Refund cannot be adjusted against a stayed tax demand; release with statutory interest is required.

A refund arising from a later assessment year under section 143(1) could not be adjusted against an outstanding demand for an earlier year when recovery of that demand had been stayed under section 220(6) of the Income-tax Act, 1961. The subsisting stay protected the disputed demand during the pendency of the appeal, and appropriation of the refund against that stayed liability was treated as illegal and arbitrary. The refund was therefore directed to be released together with statutory interest under section 244A.

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Issues: Whether the refund due to the assessee could be adjusted against an outstanding demand for an earlier assessment year when recovery of that demand had been stayed under Section 220(6) of the Income-tax Act, 1961, and whether the refund along with interest was liable to be released.

Analysis: The stay order granted under Section 220(6) protected the disputed demand for the earlier assessment year during pendency of the appeal. Despite that protection, the refund arising from a subsequent assessment year under an intimation under Section 143(1) was appropriated against the stayed demand. Such adjustment overreached the subsisting stay, was treated as illegal and arbitrary, and could not be sustained. The Court therefore directed release of the refund together with statutory interest under Section 244A.

Conclusion: The adjustment was held impermissible and the refund was ordered to be released with interest, in favour of the assessee.

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