Refund adjustment against a stayed tax demand is impermissible without prior intimation to the assessee.

Refund adjustment under section 245 was treated as impermissible where the underlying tax demand had been stayed by the ITAT, because recovery protection attached to the stay order could not be bypassed through set-off of the refund. The adjustment was also held invalid because the assessee was not given prior intimation before the refund was appropriated. The refund was therefore restored with applicable interest, and the matter was decided in favour of the assessee.

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Issues: Whether the Revenue could adjust the petitioner's refund under section 245 against a demand that had been stayed by the Income Tax Appellate Tribunal.

Analysis: The demand for the relevant assessment year had been stayed by the Tribunal. An adjustment of refund against such stayed demand was held to be inconsistent with section 245 of the Income-tax Act, 1961 and contrary to the protection afforded by the stay order. The adjustment was also treated as impermissible where the assessee was not put to prior intimation before the refund was appropriated.

Conclusion: The adjustment of the refund against the stayed demand was not permissible, and the issue was decided in favour of the assessee.

Final Conclusion: The petition succeeded and the Revenue was directed to restore the adjusted refund with applicable interest.

Ratio Decidendi: Refund adjustment under section 245 cannot be made against a demand whose recovery has been stayed, and prior intimation to the assessee is required before any such adjustment.

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