Calcutta High Court Orders Income Tax Department to Release Withheld Refund with Interest

Court finds withholding of Rs. 22.73 lakh refund unjustified, mandates refund with interest within ten weeks.

In a significant ruling, the Calcutta High Court has directed the Income Tax Department to expedite the refund of Rs. 22,73,833 to Chartered Accountant Rajneesh Agarwal, along with applicable interest as per the Income Tax Act, 1961. The judgment was delivered by Justice Raja Basu Chowdhury on November 3, 2025, following a protracted legal battle stemming from the department's withholding of the refund amount without initiating any independent proceedings or providing a valid justification.

Mr. Agarwal, a practitioner maintaining his accounts on a cash basis, had filed his Income Tax Return for the assessment year 2018-19, claiming a refund due to excess TDS deduction. Despite an initial refund order, a substantial portion of the refund was withheld under Section 245 of the Income Tax Act, which allows the department to adjust refunds against remaining tax liabilities. However, the department failed to demonstrate any outstanding liabilities against Mr. Agarwal.

The petitioner, represented by advocates Mr. Vinay Shraff and others, contended that despite multiple representations and a rectification petition filed under Section 154 of the Act, the refund was not processed in full, leading to the filing of the current writ petition. Previously, a writ petition filed in this regard was withdrawn based on assurances from the Income Tax Department, which remained unfulfilled.

The respondent's counsel, Mr. Soumen Bhattacharjee, argued against the maintainability of the writ petition, citing that the withdrawal of the previous petition amounted to abandoning the claim. However, the court found this argument untenable, emphasizing that the causes of action in the two petitions were distinct, particularly given the part payment made by the department.

In delivering the judgment, Justice Chowdhury highlighted that the department's action of withholding the refund was not backed by any statutory provision, reiterating the principle that tax recovery must be grounded in explicit statutory mandates. Consequently, the court mandated the release of the refund with interest within ten weeks, underscoring the importance of adhering to legal provisions in tax matters.

The judgment is expected to expedite the resolution of Mr. Agarwal's long-pending refund claim, setting a precedent for similar cases where tax authorities withhold refunds without adequate justification.

Bottom Line:

Refund claimed under Income Tax Act, 1961 - Withholding of refund under Section 245 of the Act without any justification or independent proceeding - Cause of action for subsequent writ petition distinct due to part payment made - Refund allowed with interest in accordance with law.

Statutory provision(s): Income Tax Act, 1961 Section 245, Civil Procedure Code, 1908 Order 23, Rule 1(4)

Rajneesh Agarwal v. Income Tax Officer, Ward 22(2), (Calcutta) : Law Finder Doc Id # 2804042