procedural safeguards of prior written intimation.
The procedural safeguard is the heart of the section's litigation. The exercise of the set-off power is discretionary ("may"), and prior intimation in writing is mandatory. The Delhi High Court in Court On Its Own Motion v. Union of India (2013) 352 ITR 273 directed that no refund may be adjusted against an outstanding demand without first serving a prior intimation under section 245 and affording the assessee an opportunity to object, the objections to be considered before any adjustment — a direction implemented by CBDT Instruction No. 12/2013. A simultaneous intimation-and-adjustment will not do (Tata Communications Ltd. v. DCIT).
The power is confined to a sum actually "remaining payable". Where the demand sought to be adjusted has been stayed (by the Assessing Officer or the Commissioner under section 220(6), or by a Tribunal or court), nothing is "remaining payable", and no set-off is permissible (Hindustan Unilever Ltd. v. DCIT). Equally, an intimation under section 143(1) proposing to adjust a refund is not a substitute for the section 245 procedure; the dedicated intimation under section 245, with an opportunity to object, must be followed.
In sum, set-off under section 245 requires (a) a sum genuinely remaining payable; (b) a prior — not simultaneous — written intimation; and (c) consideration of the assessee's objections before adjustment, with reasons communicated. The recast sub-section (2) additionally permits a time-bound withholding (sixty days post-assessment) with PCIT/CIT approval and recorded reasons, and the Finance Act, 2026 extends the set-off reach across the 1961 and 2025 Acts.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025). Note: '***' marks words or a sub-section omitted by amendment, retained only to show the omission.
245. (1) Where under any of the provisions of this Act, a refund becomes due or is found to be due to any person, the Assessing Officer or Commissioner or Principal Commissioner or Chief Commissioner or Principal Chief Commissioner, as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this sub-section.
(2) Where a part of the refund is set off under the provisions of sub-section (1), or where no such amount is set off, and refund becomes due to a person, and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of such person, *** he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, as the case may be, withhold the refund up to sixty days from the date on which such assessment or reassessment is made. Act No. 15 of 2024, w.e.f. 1-10-2024.
C. AUTHORITIES
Section 245 is heavily litigated on procedure. The authorities establish (1) that prior written intimation and consideration of objections are mandatory before any set-off, and (2) that only a sum actually "remaining payable" may be adjusted (a stayed demand cannot).
1. Prior intimation and opportunity to object are mandatory
Glaxo Smith Kline Asia (P) Ltd. v. CIT (2007) 290 ITR 35 (Delhi) — section 245
Court: High Court of Delhi; (2007) 290 ITR 35.
Held: Adjustment of a refund against an outstanding demand without giving the assessee a prior intimation in writing and an opportunity of being heard is in gross violation of section 245. The intimation contemplated by section 245 is a mandatory pre-condition to any set-off, not an empty formality.
Significance: An early and frequently-cited authority establishing that the section 245 intimation is mandatory; a forerunner of the directions later issued in Court On Its Own Motion v. Union of India.
Court On Its Own Motion v. Union of India (2013) 352 ITR 273 (Delhi)
Court: High Court of Delhi; judgment dated 14 March 2013 in W.P.(C) 2659/2012 (2013) 352 ITR 273 / 214 Taxman 335.
Held: Issuing a series of mandamuses to the CBDT on taxpayer grievances, the Court directed, on section 245, that no refund may be adjusted against an outstanding demand without first serving on the assessee a prior intimation of the proposed adjustment under section 245 and affording an opportunity to file objections, which must be considered before any adjustment is made. Mere set-off without prior intimation and consideration of objections is impermissible.
Significance: The leading authority on the procedure for set-off under section 245; it led directly to CBDT Instruction No. 12/2013, which reiterates that prior intimation and disposal of objections are mandatory before any refund is adjusted against demand.
Jet Privilege (P) Ltd. v. DCIT (Bombay High Court) — section 245
Court: High Court of Bombay (writ jurisdiction).
Held: Failure to follow the mandatory requirement of a prior intimation under section 245 before adjusting a refund against an outstanding demand makes the adjustment wholly illegal; such an adjustment is liable to be set aside.
Significance: Reinforces, in the Bombay jurisdiction, that the prior-intimation requirement of section 245 is mandatory and that an adjustment made in breach of it is void.
Tata Communications Ltd. v. DCIT (Bombay High Court) — section 245
Court: High Court of Bombay (writ jurisdiction).
Held: On the facts, where the intimation proposing adjustment and the intimation effecting the set-off were received by the assessee on the same day, the Court treated the prior-intimation requirement of section 245 as not having been satisfied, the assessee having been given no real opportunity to object before the adjustment was made.
