Income Tax Act | Refund Can't Be Withheld U/S 245 Unless Department Establishes Tax Liability: Calcutta High Court

The Calcutta High Court stated that the Income Tax Department cannot withhold a refund under Section 245 of the Income Tax Act, 1961, unless it establishes tax liability. The Bench of Justice Raja Basu Chowdhury observed that it is true that Section 245 of the said Act authorises the Income Tax Department to set off a refund against remaining tax payable. Unfortunately, in this case, the respondent has not been able to demonstrate that any amount is payable or is due from the assessee. Law does not sanction recovery of tax in the absence of any specific charging statutory provision. Section 154 of the Income Tax Act, 1961, allows taxpayers and the Income Tax Department to rectify any mistake apparent from the record in an order or intimation. Section 245 of the Income Tax Act, 1961, authorises the Income Tax Department to set off a refund against the remaining tax payable. The assessee/appellant, a practising Chartered Accountant, filed his Income Tax Return for the assessment year 2018-19. The assessee declared a net income of Rs. 37,09,520, with a tax payable of Rs. 9,53,117. However, a total TDS of Rs. 39,51,350 had already been deducted, making the assessee eligible for a refund of Rs. 29,98,230. Despite repeated rectification proceedings under Section 154, revised refund computations, and multiple representations, the Department withheld Rs. 22,73,833 under Section 245, adjusted Rs. 14,65,365 without explanation. Since the amount was not fully refunded even after a partial payment, the assessee filed a petition, which was subsequently withdrawn based on the Department's assurance that the dispute would be resolved. However, no further steps were taken by the Department. Aggrieved, the assessee filed a petition before the Calcutta High Court. The department contended that by withdrawing the petition, the assessee had abandoned his claim. Further, no independent proceeding was initiated against the assessee regarding the withholding amount. The bench pointed out that the cause of action for the previous and the present petition was not identical because a part of the assessee's claim had already been allowed. The bench observed that the Department failed to demonstrate that any amount is payable or is due from the assessee as per Section 245 of the Income Tax Act, 1961. The bench opined that the assessee is entitled to the refund as determined by the Income Tax Department. In view of the above, the bench allowed the petition. Case Title: Rajneesh Agarwal v. Income Tax Officer, Ward 22(2) Case Number: WPO/398/2025 Counsel for Petitioner/ Assessee: Vinay Shraff Counsel for Respondent/ Department: Soumen Bhattacharjee Click Here To Read/Download The Order

Income Tax Act | Refund Can't Be Withheld U/S 245 Unless Department Establishes Tax Liability: Calcutta High Court

Mehak Dhiman

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