Orissa High Court Quashes Unlawful Refund Adjustment Against Stayed Demand in Saurav Chachra Case

In a significant judicial pronouncement safeguarding the rights of the assessee, the Orissa High Court has strictly reprimanded the revenue authorities for bypassing an active stay order to adjust a pending tax refund. The ruling in the matter of Saurav Chachra Vs Central Board of Direct Taxes serves as a crucial reminder that tax departments cannot arbitrarily recover disputed demands when a formal stay on recovery is actively subsisting.

The Court unequivocally declared that adjusting a legitimate refund against a stayed tax demand is a perfunctory, illegal, and irrational exercise of administrative power. By invoking its extraordinary jurisdiction under Article 226 of the Constitution of India, the High Court mandated the immediate release of the withheld refund along with statutory interest.

Factual Matrix of the Dispute

The genesis of the legal battle traces back to an assessment framed against the assessee for the Assessment Year (AY) 2018–19.

Reassessment and Disputed Demand

On 29 March 2023, the Assistant Commissioner of Income Tax, Central Circle, Sambalpur, finalized an assessment order under Section 147 of the Income Tax Act, 1961. This reassessment resulted in a substantial disputed tax demand amounting to Rs. 84,46,855/-. Aggrieved by this order, the assessee escalated the matter by filing a statutory first appeal before the National Faceless Appeal Centre (NFAC) under Section 246A of the Income Tax Act, 1961.