The CPC has adjusted my entire refund against a demand that is under appeal. Do I have to file a separate stay application before I can complain?
No. The Rajasthan High Court held that nowhere in section 220(6) is it specified that a stay application has to be filed; once an appeal under section 246A has been filed within time and in the prescribed form, the assessee is not to be treated as an assessee in default. Adjusting the whole refund suo motu, without the intimation and opportunity that section 245 requires, was held to be de hors sections 245 and 220(6) and outside the recovery machinery of sections 222 and 223. The Court directed refund, with statutory interest, of everything adjusted beyond twenty per cent of the disputed demand.
Decided by the High Court (High Court of Judicature for Rajasthan, Bench at Jaipur - Prakash Gupta and Sameer Jain, JJ.) on 2022-05-25, reported as [2022] 445 ITR 622 (Rajasthan); D.B. Civil Writ Petition No. 11980 of 2021. It bears on section 220(6), section 245, section 246A, section 222, section 223 of the Income Tax Act 1961, in Demand, Recovery & Stay, Refunds, Interest & Condonation and Appeals matters.
Two things collide in practice: the department's twenty per cent guideline for stay of disputed demand, and the CPC's habit of absorbing refunds of later years against an earlier demand without asking. This judgment attacks both. It removes the threshold objection that the assessee never applied for stay - section 220(6) attaches the protection to the filing of the appeal, not to an application - and it treats a suo motu adjustment made without a real section 245 hearing as an act without jurisdiction rather than a mere irregularity. It is the authority to reach for when the reply to a section 245 intimation has been ignored, and it went further than most, imposing costs on the department and directing action against the officers who left the appeal undecided.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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An assessment order under section 143(3) dated 13 December 2019 created a demand of Rs 2,09,44,100 on the petitioner for assessment year 2017-18. He filed an appeal on 26 December 2019. The appeal was not taken up. Refunds due to him for assessment years 2018-19 and 2019-20 were then adjusted against the disputed demand. An intimation under section 245 was issued, and the petitioner responded, asking that no more than twenty per cent of the demand be adjusted while the appeal was pending; the response was not acted on and the entire refund was absorbed. He came to the High Court under Article 226, complaining that the adjustment was made without his consent, without any order under section 220(6), and while an appeal filed in time was undisposed.
The writ petition was allowed. The Court held that section 220(6) nowhere requires a stay application to be filed, and that an assessee who has filed an appeal within time and in the prescribed form is not to be treated as an assessee in default. The suo motu adjustment of the entire refund was made de hors sections 245 and 220(6), because section 245 permits set-off only after written intimation and an opportunity to the assessee, and here the assessee's response had been disregarded. Recovery in the manner adopted was also outside sections 222 and 223, which route recovery from a defaulter through the Tax Recovery Officer. The Court directed the Assessing Officer to refund, within thirty days, the amounts adjusted in excess of twenty per cent of the disputed demand for assessment year 2017-18 together with statutory interest; directed the Chief Commissioner to take action against the officers responsible for leaving the appeal undecided and for disregarding binding pronouncements; and imposed costs of Rs 50,000 on the department, payable in equal halves to the Rajasthan State Legal Services Authority and to the assessee.
The Court read section 220(6) as it is written. The sub-section speaks of an assessee who has presented an appeal under section 246A, and empowers the Assessing Officer to treat him as not being in default; it says nothing about an application, and the Court declined to read one in. From that it followed that the petitioner's status while his appeal was pending was not that of a defaulter, and the recovery machinery in sections 222 and 223, which presupposes a defaulter and a certificate to the Tax Recovery Officer, had no application. The adjustment was then tested against section 245, which permits a refund to be set off against a demand only after intimation in writing to the person and, on the Court's reading, a real opportunity to be heard - an opportunity that is empty if the reply is filed and ignored. The Court also weighed the fact that the delay in disposing of the appeal was entirely outside the petitioner's control; to recover the whole demand in the meantime was to act in terrorem, penalising the assessee for the department's own inaction. That reasoning explains why the relief went beyond declaring the adjustment bad: the Court restored the position to what the twenty per cent norm would have produced, with interest, and turned to the administrative failures that had produced the situation.
Nowhere in the provisions of Section 220(6) of the IT Act, it is specified that the stay application has to be filed.
