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Issues Involved
1. Validity of withholding refund under Section 241 of the Income-tax Act. 2. Justification for the reopening of assessment under Section 147 of the Income-tax Act. 3. Entitlement of the petitioner to the refund and interest under Section 244A of the Income-tax Act. Detailed Analysis 1. Validity of Withholding Refund under Section 241 of the Income-tax Act The petitioner, a company engaged in the manufacture of cotton yarn and paper, sought a refund of Rs. 65,71,236, which was withheld by the Income-tax Department. The company argued that the withholding was unjustified as the order of the Commissioner of Income-tax (Appeals) annulling the assessment was not stayed by the Income-tax Appellate Tribunal. The respondents contended that the refund was withheld to protect the interest of the Revenue, pending the outcome of the appeal before the Tribunal. The court referred to Section 241 of the Income-tax Act, which allows the Assessing Officer to withhold a refund with the prior approval of the Commissioner if the grant of the refund is likely to adversely affect the Revenue. However, the court found that neither the Assessing Officer's letter nor the Commissioner's order provided specific facts justifying the withholding of the refund. The court cited precedents such as Suri Sons v. CIT and Hansa Agencies Private Ltd. v. CIT, which held that mere pendency of proceedings is not sufficient to withhold a refund. The court concluded that the orders withholding the refund (annexures P-6 and P-8) were not sustainable in law, as no material facts were provided to justify the withholding. The court directed the respondents to pay the refund amount to the petitioner within two months. 2. Justification for the Reopening of Assessment under Section 147 of the Income-tax Act The assessment for the year 1992-93 was reopened under Section 147, leading to a revised assessment order dated February 16, 1996, which increased the taxable income to Rs. 73,28,428 by disallowing capital expenditure on scientific research. The Commissioner of Income-tax (Appeals) annulled this assessment, stating that the reasons for reopening were insufficient and that the petitioner was indeed carrying out scientific research. The court noted that the Assessing Officer's recommendation to withhold the refund was based on his personal belief that no scientific research was being conducted, despite the Commissioner's findings. The court found this insufficient to justify the reopening of the assessment or the subsequent withholding of the refund. 3. Entitlement of the Petitioner to the Refund and Interest under Section 244A of the Income-tax Act The petitioner argued for a writ of mandamus to direct the respondents to refund the withheld amount along with interest under Section 244A. The respondents claimed that the refund was withheld to protect the Revenue's interest, pending the appeal's outcome. The court observed that the petitioner had consistently filed returns and paid taxes, including an advance tax of Rs. 60,00,000 for subsequent years. There was no indication that the petitioner was in arrears or default. The court emphasized that the mere pendency of an appeal does not justify withholding a refund, as established in Pioneer Sports Works v. CIT. In conclusion, the court allowed the writ petition, quashed the impugned orders withholding the refund, and directed the respondents to pay the refund amount to the petitioner within two months, in accordance with the law.
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