A scrutiny assessment for AY 2017-18 led to additions to the assessee’s income and a tax demand. The assessee applied for a stay on the demand, but the AO immediately rejected the application and directed payment of 20% of the demand, which the assessee paid. Later, u/s. 143(1), refunds were determined for AYs 2021-22 and 2024-25.

Part of these refunds was adjusted against the outstanding demand for AY 2017-18. While the assessee’s appeal for AY 2017-18 was still pending before the CIT (A), the AO initiated reassessment proceedings for that same year. On writ the High Court observed that, concerning reassessment and refund adjustments for AY 2017-18, it established that when an appeal is pending, tax demands should be stayed, and refund adjustments against such demands are not permissible. The demand from reassessment proceedings (u/s 147г/w 144B) must be stayed until the appeal before the CIT (A) is resolved. Adjustment of refunds for AYs 2021-22 and 2024-25 against the outstanding demand for AY 2017-18 is illegal.The balance demand for AY 2017-18 under both original and reassessment orders is stayed pending appeal disposal.(AY. 2021 -22, 2024 -25 )