Income Tax Department Withheld ₹1.5 Crore Refund Citing TDS Mismatch: High Court Grants Relief

Income Tax Department Withheld ₹1.5 Crore Refund Citing TDS Mismatch: High Court Grants Relief

Issue: Whether the Income Tax Department can indefinitely withhold a substantial refund due to a technical mismatch in Tax Deducted at Source (TDS) reflected between the taxpayer’s records and Form 26AS, even when the taxpayer has provided proof that the tax was deducted and deposited.

Facts:

• The petitioner (taxpayer) was legally entitled to a large income tax refund, amounting to approximately ₹1.5 crore.
• The Income Tax Department refused to process and issue the refund.
• The sole reason for withholding the refund was a discrepancy/mismatch in the TDS credit shown in the taxpayer’s filed return and the data auto-populated or available in their Form 26AS.
• The taxpayer contended that the tax was genuinely deducted by the payer and provided all available documentary evidence to substantiate their claim, arguing that the mismatch was a technical or clerical error on the part of the deductor or the tax portal.

Decision:

The High Court ruled in favor of the taxpayer and directed the Income Tax Department to process and issue the refund of approximately ₹1.5 crore immediately, setting aside the department’s objection based solely on the Form 26AS mismatch.

Key TakeDowns:

• Form 26AS is Not Conclusive: The court affirmed the judicial principle that Form 26AS is merely a statement of tax credit and is not a conclusive proof or the sole basis for denying a refund. The Revenue cannot retain funds that are legitimately due to the taxpayer based on a technical or procedural lapse.
• Substantive Right Over Procedural Technicality: The ruling prioritizes the taxpayer’s substantive right to claim tax credit (once genuine deduction is proven) over the procedural or technical shortcomings in the tax portal’s reconciliation system.
• Burden on the Department: The High Court mandated that the Income Tax Department’s recourse lies in pursuing the defaulter (the deductor) to rectify the TDS statement or deposit the tax, rather than penalizing the assessee (the deductee) by withholding a legitimate refund.
• Immediate Relief: The decision ensured that the taxpayer’s working capital was immediately released, preventing unnecessary hardship caused by administrative delays and technical discrepancies.