Significance: Illustrates the practical content of the "prior intimation" rule of Court On Its Own Motion — the intimation must genuinely precede the adjustment and afford a real opportunity to object; a simultaneous intimation-and-adjustment does not suffice.
2. Only a sum "remaining payable" may be set off — stayed demand excluded
Hindustan Unilever Ltd. v. DCIT (Bombay High Court) — section 245
Court: High Court of Bombay (writ jurisdiction).
Held: Where the demand for certain assessment years has been stayed (whether by the Assessing Officer or by the Commissioner under section 220(6)), there is no sum "remaining payable" within the meaning of section 245, and the stayed demand cannot be set off against a refund due for another assessment year. As nothing is payable while the demand stands stayed, the occasion for adjustment does not arise, and the full refund (including the amount wrongly adjusted) must be paid.
Significance: Defines the outer limit of the set-off power: section 245 can be invoked only against a sum actually "remaining payable"; a stayed or non-enforceable demand is not such a sum.
3. Set-off is "recovery"; covered-issue refunds, the 20% stay norm, and structured discretion
Maruti Suzuki India Ltd. v. DCIT (Delhi High Court) — section 245
Court: High Court of Delhi.
Held: An adjustment of refund under section 245 is a mode of recovery (the term recovery being comprehensive and including adjustment). Where an issue has been decided in the assessee's favour in an earlier year, giving rise to a refund, that refund cannot be adjusted under section 245 against a demand on the very same issue in a subsequent year; reliance on an adverse DRP order is not a valid ground to refuse stay or to make such an adjustment where the issue is covered by orders of the CIT(A) or the Tribunal.
Significance: Establishes that set-off is recovery and cannot be used to defeat a refund on an issue already decided for the assessee, nor to circumvent the demand-stay norms.
Jindal Stainless Ltd. v. DCIT (2023) 154 taxmann.com 649 (Delhi) — section 245
Court: High Court of Delhi (2023) 154 taxmann.com 649.
Held: Adjustment of a refund for assessment year 2022-23 against disputed demands for earlier years, while appeals were pending before the CIT(A), was hasty and contrary to law: under the CBDT Office Memorandum dated 29 February 2016 (as amended on 31 July 2017) the Assessing Officer should ordinarily have adjusted not more than twenty per cent of the disputed demand pending first appeal.
Significance: Applies the 20-per-cent stay norm to section 245 adjustments: a refund cannot be fully adjusted against a disputed demand that is pending in appeal and is, by the Office Memorandum, recoverable only to the extent of twenty per cent.
CIT (TDS) v. State Bank of India (Uttarakhand High Court) — section 245
Court: High Court of Uttarakhand; judgment dated 12 October 2015.
Held: The power of adjustment under section 245 is discretionary and must be exercised by being guided by relevant considerations and ignoring irrelevant ones; a simple, absolute stay of recovery bars recovery of the demand by way of adjustment, and the Revenue must respect the stay and not circumvent it through a set-off.
Significance: Confirms that the section 245 discretion is structured (relevant considerations only) and that a stayed demand cannot be adjusted against a refund.
Refund cannot be withheld under section 245 without an established liability (Calcutta High Court)
Court: High Court of Calcutta (writ jurisdiction).
Held: A refund cannot be withheld or set off under section 245 unless the Department establishes a real, ascertained tax liability or demand against which the refund may be adjusted; section 245 is not a blanket tool to retain refunds. Where, during a pending first appeal, a refund has been adjusted in excess of twenty per cent of the disputed demand, the excess adjustment is contrary to the Office Memorandum and violative of natural justice, and the excess must be refunded.
Significance: Confirms that an unascertained or unproven demand cannot found a section 245 set-off, and applies the 20-per-cent stay norm to limit adjustments while an appeal is pending.
4. Recent reaffirmation of the procedural safeguards
Genpact India (P) Ltd. v. DCIT (Delhi High Court, 2024) — section 245
Court: High Court of Delhi; judgment dated 27 February 2024.
Held: Adjustment of a refund against an outstanding demand under section 245 must comply with the prior-intimation requirement and a proper application of mind; an adjustment made without following the prescribed procedure and without considering the assessee's objections is unsustainable.
Significance: A recent reaffirmation of the section 245 procedural safeguards in the Delhi jurisdiction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the local Act (base text amended up to the Finance Act, 2025); the publisher's footnote apparatus and amendment-marker brackets have been removed, and three asterisks (***) denote words or a sub-section omitted by amendment and retained only to mark the omission. Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported. Where a section has not been the subject of a direct reported decision, that is stated candidly and the nearest governing authority or circular is given. This digest is for professional reference and is not legal advice.