[Opinion] The Road to Income Tax Refunds to get Bumpier?

Jatin Kanabar & Srinath Kumar – [2023] 147 taxmann.com 589 (Article)

Getting income tax refunds on time is something most assessees look forward to. In case of large MNEs, refunds may arise on account of factors such as high TDS deduction or those arising post appeal proceedings. The assessees would rather deploy these funds in its business which gives higher returns than the interest earned on tax refunds. However, more often than not, getting refunds, which are rightfully due to assessees, does not typically happen in time. Often, it is observed that there is a communication gap between the jurisdictional Assessing Officer (AO) and Centeralised Processing Center (CPC) which delays the refunds or the CPC ends up adjusting refunds against demands which shouldn’t have been adjusted.

Compounding the extant situation further, a proposed amendment in the Finance Bill of 2023 could make the process of getting refunds even more difficult.

Ordinarily, once income tax returns are filed, CPC of the income tax department processes the returns in a prescribed manner. Amongst the series of checks and steps, one step is to determine the income tax refunds and grant the same to the assessees. The income tax department carefully monitors this, and rightfully so as refunds directly impact the government treasury and estimates. As per the latest press release of the Ministry of Finance, income tax refunds amounting to Rs. 2.69 lakh crore have been issued during 1st April, 2022 to 10th February 2023, which is 61.58% higher than that issued during the same period last year.

Here it will be useful to understand how the law has undergone change with regard to processing of returns and issuance of refund. The Finance Bill 2017 (with effect from AY 2017-18), introduced a new provision with regard to issuance of refund post processing of returns by CPC (section 241A). This provision replaced the earlier law under which returns were not required to be processed in cases selected for income tax scrutiny and refunds were processed only on completion of assessment. As per section 241A, post processing of income tax returns by CPC, where a refund is determined, the AO is given powers to withhold the refund with prior approval of Principal Commissioner or Commissioner, in case he is of the opinion that grant of refund may adversely affect the recovery of Revenue.

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