The Finance Act 2023 consolidates provisions regarding refund set off and withholding under section 245 of the Income-tax Act. It empowers Assessing Officers to adjust refunds against outstanding tax demands and withhold refunds pending assessment or reassessment proceedings, subject to approvals. Amendments extend the withholding period from the date of assessment to sixty days thereafter. Additionally, changes to section 244A restrict the payment of additional interest on refunds withheld under these provisions. The amendments aim to streamline processes and address revenue concerns, effective from October 1, 2024.
Budget 2024: Amendment in provisions relating to set off and withholding of refunds
Section 245 of the Act relates to set off and withholding of refund in certain cases. The Finance Act, 2023 has integrated section 241A and section 245 (as they existed prior to their amendment) into a single provision of section 245 of the Act. Presently, section 245 of the Act empowers the Assessing Officer (AO) to adjust the refund (or a part of the refund) against any tax demand that is outstanding from the taxpayer. Further, where refund becomes due to a person but the assessment or reassessment proceeding is pending in his case, then, the Assessing Officer may, with the approval of the Principal Commissioner of Income-tax or Commissioner of Income-tax, withhold the refund till the date on which such assessment or reassessment is completed. Moreover, no additional interest on refund under section 244A of the Act is payable to the assessee for the period beginning from the date on which such refund is withheld and ending with the date on which assessment/reassessment is made.
2. Sub-section (2) of section 245 of the Act provides that where a part of the refund is set off under the provisions of sub-section (1), or where no such amount is set off, and refund becomes due to a person and the Assessing Officer having regard to the fact that proceedings for assessment or re-assessment are pending in the case of such person, is of the opinion that the grant of refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner of Income-tax or Commissioner of Income-tax, withhold the refund up to the date on which such assessment or reassessment is made.
3. From the bare reading of the provision, it is seen that there are two requirements which the Assessing Officer is supposed to fulfill. One is that he should form opinion that the grant of refund is likely to adversely affect the revenue and the second is that he has to record the reasons in writing for withholding the refund. The second condition of recording of reasons takes care of the first condition as even if an opinion is formed, it has been expressed in terms of reasons recorded in writing. Thus, for the phrase “is of the opinion that the grant of refund is likely to adversely affect the revenue”, the phrase “he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner of Income-tax or Commissioner of Income-tax” is proposed to be retained. Further, the period of withholding the refund ‘up to the date of assessment’ is inadequate as the demand itself becomes due after thirty days of the date of assessment. Hence, the period of withholding of the refund is proposed to be extended up to sixty days from the date on which such assessment or reassessment is made.
4. Consequential amendment is also required in section 244A of the Act to allow non-payment of additional interest up to the date till which such refund is withheld under the provisions of sub-section (2) of section 245 of the Act.
5. This amendment will take effect from the 1st day of October, 2024.
Proposed Amendment of section 244A of Income Tax Act, 1961 vide Finance Bill, 2024
In section 244A of the Income-tax Act, in sub-section (1A), in the proviso, for the words “with the date on which such assessment or reassessment is made”, the words “with the date up to which such refund is withheld” shall be substituted with effect from the 1st day of October, 2024.
Proposed Amendment of section 245 of Income Tax Act, 1961 vide Finance Bill, 2024
In section 245 of the Income-tax Act, in sub-section (2), with effect from the 1st day of October, 2024,––
(a) the words “is of the opinion that the grant of refund is likely to adversely affect the revenue,” shall be omitted;
(b) after the words “withhold the refund up to”, the words “sixty days from” shall be inserted.
Extract of Clause 72 of Finance Bill 2024
Clause 72 of the Bill seeks to amend section 244A of the Income-tax Act relating to interest on refunds.
The proviso to sub-section (1A) of the said section provides that where proceedings for assessment or reassessment are pending in respect of an assessee, in computing the period for determining the additional interest payable to such assessee under this sub-section, the period beginning from the date on which such refund is withheld by the Assessing Officer in accordance with and subject to provisions of sub-section (2) of section 245 and ending with the date on which such assessment or reassessment is made, shall be excluded.
It is proposed to amend the said proviso to substitute the words “on which such assessment or reassessment is made” with the words “upto which such refund is withheld”.
This amendment will take effect from 1st October, 2024.
Extract of Clause 73 of Finance Bill 2024
Clause 73 of the Bill seeks to amend section 245 of the Income-tax Act relating to set off and withholding of refunds in certain cases.
Sub-section (2) of the said section provides that where a part of the refund is set off under the provisions of sub-section (1), or where no such amount is set off, and refund becomes due to a person and the Assessing Officer, having regard to the fact that proceedings for assessment or reassessment are pending in the case of such person, is of the opinion that the grant of refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or the Commissioner, withhold the refund up to the date on which such assessment or reassessment is made”.
Thus, the said sub-section, inter alia, requires the Assessing Officer to form an opinion for withholding the refund that the grant of refund is likely to adversely affect the revenue.
It is proposed to amend the said sub-section to omit the said requirement.
Further, sub-section (2) of the said section provides that the refund can be withheld up to the date of assessment or reassessment.
It is proposed to amend the said sub-section to provide that the refund can be withheld up to sixty days from the date on which such assessment or reassessment is made.
These amendments will take effect from 1st October, 2024.
