2021 (8) TMI 383 - HC - Income Tax

Withholding of the refund - petitioner submitted that to invoke the provision of Section 241A AO has to form an opinion that the grant of refund is likely to adversely affect the revenue - HELD THAT - Withheld the refund without assigning any reason though the statute mandates for recording the same. Having not done so the officer concerned has acted arbitrarily. The procedure followed by the Assessing Officer does not also show the proper application of two independent provisions as in Section 241A and Section 143 wherein once a refund is declared after scrutiny proceedings and such refund is withheld, a reasoned order has to follow because the assessment in such a case is done after production of materials and evidence required by the AO. That apart and in any event the petitioner/assessee is a public limited company whose accounts are stringently scrutinized at the internal level. It is, therefore, more so required to apply the provisions more cautiously while withholding the refund after the same has been declared on completion of assessment on scrutiny. Analysis and findings the action on the part of the respondents in withholding of the refund for the assessment year 2018-19 is not sustainable in law and is set aside and quashed. The petitioner, is therefore, entitled to a mandatory order of refund. The respondents are directed to refund the amount within a period of four weeks from date with further interest on the principal sum from the date upto which interest has been added has been added to the principal sum in arriving at the figur till actual refund as per the provisions of the Income Tax Act, 1961. The respondents shall act on the basis of a server copy of this order without insisting for a certified copy thereof while processing the refund.

Summary

Issues:
1) Interpretation of Section 241A of the Income Tax Act, 1961 regarding withholding of refunds.
2) Application of mind by the Assessing Officer in withholding refunds.
3) Compliance with statutory procedures for withholding refunds.
4) Judicial review of Assessing Officer's actions in withholding refunds.

Analysis:
1) The judgment dealt with the interpretation of Section 241A of the Income Tax Act, 1961, which allows for the withholding of refunds if the Assessing Officer believes it may adversely affect revenue. The petitioner, a public company, filed for a refund after declaring a loss for the assessment year 2018-19. Despite no pending demands against the petitioner at the time of refund notification, the refund was withheld without reasons, leading to a legal challenge.

2) The court emphasized that the Assessing Officer must apply their mind before withholding refunds under Section 241A. The power to withhold refunds should be exercised judiciously, with reasons recorded to demonstrate how the refund might impact revenue recovery. The judgment highlighted the necessity of a speaking order to justify the withholding of refunds and the requirement for the Assessing Officer to obtain prior approval before taking such actions.

3) The judgment underscored the importance of following statutory procedures when withholding refunds. It was noted that the Assessing Officer's actions must align with the provisions of the Income Tax Act, and any withholding of refunds should be supported by valid reasons, especially when there are no existing demands against the taxpayer. The court stressed the need for a rational nexus between the reasons provided and the decision to withhold refunds.

4) The judgment clarified that the Assessing Officer's actions in withholding refunds are subject to judicial review. In cases where the Assessing Officer fails to adhere to statutory procedures, such actions can be challenged through a writ petition under Article 226 of the Constitution of India. The court highlighted the need for transparency, application of mind, and compliance with legal requirements in matters concerning the withholding of refunds.

In conclusion, the court set aside the respondents' decision to withhold the refund for the assessment year 2018-19, ruling in favor of the petitioner. The respondents were directed to refund the specified amount within a stipulated timeframe, with additional interest as per the provisions of the Income Tax Act, 1961. The judgment emphasized the importance of procedural compliance, transparency, and the need for valid reasons when withholding refunds under the Income Tax Act.