The Income Tax Department has sent emails to taxpayers informing them that since their income tax return (ITR) has been pending for assessment/ re-assessment, their tax refund amount will be withheld till the time the tax officer makes a detailed analysis of it. The said email also mentions that Section 245 (2) will be the charging section for such an action. In simple words, Section 245 gives the income tax department power to adjust your present year’s tax refund with any year’s tax demand amount. There is no limitation period for Section 245 cases.In this same context, on March 11, 2025, the deputy director of Income Tax has sent many emails to taxpayers mentioning that, “Since there are pending assessment / re-assessment proceedings in your case, the refund release/withhold will be based on the response provided by Jurisdictional Assessing Officer (JAO) in accordance with the provisions of section 245(2) of the Income Tax Act, 1961.”
Read below to know more about this tax notice and if it happens to you then what to do.
What is the nature and intent of this tax notice?
To understand the nature of this tax notice, you need to understand the process of ITR filing which starts with you filing the correct ITR form online or through the official utilities. Once you file the ITR, the centralised processing centre (CPC) checks the ITR as per defined parameters and legal provisions. If it suspects that after processing of the ITR a tax demand may arise, it flags the ITR and sends it to the tax assessing officer (AO) for further analysis.
Gaurav Jain, Partner, Direct Tax, Forvis Mazars in India, the nature of this entire process. He says every ITR is processed by the income tax department in a faceless manner, through a Centralized Processing Unit (CPC) at Bangalore. The CPC can either accept the same as it is, raise tax demand, or process a refund of tax as per the claims made by such assessee in its ITR.
Sanjoli Maheshwari, Executive Director, Nangia Andersen India, explains the intent behind this tax notice. She says that the central board of direct taxes (CBDT) issued an instruction on November 10, 2023, which defines how such a process would work and what could be achieved through this.Maheshwari explains:
Step 1: CPC asks tax officer to analyse the chosen ITR due to likely tax demand
As per the said instruction (No. 02/2023), on receipt of communication from Centralised Processing Centre (CPC’), the Faceless Assessing officer(‘FAO’) is required to intimate the Jurisdictional Assessing Officer (‘JAO’) regarding the demand likely to arise in case of pending assessment/reassessment within 20 days of the receipt of such communication from CPC.
Step 2: If the tax officer’s analysis concludes that tax demand has arisen then he/she will seek approval from higher authorities
Thereafter, based on such information from CPC, the JAO is required to record reasons in writing post factually analysing the case on factors such as financial condition, past demands, pendency of appeals in case of the Taxpayer and seeking approval of the Jurisdictional Principal Commissioner of Income Tax for withholding of such refund.
Step 3: Entire process must be completed within 50 days from the date of communication by CPC
The time allowed to JAO for communicating the final decision as regards withholding/release of the refund under 245(2) of the Act to CPC is 30 days. Thus, the total time limit for determining to withhold or release a Taxpayer’s refund is 50 days from the date of communication by the CPC.
What can you do in case this notice has been sent to you?
Maheshwari says this type of notice will only come in the situation where there is any unpaid tax demand amount for prior years and the tax department wants to adjust that tax demand amount with the tax refund amount of the present year. Usually, taxpayers get 21 days’ time to respond to such a tax notice.
“It is imperative for the Taxpayers to furnish the necessary response against the said intimation within the timeline provided. In case, no response is furnished or where the Taxpayer agrees with the demands outstanding, then considering the same and response provided by JAO, the final action is taken by the CPC as regards the said adjustment.”
How to fight against such tax notices if there is any error with the notice?
Maheshwari explains that in case the outstanding tax demand is incorrect then the Taxpayer should furnish the appropriate response online on the e-filing ITR portal against the said intimation, disagreeing the said demand stating the reasons thereof such as, demand is incorrect and rectification application filed with AO or appeal and stay petition filed, stay granted or demand already stands paid etc. along with the relevant supporting documents.
“In such cases, additional time is provided to JAO for his comments. Based on both the response by the Taxpayer and JAO, final adjustment is made by the CPC. Here, in addition to the online response filed against the said intimation issued under Section 245, the Taxpayer may consider furnishing a separate application and representation before the JAO in order to substantiate his claim. However, it would be on the discretion of the JAO whether to be considered or not while furnishing his final response to CPC,” says Maheswari.
Jain says, “if any such adjustment is found to be excessive than legitimate, the aggrieved assessee can write to the superior officers for such refund and if still not resolved, can exercise constitutional remedy available under Article 226 of the Constitution seeking Writ before the Jurisdictional High Court.”
The Income Tax Notice
Here’s the notice’s contents:
Taxpayer’s return/order for the A.Y. 2022-23 has been processed/accounted u/ s 1431a on 29-Jul-2023. Since there are pending assessment / re-assessment proceeding in the case of taxpayer, the refund release/withhold will be based on the response provided by Jurisdictional Assessing Officer(JAO) in accordance with the provisions of section 245(2) of the Income Tax Act, 1961.
JAO is requested to provide response (release/withhold) for the determined refund in CPC 2.0 portal by following the below path.
1. Log on to ‘iec.incometax.gov.in‘ your ID and Password .
2. Click on 245 (2) ‘‘Proceeding approval’’
under ‘‘Refund Management’’.
Note: Please note that as per the Instruction No. 2/2023 dated 10-11-2023 and detailed workflow issued by DGIT(Systems), Bengaluru dated 07-12-2023, the time limit for JAOs to provide response in this regard is 50 days from the date of issue communication to JAO from CPC ITR. In case of no response submitted, the refund will be released after expiry of this time limit.
Jain from Forvis Mazars in India says: “The aforesaid time of 50 days is the time available with the Jurisdictional Assessing Officer to examine case of the assessee and seek approval from the higher officer, i.e. CIT to communicate to the CPC to withhold the refund due to the assessee, to protect interest of the revenue from any tax demand that may arise, if an assessment is pending in case of such assessee.”
