Refund Withholding Illegal: Calcutta HC holds No Tax Recovery Permissible Without Specific Charging Provision [Read Order]

The Calcutta High Court has held that the Income Tax Department acted without authority in withholding a substantial portion of the petitioner’s refund under Section 245 of the Income Tax Act. The Court ruled that no tax can be recovered unless supported by a specific charging provision, and directed the Department to release the withheld refund.

The petitioner, Rajneesh Agarwal, a practising Chartered Accountant, filed his return for AY 2018-19 declaring income of ₹37,09,520 with tax liability of ₹9,53,117. Against this, TDS of ₹39,51,350 had already been deducted, making him eligible for a refund.

However, the intimation issued under Section 143(1) allowed TDS of only ₹1,68,300, resulting in an erroneous tax demand. Subsequent rectification under Section 154 incorrectly reflected the refundable amount as ₹55,54,357, out of which ₹22,73,833 was shown withheld under Section 245. Despite several representations and repeated follow-ups, the petitioner received only partial refunds ₹18,26,159 in March 2024 and ₹14,99,725 in May 2025 leaving a balance amount still withheld without explanation.

Earlier, the petitioner filed a writ petition but withdrew it on the Department’s assurance that the issue would be resolved. When no action followed, he approached the High Court again through the present writ petition.

Appearing through Mr. Vinay Shraff, Mr. Dev Kr. Agarwal, and Ms. Swarnwarshi Poddar, the petitioner argued that the withholding of the refund under Section 245 was wholly arbitrary as no tax demand existed against him. It was submitted that the Department failed to disclose any material showing outstanding dues capable of being set off.

The bench of Justice Raja Basu Chowdhury observed that the Department had failed to show any basis factual or legal justifying the withholding of the petitioner’s refund. It was held that law does not sanction recovery of tax in the absence of any specific charging statutory provision, and therefore the Department could not retain any amount without demonstrating an enforceable tax demand.

Further, it was held that the cause of action in the present writ was distinct from the earlier one because a part of the refund had been released subsequently, and the Department had resiled from its assurance of resolving the matter.

Accordingly, the Court held that there was no scope for the respondent to hold on to the aforesaid amount. Thus, allowed the writ petition with consequential statutory interest to be paid along with the refund to be processed within ten weeks from communication of the order.

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