Tax refund adjustment against stayed income-tax demand u/s220(6) stay, barred; adjusted later-year refunds ordered returned.

After the assessee's application under s. 220(6) of the Income-tax Act, 1961 was allowed by the AO and the assessee was treated as "not in default," the demand for the earlier AY stood stayed; consequently, the Revenue lacked authority to adjust refunds of a later AY against that stayed demand. As the assessee had already deposited more than 20% of the disputed tax to secure the stay, the HC held that only the stayed-demand adjustment was impermissible, not the stay-deposit. The HC directed the Revenue to refund, within six weeks, the amounts adjusted from the later-year refund pursuant to the intimation, excluding the stay-deposit.

---

---

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether, after the Assessing Officer had granted protection under Section 220(6) by treating the assessee as "not in default" and staying recovery of the demand for an earlier assessment year, the revenue authorities could lawfully adjust a later-year refund against that stayed demand under Section 245.

(ii) Whether the assessee was entitled to refund of the amounts adjusted from the later-year refund against the stayed demand, and if so, whether such refund had to exclude the amount earlier deposited (in excess of 20% of the disputed tax) for obtaining the Section 220(6) stay.

(iii) Whether any direction should be issued for expeditious disposal of the pending first appeal, given its long pendency.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Permissibility of adjustment under Section 245 against a demand stayed under Section 220(6)

Legal framework (as addressed by the Court): The Court considered the effect of an order under Section 220(6) treating the assessee as "not in default" (i.e., staying the demand), and examined the impugned adjustment of refund made under Section 245.

Interpretation and reasoning: The Court held that once the assessee's application under Section 220(6) had been considered and allowed by the Assessing Officer, resulting in the assessee being treated as not in default and the relevant demand being stayed, the revenue authorities were thereafter not entitled to make any adjustment against that stayed demand. The Court treated the stayed demand as not available for recovery by adjustment.

Conclusion: Adjustment of the later-year refundable amounts against the earlier-year demand, despite the Section 220(6) stay, was impermissible in law.

Issue (ii): Entitlement to refund of adjusted amounts and exclusion of the stay-deposit

Legal framework (as addressed by the Court): The Court proceeded on the undisputed factual basis that the assessee had deposited a sum in excess of 20% of the tax in dispute for the purpose of being treated as not in default under Section 220(6), and that the Assessing Officer had granted the stay.

Interpretation and reasoning: Since the adjustment against the stayed demand could not be sustained, the Court directed restitution by refund of the amounts adjusted from the refund for the later assessment year. However, the Court expressly carved out an exception: the sum deposited by the assessee while seeking stay under Section 220(6) was not to be refunded pursuant to this order. The Court further clarified that the refundable amount is confined to what was adjusted by the intimation/order under Section 245 and does not include the voluntary deposit made to secure the stay.

Conclusion: The revenue authorities were directed to refund the amount adjusted from the later-year refund against the stayed demand, excluding the amount deposited by the assessee for obtaining the Section 220(6) stay, within the time stipulated by the Court.

Issue (iii): Direction for expeditious disposal of the pending appeal

Legal framework (as addressed by the Court): The Court took note of the prolonged pendency of the assessee's appeal before the appellate authority since 2016.

Interpretation and reasoning: Given the long pendency, the Court considered it appropriate to direct the appellate authority to dispose of the appeal expeditiously.

Conclusion: The appellate authority was directed to dispose of the pending appeal as expeditiously as possible, preferably within four weeks from communication of the order.

---