Refund Can’t Be Withheld By Income Tax Department Under Section 245 Of Income Tax Act Without Proven Tax Liability; Calcutta High Court Quashes Refund Adjustment
Safiya Malik
The High Court of Calcutta, Single Bench of Justice Raja Basu Chowdhury held that the Income Tax Department cannot retain an income tax refund under Section 245 of the Income Tax Act, 1961 unless it first establishes an existing tax liability against the assessee. In a writ petition by a professional assessee challenging the withholding of a substantial portion of his determined refund for Assessment Year 2018–19, the Court noted that Section 245 permits adjustment of refund only against tax remaining payable, yet the Department had disclosed no outstanding demand and tax cannot be recovered without a specific charging provision. The Court therefore directed release of the withheld refund with statutory interest within a fixed time.
The petitioner, a practising Chartered Accountant, filed this writ petition seeking a direction upon the Income Tax Department to process and release the refund amount of ₹22,73,833 along with updated interest under Section 243, wrongly recorded as Section 244A of the Income Tax Act. The petitioner filed the Income Tax Return for Assessment Year 2018–19 on 14 August 2018 declaring a net income of ₹37,09,520, on which tax of ₹9,53,117 was payable. TDS of ₹39,51,350 was deducted, entitling him to a refund of ₹29,98,230. An intimation under Section 143(1) dated 7 January 2020 showed a payable amount of ₹9,75,430 while TDS allowed was ₹1,68,300. Later, an order under Section 154 dated 16 January 2024 reflected a refund of ₹55,54,357, of which ₹22,73,833 was withheld under Section 245.
The petitioner wrote to the Department when only ₹18,26,159 was refunded on 18 March 2024, leaving ₹14,65,365 unexplained. He filed a rectification petition on 2 August 2024 seeking refund of ₹37,28,184 and also raised an e-Nivaran grievance on 4 October 2024. Due to the Department’s inaction, the petitioner filed WPA 6316/2025, which he later withdrew on the respondent’s assurance after receiving ₹14,99,725 on 5 May 2025. Since the issue remained unresolved, he issued a letter on 13 May 2025 and thereafter filed the present writ petition.
The respondent raised a preliminary objection citing withdrawal of the earlier writ petition and relied on Sarguja Transport Service v. State Transport Appellate Tribunal. The petitioner responded by relying on Sarva Shramik Sanghatana and contended that the cause of action was distinct, and part refund had already been made, making the present claim maintainable.
The Court recorded that “an amount of Rs.22,73,833/- is refundable to the petitioner out of Rs.32,80,524/- which was originally refundable… as would corroborate from the intimation issued under Section 143(1)”. It noted that after the rectification order dated 16 January 2024 the “gross refundable amount was shown to be Rs.55,54,357/-, out of which, Rs.22,73,833/- was shown to be withheld”.
The Court stated that the petitioner, despite repeated representations, was compelled to file a writ petition and “ultimately after much persuasion, the petitioner could succeed in getting refund of Rs.18,26,159/- on 18th March 2024”. It recorded that the subsequent writ petition was withdrawn on 7 May 2025 after the petitioner received ₹14,99,725 on 5 May 2025 under an assurance that the matter would be resolved.
While examining the maintainability objection, the Court stated: “the respondent has raised the point of maintainability on the ground that the petitioner has abandoned his previous claim… such statement of the respondent does not appear to be correct in the light of the sequence of events narrated hereinabove.” It further observed: “It is equally true that the cause of action for the previous writ petition and the present writ petition are not identical. In the interregnum, a part of the petitioner’s claim has already been allowed.”
The Court recorded that “the petitioner is entitled to the refund as determined by the Income Tax Department. The respondent has been holding onto the same without any justification.” It also noted that on query, counsel for the respondent stated that “no independent proceeding has been initiated against the petitioner in respect of the withholding of Rs.22,73,833/-.”
On the invocation of Section 245, the Court stated: “Section 245… authorises the Income Tax Department to set off refund against remaining tax payable. Unfortunately, in the instant case, the respondent has not been able to demonstrate that any amount is payable or is due from the petitioner.” It added: “Law does not sanction recovery of tax in absence of any specific charging statutory provision.”
Based on this reasoning, the Court held that the judgment in Sarguja Transport did not apply as “the cause of action for the instant petition is distinct from the previous petition.”
The Court directed that “there is no scope for the respondent to hold on the aforesaid amount. The writ petition is accordingly allowed with consequential relief in the form of interest in accordance with law in favour of the petitioner.” The respondent shall complete the process of refund within a period of ten weeks from the date of communication of this order. There shall be no order as to costs.”
Advocates Representing the Parties
For the Petitioner: Mr. Vinay Shraff, Advocate; Mr. Dev Kr. Agarwal, Advocate; Ms. Swarnwarshi Poddar, Advocate
For the Respondent: Mr. Soumen Bhattacharjee, Advocate; Mr. Ankan Das, Advocate; Ms. Shradhya Ghosh, Advocate
Case Title: Rajneesh Agarwal v. Income Tax Officer, Ward 22(2)
Neutral Citation: 2025: CHC-OS:215
Case Number: WPO 398/2025
Bench: Justice Raja Basu Chowdhury
