2026 (2) TMI 773 - HC - Income Tax

Violation of Tribunal stay resulted in mandatory refund of excess adjustment, with interest, and modification of the stay.

Tribunal conditional stay limiting adjustment to 20% of an outstanding demand was violated by respondents who adjusted the entire refund during the ... Stay of Demand - conditional stay of recovery of the demand - Tribunal, after noting that a refund directed that such refund should be adjusted to the extent of 20% of the outstanding demand HELD THAT:- The condition prescribed for the stay was that the refund for Assessment Year 2005-06 should be adjusted only to the extent of 20% of the outstanding demand for Assessment Year 2020-21, and the balance demand, i.e. 80% of the demand for the Assessment Year 2020-21, is stayed for a period of 180 days or the disposal of the Appeal, whichever is earlier. Tribunal has clearly erred (while passing the impugned Order in not directing the Respondents to refund the amount along with interest as per law. We note that the Tribunal has not given any valid reason for refusing to direct the Respondents to refund the illegal adjustment of refund for the Assessment Year 2005-06 against the demand for the Assessment Year 2020-21, even though the Tribunal has accepted the fact that there has been no change in the legal and factual position and that the stay should be extended on the same terms as granted earlier. Hence, we set aside the impugned Order of the Tribunal to this limited extent and direct the Respondents to refund the amount of Rs. 28,55,26,240/- for Assessment Year 2005-06, along with interest as per law. The said refund shall be granted to the Petitioner within a period of three weeks from the date of uploading of this Order. The impugned Order of the Tribunal in so far as its grants stay of recovery of the outstanding demand of the Assessment Year 2020-21, would continue to operate with the above modification. Issues: Whether the Tribunal erred in refusing to direct refund of the portion of a refund for Assessment Year 2005-06 which was wrongfully adjusted in excess of 20% of the demand for Assessment Year 2020-21 contrary to the Tribunal's earlier stay order, and whether the Respondents must be directed to refund the excess amount with interest.Analysis: The Tribunal had on January 17, 2025 granted a conditional stay of recovery for AY 2020-21 directing that only 20% of the outstanding demand be adjusted from the refund due for AY 2005-06 and that the balance be stayed. Despite that order, the Respondents adjusted the entire refund on February 17, 2025. The Tribunal later extended the stay but declined to direct immediate refund of the excess adjustment. The High Court examined the record, including the challans evidencing the full adjustment, the Tribunal's stay order limiting adjustment to 20%, and the absence of any vacating or amendment of that order prior to the February 17, 2025 adjustments. The Court found the Respondents' action of adjusting the entire refund during the subsistence of the Tribunal's order to be contrary to and in violation of the Tribunal's conditional stay, and noted that the Tribunal gave no valid reason to refuse directing a refund of the excess adjustment.Conclusion: The impugned portion of the Tribunal's order is set aside. The Respondents are directed to refund Rs. 28,55,26,240 (the amount adjusted in excess of 20% of the demand) for Assessment Year 2005-06, together with interest as per law, to the Petitioner within three weeks from the date of uploading of the High Court order. The Tribunal's stay of recovery for AY 2020-21 continues to operate with this modification.