The processing centre has set my refund off against demands for two years that are both under appeal, and recovery of one of them is stayed - could it do that, and what do I do now that the money has gone?
The client is a private limited company making auto components, assessed at a circle in Pune. Two demands are outstanding and both are disputed. For AY 2022-23 an assessment under s.143(3) dated 14 March 2025 added Rs 4,80,00,000 and raised a demand of Rs 1,86,40,000. The appeal to the Commissioner (Appeals) was filed on 10 April 2025 and a stay application on 18 April 2025. On 30 June 2025 the Assessing Officer passed a two-line order directing payment of twenty per cent, Rs 37,28,000, which the company paid on 24 July 2025; the order says recovery of the balance will stand stayed until the appeal is decided. For AY 2021-22 a reassessment order dated 28 March 2026 raised a demand of Rs 74,20,000. That appeal was filed on 21 April 2026 with a stay application the same day, and no order has been passed on it. The return for AY 2025-26 was processed on 12 August 2026 and a refund of Rs 62,10,000 was determined, including s.244A interest. An intimation under s.245 appeared on the portal on 2 September 2026 giving twenty-one days to respond. The company responded on 6 September 2026, setting out the stay, the payment already made and both pending appeals. On 8 September 2026 the whole refund was adjusted - Rs 40,00,000 against AY 2022-23 and Rs 22,10,000 against AY 2021-22. No order dealing with the response has been passed or communicated.
Before writing a line on either year, fix which rupee went where and on what date. Download the s.245 intimation, the response acknowledgement and the demand-wise adjustment entry the same week, and take a print of the stay order of 30 June 2025 with the challan for the twenty per cent. The two years do not have the same answer: for one, recovery was stayed and the condition the officer himself imposed had been satisfied, so there was nothing lawfully adjustable left; for the other, the objection is that the reply was never disposed of and that an appeal was on file. A single letter treating both alike invites a single answer that concedes the stronger year.
Section 245(1) permits a set-off only after an intimation in writing of the action proposed to be taken. A High Court has held that the intimation must be prior - not simultaneous with the adjustment and not after it - and treated an adjustment made without it as wholly illegal, directing the refund with interest; another has held that a notice issued after the adjustment cannot cure the failure to give the notice the section makes mandatory; a third made the rule absolute and ordered the refunds paid, holding that adjustments without intimation are contrary to the words of the statute. Here an intimation did issue, so the point is not its absence but that the officer adjusted while the period he himself gave was still running, and without dealing with the reply already on the record. The closest decision on those facts called an adjustment made one day after a twenty-one-day intimation a clear breach of the power and an abject violation of the procedure.
A High Court has ordered a full refund paid where the demands adjusted were covered by subsisting stay orders and the intimation was not previous. Another recorded the Revenue's concession that a refund had been set off against a demand whose recovery stood stayed under s.220(6), and found force in the submission that the action was illegal and arbitrary. A third held that adjustment of a refund against a demand may itself amount to a coercive measure, so doing it for a year already covered by interim protection is not a neutral accounting entry. On these facts there is a further step the department has to answer: the officer fixed twenty per cent as the price of the stay, the company paid it, and on the department's own order nothing more was recoverable for that year at all.
A High Court has held that nowhere in s.220(6) is it specified that a stay application has to be filed, and that once an appeal under s.246A has been filed in time and in the prescribed form the assessee is not to be treated as an assessee in default; on that footing adjusting the whole refund could not stand. That matters because assessee-in-default status is what the recovery machinery runs on - if it does not attach, the set-off has nothing to work against. The five months the officer has taken over the application belong in the same letter: the discretion under s.220(6) is quasi-judicial, and a High Court has held that it must be exercised by a speaking order on prima facie case, financial stringency and balance of convenience rather than by doing nothing.
Where an appeal is pending before the Commissioner (Appeals), a High Court has held that the Board's Office Memorandum of 29 February 2016 as amended on 31 July 2017 permits adjustment of not more than twenty per cent of the disputed demand, and that anything above that is to be given back. Twenty per cent of Rs 74,20,000 is Rs 14,84,000, so Rs 7,26,000 taken for the reassessment year is outside the department's own norm; and for the older year the twenty per cent was paid a year earlier, so the whole Rs 40,00,000 is. The figure is not a floor either - the Supreme Court has held that the memoranda do not fetter the quasi-judicial discretion, and a High Court has said there is nothing magical about twenty per cent. Nor does the processing centre's own scheme displace this: a High Court has held that clause 10 of the Centralised Processing Scheme, 2011 cannot be read in isolation, the power to set off being circumscribed by the Act and by the Board's instructions.
A High Court acting on its own motion read the section as a staged action - prior intimation, a reply from the assessee, consideration of that reply by the officer, an order, and communication of the outcome - and the Board converted those directions into an instruction requiring strict adherence before any adjustment, with an internal timeline for the officer to respond to the processing centre. Ask for the date on which the matter was communicated to the jurisdictional officer and measure that timeline against the two days that actually elapsed. Until there is an order, nothing on the file records why a subsisting stay, a paid deposit and two pending appeals were disregarded, and that silence is what a writ court will be asked to look at.
Section 246A is an exhaustive list of orders appealable to the Commissioner (Appeals) and it contains no clause for an order or intimation under s.245, so there is nothing for an appeal to bite on; the remedy the courts have in fact entertained and granted against a set-off is a petition under article 226, and every reported challenge in this collection went that way. Nor should the set-off be smuggled into the appeals against the assessment and the reassessment: the answer will be that the set-off is not the order under appeal, and the ground will be lost along with the time spent on it.
Where a refund arises from giving effect to an appellate order the additional interest is statutory and can be refused only in the one situation the Act allows, delay attributable to the assessee; a High Court has held that a broken departmental portal and a reorganisation the department was told about are not that. Where interest has accrued and become part of the sum refundable, withholding part of that sum is non-payment and interest runs on the unpaid amount, which is not interest on interest. And a Tribunal bench, whose order binds nobody, has held that a part refund is appropriated first against the interest component and only the balance against tax, so that the tax still outstanding continues to carry interest until it is actually paid - worth working out before accepting a part release as full satisfaction.
Section 250(6A) says the Commissioner (Appeals) may, where it is possible, decide the appeal within one year from the end of the financial year in which it is filed - words that carry no consequence for breach, so nothing lapses and no relief follows from the delay. That matters commercially: a stay under s.220(6) runs while the appeal is pending, so the longer the appeals sit the longer the client's money is with the department and the more likely the next year's refund meets the same treatment. The first appellate authority has, on one High Court's view, inherent, implied and ancillary power to stay recovery of a disputed demand while an appeal under s.246 or s.246A is pending, so the stay for the reassessment year can be pressed there as well as before the officer.
The stayed year is the one that usually comes back, and quickly, because the stay order and the challan are documentary facts and the department has to explain a recovery it had itself suspended. The reassessment year more often ends in a partial release - what exceeded twenty per cent of the disputed demand - with the rest retained until the appeal is decided, which is the outcome the closest reported facts produced. Interest on what is returned is the piece most often refused, and refused without much explanation. What almost never happens is that the adjustment is treated as deciding anything about the demand: the money comes back, the appeals continue, and the same refund is at risk again next year unless an order on the stay application is obtained in the meantime.
