Breach of stay order can justify refund directions where recovery occurred during subsisting stay and revenue interest remained protected.

Where recovery is made during the subsistence of a stay order, the Tribunal may use its incidental and inherent powers to restore the status quo and direct refund if the Revenue's interest remains secured. On the facts, the assessee was found not to have violated the stay order because the adjournment was not sought by it and the stay conditions had been complied with. The Department, however, recovered the disputed demand while the stay was still operating, which amounted to breach of the Tribunal's order, although the action was treated as bona fide. The Tribunal was held competent to order refund of the amount recovered in violation of the stay.

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Issues: (i) whether the assessee had violated the stay order by seeking adjournment, (ii) whether the Department had acted in violation of the stay order by recovering the disputed demand, and (iii) whether the Tribunal had power to direct refund of the amount recovered in violation of the stay order.

Issue (i): whether the assessee had violated the stay order by seeking adjournment.

Analysis: The stay order made continuance of stay conditional upon compliance with deposit and bank guarantee requirements and prohibited the assessee from seeking adjournment. The record showed that the appeal was adjourned because the relevant AMP issue was awaiting consideration by a Special Bench. On the facts, the adjournment could not be treated as one sought by the assessee, and the conditions imposed by the stay order had otherwise been complied with.

Conclusion: The assessee had not violated the stay order.

Issue (ii): whether the Department had acted in violation of the stay order by recovering the disputed demand.

Analysis: Recovery was effected while the stay order was still operating and before the dispute was finally heard. Although the officers acted under a claimed bona fide belief that the stay had automatically ceased, the recovery was nevertheless contrary to the subsisting stay arrangement and thus amounted to flouting of the Tribunal's order.

Conclusion: The Department had acted in violation of the stay order, though the action was held to be bona fide.

Issue (iii): whether the Tribunal had power to direct refund of the amount recovered in violation of the stay order.

Analysis: The Tribunal's powers under section 254 of the Income-tax Act are of wide amplitude and include such incidental and ancillary powers as are necessary to make its jurisdiction effective. Read with the inherent power recognised by section 151 of the Code of Civil Procedure, 1908, the Tribunal could issue appropriate directions to undo a wrong done during the pendency of proceedings, especially where the assessee had furnished bank guarantee and the Revenue's interest remained protected.

Conclusion: The Tribunal had power to direct refund of the amount recovered in violation of the stay order.

Final Conclusion: The assessee succeeded in obtaining refund relief, as the recovery made during the subsistence of stay was set aside and the Revenue was directed to return the amounts collected.

Ratio Decidendi: Where recovery is made in breach of a subsisting stay order, the appellate tribunal may, to do complete justice and preserve the efficacy of its jurisdiction, direct refund under its incidental and inherent powers if the Revenue's interests remain secured.

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