Power under section 245(2) to withhold refunds: An Overview

 

Introduction:

Introduced by the Finance Act, 2023, this sub section specifically empowers the Principal Commissioner or Commissioner to withhold the refund (fully or partly) in cases where:

Assessment/reassessment proceedings are pending, and

Granting the refund is likely to adversely affect the revenue.

Key Features of Sec 245(2):

1. It’s applicable only if assessment or reassessment proceedings are pending for that year or any other year.

2. The authority must record reasons in writing for withholding the refund.

3. For withholding refunds under section 245(2) of the IT Act, the monetary limit of refund shall be Rs 10 Lakhs or more. In other words, AO cannot withhold a refund under section 245(2) of the IT Act if the refund amount is less than Rs. 10 Lakhs.

What is the procedure that should be followed before withholding a refund under section 245(2) of the IT Act (Instruction No. 02/2023 dated 10 November 2023):

1. In a case where section 245(2) of the IT Act is applicable, the Faceless Assessing Officer (FAO), on receipt of communication from the Centralised Processing Centre (CPC), shall intimate the Jurisdictional AO about the demand likely to be raised in the pending assessment(s).

2. Based on information received from FAO, Jurisdictional AO shall record the reasons in writing with proper application of mind and after analysing the factual matrix of the case which would include:

The financial condition of the taxpayer.

Past demands,

Pendency of appeals etc.

3. Jurisdictional AO shall seek approval of the Jurisdictional Principal Commissioner of Income-tax (PCIT).

4. Jurisdictional AO shall communicate the final decision regarding withholding/release of refund to the CPC.

What is the timeline to complete the aforementioned process?

CBDT has laid down the following timeline for completing the above process:

1. 20 days for the Faceless Assessment Unit; and

2. 30 days for Jurisdictional AO.

The copy of the Instruction is as under:

22251-instruction-2