2022 (8) TMI 93 - HC - Income Tax

Withholding of refund u/s 241A - Eligibility of Interest on refunds - Notice u/s 143(2) of the Act has been issued and the Respondents want to verify the claim for deduction u/s10AA - HELD THAT - This Court is of the view that an Order under Section 241A of the Act cannot be passed in a mechanical and routine manner. Refunds cannot be withheld just because the Notice under Section 143(2) of the Act has been issued and the Respondents want to verify the claim for deduction u/s 10AA of the Act. In the present case the impugned Order u/s 241A of the Act is a generic Order and no attempt has been made by the Respondents to substantiate how the grant of the refund is likely to adversely affect the Revenue. It is settled law that the refund due to the Petitioner is liable to be released at the time of issuance of the intimation/order under Section 143(1) of the Act unless an Order for withholding of refund has been passed under Section 241A of the Act explicitly recording that the grant of refund is likely to adversely affect the Revenue. As the impugned Order lacks sufficient reasoning to hold that the Revenue would be adversely affected by the grant of refund. Accordingly, the impugned Order dated 15th June, 2022 passed under Section 241A of the Act is quashed and the matter is remanded back to the Office of the Assistant Commissioner of Income Tax Circle 43(1), Delhi with a direction to pass a fresh speaking order within six weeks. As the tax amount payable on the disputed amount of Rs.10.95 crore (being the claim for deduction under Section 10AA) under Section 115JB would be Rs.2,36,14,691/- and under the normal provisions of Act would be Rs.3,82,94,093/-, this Court is of the view that even if the higher amount of the aforesaid amounts is withheld, the Petitioner would still be entitled to refund of Rs.16,68,98,449/- forthwith along with applicable interest under Section 244A of the Act (which we are informed totals to Rs.2,42,00,275/- till 01st August, 2022). Till the Assistant Commissioner of Income Tax Circle 43(1), Delhi passes a fresh Order within the stipulated time, this Court directs the Respondents to refund Rs.16,68,98,449/- along with applicable interest under Section 244A of the Act till the date of refund within two weeks.

Summary

Issues:
Challenging an order under Section 241A of the Income Tax Act, 1961 for withholding refund and seeking a direction for refund along with interest.

Detailed Analysis:
1. The petitioner filed a writ petition challenging an order dated 15th June, 2022, passed under Section 241A of the Income Tax Act, 1961, seeking a refund of Rs. 19,70,42,170/- along with interest. The petitioner argued that despite confirmation of the refund amount by the Respondents, no refund had been issued. The impugned order raised concerns about the deduction claimed under Section 10AA of the Act, stating it needed verification likely to result in a substantial demand. The petitioner contended that the order lacked reasoning for withholding the refund and was factually incorrect regarding the SEZ units' deduction claims.

2. The court emphasized that an order under Section 241A cannot be passed mechanically, and refunds cannot be withheld solely based on a notice for verification. Refunds are to be released unless explicitly withheld under Section 241A, stating adverse effects on revenue. Citing previous judgments, the court highlighted that the Assessing Officer must exercise discretion judiciously and provide detailed reasoning for withholding refunds, ensuring it aligns with the legislative intent.

3. Referring to the case law, the court emphasized that withholding refunds should not be a routine practice and must be based on objective assessment. The court observed that the impugned order lacked sufficient reasoning to demonstrate adverse effects on revenue due to refund grant. Consequently, the court quashed the order and remanded the matter for a fresh order with detailed justifications within six weeks.

4. Considering the tax amounts payable on the disputed deduction claim under Section 10AA, the court directed the refund of a substantial amount along with applicable interest within two weeks, even if a portion of the disputed amount was withheld pending a fresh order. The court concluded by disposing of the writ petition, emphasizing that assessment proceedings should continue without being influenced by the court's observations.

Conclusion:
The judgment highlighted the importance of providing detailed justifications for withholding refunds under Section 241A of the Income Tax Act, ensuring it aligns with the legislative intent and does not adversely affect revenue. The court's decision to quash the impugned order and remand the matter for a fresh order with sufficient reasoning demonstrates the significance of a judicious and objective approach in such matters.