Revenue cannot adjust a tax refund against a demand whose

Revenue cannot adjust a tax refund against a demand whose recovery has been stayed.

Issue

Whether the Revenue can adjust a refund determined for a subsequent assessment year (AY 2024-25) against an outstanding tax demand for an earlier assessment year (AY 2022-23) under Section 245, when recovery of the earlier demand has been explicitly stayed by an order of the Principal Commissioner of Income-tax (Central).

Facts

For Assessment Year 2022-23, an outstanding tax demand was raised against the assessee.
The Principal Commissioner of Income-tax (Central) passed a formal stay order staying the recovery of the AY 2022-23 demand, subject to the assessee depositing a specified amount in five instalments.
The assessee was determined to be eligible for a tax refund for Assessment Year 2024-25.
During the subsistence of the stay order, the respondent-revenue invoked Section 245 and adjusted the AY 2024-25 refund against the stayed demand for AY 2022-23.
The assessee challenged this adjustment as being in direct contravention of the subsisting stay order.

Decision

The Tribunal/Court held that the Revenue cannot adjust a refund under Section 245 against a demand whose recovery is under an active, subsisting stay order passed by a competent authority.
The adjustment made by the Revenue in violation of the stay order was held to be legally unsustainable.
Consequently, the Revenue was directed to refund the adjusted amount forthwith to the assessee along with applicable statutory interest in accordance with law.

Key Takeaways

Stay Order Protects Against Section 245 Adjustment: An active stay order granted by a competent tax authority completely bars the Revenue from making any unilateral set-off or adjustment of refunds against the stayed demand.
Immediate Refund with Interest: Any adjustment made in contravention of an active stay order is invalid, requiring the Revenue to immediately refund the adjusted sum along with statutory interest.
Strict Adherence to Administrative Orders: The Assessing Officer and revenue authorities are bound by conditional stay orders issued by superior authorities like the PCIT (Central) and cannot circumvent them using Section 245 powers.

HIGH COURT OF PUNJAB & HARYANA

Anshu Hospitals Ltd.

Chairman, Central Board of Direct Taxes

Deepak Sibal and Ms. Rupinderjit Chahal, JJ.

CWP 576 OF 2025 (O & M)

JULY 14, 2026

Sandeep Goyal, Sr. Adv., M.R. Sharma and Rishab Singla, Advs. for the Petitioner. Ranvijay Singh, Sr. Standing Counsel and Vidul Kapoor, Jr. Standing Counsel for the Respondent.

ORDER

Deepak Sibal, J. – Through the instant petition, challenge is made to the adjustment of the refund determined by the respondent-revenue for the assessment year 2024-25 against the income tax dues of the petitioner for the assessment year 2022-23.

2. After perusing the record the following undisputed facts have emerged:-

(i)

Through assessment order dated 30.03.2024, for the assessment year 2022-23, additional income tax @ Rs.20.39 crores was demanded from the petitioner;

(ii)

on 29.04.2024, the petitioner challenged the assessment order dated 30.03.2024 through filing of a statutory appeal, during the pendency whereof, on 22.05.2024, the petitioner voluntarily deposited Rs.1 crore;

(iii)

on 30.09.2024, the petitioner filed an application in its pending appeal for grant of stay of the recovery of the demand beyond Rs.1 crore deposited by the petitioner on 22.05.2024;

(iv)

during pendency of the aforesaid appeal and application for stay with regard to demand made by the respondent authorities for the assessment year 2022-23, assessment order dated 08.10.2024, for the assessment year 2024-25 was passed under Section 143(1) of the Income Tax Act, 1961 (for short -the Act) as per which the petitioner was held entitled to a refund of Rs.19.10 crores;

(v)

on 14.10.2024, the petitioner received a notice under Section 245 of the Act as to why the refund of Rs.19.10 crores pertaining to the assessment year 2024-25 be not adjusted against the earlier demand of Rs.20.39 crores for the assessment year 2022-23;

