2021 (3) TMI 1207 - HC - Income Tax

Withholding of refund u/s 241A - Non-finalization of tax demand - Period of limitation for sending intimation of withholding of refund - ITR being processed under Section 141(1) - notice under Section 143(2) of scrutiny assessment - HELD THAT - Section 241A however does not prescribe the time limit within which order thereunder is to be made. The question which thus arises is, whether the order under Section 241A of the Act issued on 15th July, 2020, was within time, inasmuch as if it is beyond time, direction for refund will have to be issued and need to go into challenge to validity thereof will not arise. - In the facts of the present case, the order under Section 241A thus had to be before 31st March, 2020 and the order dated 15th July, 2020 is beyond that date. For the writ Court to quash the order under Section 241A of the Act on the ground that no tax is due and thus question of refund likely to adversely affect the revenue does not arise, this Court has to conclusively hold that the petitioner has no tax liability in India. Once it is so held, there will be nothing left to be determined in the assessment underway pursuant to notice under Section 143(2) of the Act. A determination of tax liability in a challenge to an order under Section 241A would set at naught the entire statutory scheme of assessment and appeals, ultimately to this Court, opening the doors to every assessee to whom a notice under Section 143(2) of the Act is issued, to approach this Court contending that the ITR filed and being processed under Section 143(1) of the Act admits / permits of no scrutiny and should be accepted. This Court would then be appropriating to itself the entire statutory mechanism of assessment, First Appeals and Appeals to Income Tax Appellate Tribunal and thereafter to this Court. Rather, the AO and Principal Commissioner also, in exercise of powers under Section 241A, are concerned largely with the question of grant of refund likely to adversely affect revenue i.e that the tax, if ultimately found due, being not recoverable; though the AO and Principal Commissioner have in the impugned order given detailed reasons, but in our view were not required to, as the same is likely to prejudice the assessment underway. We thus clarify that the same will have no bearing in the final assessment. Petition dismissed.

Issues Involved:
1. Entitlement to Refund
2. Validity and Timing of Order under Section 241A of the Income Tax Act
3. Jurisdiction and Authority of the Assessing Officer (AO)
4. Compliance with Double Taxation Avoidance Agreement (DTAA)
5. Procedural and Statutory Compliance
6. Impact on Revenue

Detailed Analysis:

1. Entitlement to Refund:
The petitioner sought a mandamus directing the respondents to issue a refund of ?249.39 crores for the assessment year 2018-19, along with interest under Section 244A of the Income Tax Act, 1961. The petitioner claimed this refund based on the Tax Deducted at Source (TDS) from payments made to the petitioner for the sale of shares of an Indian company, which were not chargeable to tax in India under Article 13(4) of the DTAA between India and Mauritius.

2. Validity and Timing of Order under Section 241A of the Income Tax Act:
The petitioner contended that no order under Section 241A for retaining the refund had been passed until 15th July 2020, which was beyond the permissible time limit. The respondents argued that the order was validly issued within the extended time limits due to the national lockdown and related ordinances.

The court noted that the statutory scheme requires the intimation under Section 143(1)(d) to be generated within one year from the end of the financial year in which the ITR was filed. The court found that the order under Section 241A was issued within the extended time limit provided by the Taxation & Other Laws (Relaxation of Certain Provisions) Ordinance, 2020.

3. Jurisdiction and Authority of the Assessing Officer (AO):
The petitioner argued that the AO did not have jurisdiction to withhold the refund without valid reasons. The court held that the AO and the Principal Commissioner are vested with the authority to take a prima facie view of the outcome of the assessment and to withhold the refund if it is likely to adversely affect the revenue. The court emphasized that it is not within its jurisdiction to determine the tax liability in a writ petition challenging an order under Section 241A.

4. Compliance with Double Taxation Avoidance Agreement (DTAA):
The petitioner claimed exemption from tax in India under the India-Mauritius DTAA. The respondents argued that the petitioner was merely a conduit for its parent company in the UK, which would not be entitled to the same tax benefits. The court noted that the assessment of whether the petitioner is the actual owner of the shares and entitled to the benefits of the DTAA is a matter for the AO to determine during the assessment proceedings.

5. Procedural and Statutory Compliance:
The court observed that the ITR for the assessment year 2018-19 was filed on 31st October 2018, and the intimation under Section 143(1)(d) was issued on 25th November 2019, both within the statutory time limits. The court also noted that the order under Section 241A was issued within the extended time limit due to the national lockdown.

6. Impact on Revenue:
The court held that the AO and the Principal Commissioner are required to consider whether granting the refund would adversely affect the revenue. The court found that the detailed reasons provided in the order under Section 241A justified the withholding of the refund, given the potential tax liability and the lack of other assets from which the tax could be recovered.

Conclusion:
The court dismissed the petition, holding that the order under Section 241A was validly issued within the extended time limits and that the reasons provided for withholding the refund were justified. The court emphasized that it is not within its jurisdiction to determine the tax liability in a writ petition challenging an order under Section 241A, and that such matters should be resolved through the statutory assessment and appeal process.

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