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Handle my notice → Ask a CA on WhatsAppNo. The Rajasthan High Court held that nowhere in section 220(6) is it specified that a stay application has to be filed; once an appeal under section 246A has been filed within time and in the prescribed form, the assessee is not to be treated as an assessee in default. Adjusting the whole refund suo motu, without the intimation and opportunity that section 245 requires, was held to be de hors sections 245 and 220(6) and outside the recovery machinery of sections 222 and 223. The Court directed refund, with statutory interest, of everything adjusted beyond twenty per cent of the disputed demand. This was decided by the High Court (High Court of Judicature for Rajasthan, Bench at Jaipur - Prakash Gupta and Sameer Jain, JJ.) and bears on section 220(6), section 245, section 246A, section 222, section 223 of the Income Tax Act 1961. It is reported as [2022] 445 ITR 622 (Rajasthan); D.B. Civil Writ Petition No. 11980 of 2021. Two things collide in practice: the department's twenty per cent guideline for stay of disputed demand, and the CPC's habit of absorbing refunds of later years against an earlier demand without asking. This judgment attacks both. It removes the threshold objection that the assessee never applied for stay - section 220(6) attaches the protection to the filing of the appeal, not to an application - and it treats a suo motu adjustment made without a real section 245 hearing as an act without jurisdiction rather than a mere irregularity. It is the authority to reach for when the reply to a section 245 intimation has been ignored, and it went further than most, imposing costs on the department and directing action against the officers who left the appeal undecided. If it applies to you, the first step is this: File the appeal under section 246A within time and in the prescribed form, and say in your reply to the section 245 intimation that section 220(6) protection follows from that filing alone.
An assessment order under section 143(3) dated 13 December 2019 created a demand of Rs 2,09,44,100 on the petitioner for assessment year 2017-18. He filed an appeal on 26 December 2019. The appeal was not taken up. Refunds due to him for assessment years 2018-19 and 2019-20 were then adjusted against the disputed demand. An intimation under section 245 was issued, and the petitioner responded, asking that no more than twenty per cent of the demand be adjusted while the appeal was pending; the response was not acted on and the entire refund was absorbed. He came to the High Court under Article 226, complaining that the adjustment was made without his consent, without any order under section 220(6), and while an appeal filed in time was undisposed. The matter was decided on 2022-05-25 by the High Court (High Court of Judicature for Rajasthan, Bench at Jaipur - Prakash Gupta and Sameer Jain, JJ.). On those facts the High Court held as follows. The writ petition was allowed. The Court held that section 220(6) nowhere requires a stay application to be filed, and that an assessee who has filed an appeal within time and in the prescribed form is not to be treated as an assessee in default. The suo motu adjustment of the entire refund was made de hors sections 245 and 220(6), because section 245 permits set-off only after written intimation and an opportunity to the assessee, and here the assessee's response had been disregarded. Recovery in the manner adopted was also outside sections 222 and 223, which route recovery from a defaulter through the Tax Recovery Officer. The Court directed the Assessing Officer to refund, within thirty days, the amounts adjusted in excess of twenty per cent of the disputed demand for assessment year 2017-18 together with statutory interest; directed the Chief Commissioner to take action against the officers responsible for leaving the appeal undecided and for disregarding binding pronouncements; and imposed costs of Rs 50,000 on the department, payable in equal halves to the Rajasthan State Legal Services Authority and to the assessee.
The Court read section 220(6) as it is written. The sub-section speaks of an assessee who has presented an appeal under section 246A, and empowers the Assessing Officer to treat him as not being in default; it says nothing about an application, and the Court declined to read one in. From that it followed that the petitioner's status while his appeal was pending was not that of a defaulter, and the recovery machinery in sections 222 and 223, which presupposes a defaulter and a certificate to the Tax Recovery Officer, had no application. The adjustment was then tested against section 245, which permits a refund to be set off against a demand only after intimation in writing to the person and, on the Court's reading, a real opportunity to be heard - an opportunity that is empty if the reply is filed and ignored. The Court also weighed the fact that the delay in disposing of the appeal was entirely outside the petitioner's control; to recover the whole demand in the meantime was to act in terrorem, penalising the assessee for the department's own inaction. That reasoning explains why the relief went beyond declaring the adjustment bad: the Court restored the position to what the twenty per cent norm would have produced, with interest, and turned to the administrative failures that had produced the situation. In the words reproduced by the source cited on this page: "Nowhere in the provisions of Section 220(6) of the IT Act, it is specified that the stay application has to be filed." The decision followed or applied Union of India v. Kamlakshi Finance Corpn. Ltd. 1992 taxmann.com 16 (SC).
