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2020 (2) TMI 1282 - HC - Income TaxWithholding of the refund in terms of Section 241A - Withholding of refund in certain cases - exercise of powers under Section 241A - HELD THAT - Auto-generated communication dated 24.3.2019 which contained the note of withholding of the refund in terms of Section 241A of the Act, does not satisfy any of the legal tests for passing said order. Firstly, it is not passed by the Assessing Officer who is competent to do so. Secondly, it is not even an order, it is a mere auto-generated communication. Thirdly, it does not contain any reasons recorded in writing and lastly it is not passed with the prior approval of the Principal Commissioner or Commissioner. When Section 241A confers the Assessing Officer with wide discretionary powers and at the same time, puts conditions for exercise of such powers, such exercise under no circumstances can be taken over by computerized system. The very essence of passing of the order under Section 241A is application of mind by the Assessing Officer to the issues which are germane for withholding the refund on the basis of statutory prescription contained in the said Section. We must, therefore, deprecate the practice of the department in sending such auto-generated response to the assessees for withholding the returns. Merely because in the immediately preceding assessment year 2016-17, the assessee had declared a positive income as against substantial loss declared in the present assessment year, that by itself, cannot be a ground to doubt the contents of the return or the claim of the assessee with respect to the loss suffered. The reference to the several issues which are common in the present assessment year and which are pending before the Tribunal, also in facts of the case would not be a ground to withhold the refund. This is so for the following reasons. We are prepared to proceed on the basis that the Assessing Officer in relation to such issues, in case of the assessee for the earlier assessment years, has already taken a view adverse to the assessee. However, such issues are pending before the Tribunal at the hands of the assessee. We do not find that the exercise of powers by the Assessing Officer fulfills requirement of Section 241A of the Act. We have, no doubt, about the existence of the powers. We find that the exercise of the powers would not be justified in facts of the case. In the result, the orders impugned in both the petitions are set aside. Resultantly, the respondents shall release refund of the petitioner arising out of the return filed for the assessment year 2017-18 and the process thereof under Section 143(1) of the Act by the Assessing Officer. This shall be done along with statutory interest within a period of three weeks from the date of receipt of copy of this order.
Issues Involved:
1. Legitimacy of auto-generated response as an order under Section 241A of the Income Tax Act. 2. Delay in releasing the refund by the Assessing Officer. 3. Merits of the Assessing Officer's decision to withhold the refund. 4. Compliance with the requirements of Section 241A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Legitimacy of Auto-generated Response: The petitioner argued that the auto-generated response by the Central Processing Centre (CPC) of the Income Tax Department cannot be considered an order envisaged under Section 241A of the Act. The court found merit in this argument, noting that the auto-generated communication dated 24.3.2019 did not satisfy the legal requirements for an order under Section 241A. It was not passed by the Assessing Officer, lacked written reasons, and did not have the prior approval of the Principal Commissioner or Commissioner. The court emphasized that the essence of passing an order under Section 241A is the application of mind by the Assessing Officer, which cannot be replaced by a computerized system. 2. Delay in Releasing the Refund: The petitioner contended that for over six months, the Assessing Officer did not take any steps to release the refund. The court noted that unjustifiable delays in processing returns and issuing refunds are not acceptable. It referred to previous judgments and CBDT instructions emphasizing the need for expeditious processing of returns and issuance of refunds. The court found the delay in this case to be unjustifiable and contrary to the principles of the tax administration being an assessee-friendly regime. 3. Merits of the Assessing Officer's Decision to Withhold the Refund: The Assessing Officer withheld the refund citing several reasons, including the substantial loss declared by the assessee for the assessment year 2017-18 compared to the income declared in the previous year, and pending issues such as revenue share license fees, non-deduction of TDS on discounts to prepaid distributors, international roaming charges, and other issues pending before the ITAT. The court found these reasons insufficient to justify withholding the refund. It noted that the mere fact that the assessee declared a loss in the current year compared to a profit in the previous year does not justify doubting the return's contents. Additionally, even if all the additions suggested by the Assessing Officer were made, the petitioner would still have a loss return, meaning no tax liability would arise. 4. Compliance with Requirements of Section 241A: The court examined whether the Assessing Officer's actions complied with Section 241A, which allows withholding a refund if it is likely to adversely affect revenue recovery, provided reasons are recorded in writing and approved by the Principal Commissioner or Commissioner. The court found that the Assessing Officer's order dated 21.8.2019, which cited reasons for withholding the refund, did not meet the requirements of Section 241A. The reasons provided were not sufficient to form a bona fide opinion that granting the refund would adversely affect revenue recovery. The court also noted that the Deputy Commissioner (TDS) had permitted deduction of tax at source at a 'NIL' rate for the assessment year 2017-18, indicating a prima facie belief that no tax demand would arise for the assessee. Conclusion: The court set aside the orders impugned in both petitions, directing the respondents to release the refund along with statutory interest within three weeks. The petitions were allowed and disposed of accordingly.
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