(vi)

on 24.10.2024, the petitioner’s application for stay filed in the appeal to challenge therein the demand of Rs.20.39 crores, pertaining to the assessment year 2022-23, was allowed subject to the petitioner making a further deposit of Rs.2.05 crores in five installments of Rs.41 lakhs each, with the first installment due on 24.11.2024;

(vii)

on 25.10.2024, respondent No.3 i.e. the petitioner’s Jurisdictional Assessing Officer uploaded on the Income Tax Business Application Portal (for short – ITBA Portal) the factum with regard to the afore-referred interim stay granted in the petitioner’s favour on 24.10.2024 and that

(viii)

through the impugned order dated 04.11.2024, passed under Section 245 of the Act, the respondent-revenue adjusted the refund of Rs.19.10 crores, pertaining to the assessment year 2024-25, against the earlier demand of Rs.20.39 crores pertaining to the assessment year 2022-23.

3. The question that arises for the determination of this Court is as to whether in the light of the afore admitted facts, through the order dated 04.11.2024, passed under Section 245 of the Act, the respondent-revenue could have adjusted the refund determined to be paid to the petitioner for the assessment year 2024-25 against an earlier demand pending against the petitioner for the assessment year 2022-23.

4. Learned counsel for the parties have been heard.

5. Through an assessment order dated 30.03.2024, for the assessment year 2022-23, the petitioner was assessed to pay additional income tax @ Rs.20.39 crores against which demand, on 29.04.2024, the petitioner preferred a statutory appeal during the pendency whereof on 22.05.2024, Rs.1 crore was voluntarily deposited by the petitioner and on 24.10.2024, subject to a further deposit of Rs.2.05 crores by the petitioner, in five equal installments of Rs.41 lakhs each, the entire demand was stayed by the Principal Commissioner of Income Tax (Central), Gurugram.

6. The afore-referred order dated 24.10.2024, passed by the Principal Commissioner of Income Tax (Central), Gurugram, was not challenged by the respondents and thus, allowed to attain finality. On 25.10.2024, the petitioner’s Jurisdictional Assessing Officer also uploaded the stay order on the ITBA Portal.

7. Thus, on 24.10.2024, the demand of income tax @ Rs.20.39 crores, against the petitioner, for the assessment year 2022-23, was stayed subject to the petitioner depositing Rs.2.05 crores in installments of Rs.41 lakhs each which fact was also in the notice of all concerned after having been posted on 25.10.2024, on the ITBA Portal by the petitioner’s Jurisdictional Assessing Officer.

8. In the light of the above, through the impugned order dated 04.11.2024, passed under Section 245 of the Act, refund of Rs.19.10 crores, pertaining to the assessment year 2024-25, determined to be paid to the petitioner through assessment order dated 08.10.2024, could not have been ordered to be adjusted against an earlier demand of Rs.20.39 crores, pertaining to the assessment year 2022-23 as such adjustment was against the order of interim stay passed by the Principal Commissioner of Income Tax (Central), Gurugram on 24.10.2024 in the petitioner’s pending appeal filed by it to challenge therein the demand of tax @ Rs.20.39 crores pertaining to the assessment year 2022-23 especially when the order of the Principal Commissioner of Income Tax (Central), Gurugram dated 24.10.2024 was allowed to attain finality by the respondents and that such order had also been uploaded on 25.10.2024, by the petitioner’s Jurisdictional Assessing Officer on the ITBA Portal.

9. In the light of the above discussion, we hold that adjustment made by the respondent-revenue through the impugned order dated 04.11.2024, in contravention of the stay order dated 24.10.2025, passed by the Principal Commissioner of Income Tax (Central), Gurugram, cannot be sustained. Resultantly, such amount be refunded forthwith to the petitioner after adding therein applicable interest, in accordance with law.

10. All pending miscellaneous application(s), if any, also stand disposed of.