Adjustment of income tax refund against demand:
1.Section 245 of the Income Tax Act requires the department to send an intimation to the taxpayer before making any adjustment, stating the amount of refund due, the amount of tax demand outstanding, and the proposed adjustment.
2.The taxpayer is given a chance to respond to the intimation within 30 days, either agreeing or disagreeing with the adjustment. If the taxpayer agrees with the adjustment, the department will proceed to adjust the refund against the demand and issue the balance refund, if any, to the taxpayer. If the taxpayer disagrees with the adjustment, and the claim of the Assessee is found not to be true based on the information available with the Assessing Officer and explanation provided by the Assessee, the department may still adjust such refund.
3.Before the beginning of Financial Year 2023-24, Section 241A of the Income Tax Act empowers the Assessing Officer, in case where a refund becomes due to an Assessee after processing the ITR but the Assessment/reassessment proceeding(s) are pending against him, to hold the refund till the date of completion of such assessment/reassessment, if he is of the opinion that the grant of refund is likely to adversely affect the tax revenue of the Government. Such withholding can be done only with the prior approval of the Principal Commissioner or Commissioner, and applicable to assessment years on or after 2017-18.
4.Finance Act 2023 merged Sec 241A with Sec 245 and Sec 245 was accordingly amended to provide that where a part of the refund has been set off or where no amount is set off, and refund becomes due to a person but the assessment/reassessment proceeding is pending, then, the Assessing Officer may withhold the refund till the date on which such assessment or reassessment is completed with the approval of the Principal Commissioner or Commissioner.
5.It has also been provided by amending Section 244A of the Act that interest on income tax refund shall not be given for the period starting from the date of holding the refund till the date of completion of assessment/reassessment.
