As others have said, what you're specifically suggesting sounds bad. Your seat will have a correct height, dependent on the geometry of your frame and the length of your legs. Period. Get it wrong and your knees will complain.
But I can add something regarding fighting flab. I was around 105kg back in 2008, I've been about 75kg for the last couple of years. I have lost that weight purely through cycling.
As you might expect my legs have become extremely muscular. As regards my upper body though, I've not become amazingly muscular because I don't really work those muscles, however I have benefitted just by losing weight "all round" (for example, I still look down and see a gut, but t-shirt sizes used to start with X, now I'm a S/M, so something good has happened).
I guess what I am trying to say is this: set your bike up properly such that it is comfortable to ride, and keep putting the miles in. You will lose weight, but it will take time. To accelerate this, I can think of two things, (i) more miles (especially as your body becomes more able to cope), and (ii) your diet.
If you're specifically wanting to tone your upper body, I'd suggest doing some supplementary exercise, but cycling should give you all the lower-body and cardio you'll need.
Lastly, good luck. Obviously it is very much in your own hands, but know that it is possible to get rid of that flab.