It was decided by the High Court on 2022-05-25 and is reported as [2022] 445 ITR 622 (Rajasthan); D.B. Civil Writ Petition No. 11980 of 2021. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 220(6), section 245, section 246A, section 222, section 223, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was allowed. The Court held that section 220(6) nowhere requires a stay application to be filed, and that an assessee who has filed an appeal within time and in the prescribed form is not to be treated as an assessee in default. The suo motu adjustment of the entire refund was made de hors sections 245 and 220(6), because section 245 permits set-off only after written intimation and an opportunity to the assessee, and here the assessee's response had been disregarded. Recovery in the manner adopted was also outside sections 222 and 223, which route recovery from a defaulter through the Tax Recovery Officer. The Court directed the Assessing Officer to refund, within thirty days, the amounts adjusted in excess of twenty per cent of the disputed demand for assessment year 2017-18 together with statutory interest; directed the Chief Commissioner to take action against the officers responsible for leaving the appeal undecided and for disregarding binding pronouncements; and imposed costs of Rs 50,000 on the department, payable in equal halves to the Rajasthan State Legal Services Authority and to the assessee. It arises in Demand, Recovery & Stay, Refunds, Interest & Condonation and Appeals matters, on section 220(6), section 245, section 246A, section 222, section 223 of the Income Tax Act 1961, and was decided by High Court of Judicature for Rajasthan, Bench at Jaipur - Prakash Gupta and Sameer Jain, JJ.. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Answer every section 245 intimation in writing, limit your consent to twenty per cent of the disputed demand, and keep proof of the response - the Court relied on the department having ignored one. If the whole refund has already been absorbed, ask for refund of the excess over twenty per cent with statutory interest, not merely for a stay going forward. Do not let the absence of a formal stay application be conceded as a defect; that is the argument this judgment removes.
Still good law. No appeal against this judgment was traced and nothing later was found doubting it. I did not find any Supreme Court decision on the specific point that section 220(6) needs no separate stay application. Note, however, that another High Court has since disagreed in part. The Calcutta High Court in P. S. Srijan Height Developers v. ACIT (WPO 780 of 2025, Original Side, Om Narayan Rai J, decided 4 May 2026, neutral citation 2026:CHC-OS:153) said at paragraph 34: "This Court respectfully disagrees with the observations made in Rajendra Kumar (supra) to the limited extent 'that once an appeal is filed within the time in the prescribed format, the assessee will not be deemed as an assessee-in-default.'" That judgment cites this one as [2022] 445 ITR 622 (Raj). The disagreement is expressly confined to the section 220(6) 'not in default' proposition; the rest of this judgment is undisturbed, and on the section 245 point the Calcutta High Court went the same way, holding that adjusting a refund one day after a 21-day section 245 intimation was a clear breach of the power to adjust and directing refund of everything adjusted in excess of twenty per cent of the disputed demand. Outside Rajasthan, expect the Revenue to cite paragraph 34 against the 'no separate stay application' argument, and be ready to run the section 245 ground independently of it. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The twenty per cent figure comes from the relief the petitioner himself sought and from the departmental practice the Court accepted; the judgment does not lay down twenty per cent as a rule of law. The judgment as read does not identify the CBDT instruction by number. Whether the directions against the officers were later modified could not be established. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was allowed. The Court held that section 220(6) nowhere requires a stay application to be filed, and that an assessee who has filed an appeal within time and in the prescribed form is not to be treated as an assessee in default. The suo motu adjustment of the entire refund was made de hors sections 245 and 220(6), because section 245 permits set-off only after written intimation and an opportunity to the assessee, and here the assessee's response had been disregarded. Recovery in the manner adopted was also outside sections 222 and 223, which route recovery from a defaulter through the Tax Recovery Officer. The Court directed the Assessing Officer to refund, within thirty days, the amounts adjusted in excess of twenty per cent of the disputed demand for assessment year 2017-18 together with statutory interest; directed the Chief Commissioner to take action against the officers responsible for leaving the appeal undecided and for disregarding binding pronouncements; and imposed costs of Rs 50,000 on the department, payable in equal halves to the Rajasthan State Legal Services Authority and to the assessee.
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