2020 (3) TMI 968 - HC - Income Tax

Refund withheld u/s 241A - procedure for refund and withholding of refund - without the conditions mentioned therein being fulfilled - HELD THAT - We have perused the record, no reasons apart from one mentioned in the order are there. The note of approval of the Princial Commissioner was also perused by us, the only reason mentioned was that there was an amount outstanding of ₹ 5 crores odd against the petitioner and for the said reason, the refund is withheld. Petitioner disputed the fact and submitted that the said demand was set aside. Be that as it may, the pendency of demand of ₹ 5 crores cannot be a ground for withholding almost refund of ₹ 300 crores, as per Section 245, the due amount could be set off against the refund due. In the absence of any material and reason for forming opinion that refund is likely to adversely affect the revenue withholding cannot be sustained. Learned counsel for the petitioner relied upon various citations relating to Section 143(1D) but the same would have no direct application in the case in hand as the grievance is against order under Section 241A of the Act. It would be further pertinent to note here that there is no dispute raised by the respondents that as on date refunds are due to the petitioner as per communication of processing of return under Section 143(1). Respondents have not disputed that in the return filed by the petitioner for the assessment year 2019-20, the total income declared is more than ₹ 550 crores and refund of more than ₹ 183 crores has been claimed. It cannot be lost sight of that the revenue is not in a position to deny that the petitioner is running its business, the returns being filed are of almost more than ₹ 200 crores, there are no arrears of tax relating to any assessment year and the refund is being claimed every year. There is no allegation that the tax is not being paid or there is any irregularity in filing the returns. The contention of the respondents to remit the matter back is not found worth acceptance as in the present case, there are no reasons even in the record to support the finding that refund would adversely affect the revenue and the note in approval file that there was demand of ₹ 5 crores pending has been found not good enough to withhold the refund of more than ₹ 300 crores. Even the officials present in Court were not in a position to cite any material or reason with regard to adverse affect of refund on revenue, it would be an exercise in futility to give another opportunity. In view of the above, writ petition is allowed. The impugned order is quashed. The respondents are directed to issue refund for the assessment year 2017-18 and 2018-19 along with statutory interest not later than within four weeks from receipt of certified copy.

Issues Involved:
1. Whether refund can be withheld under Section 241A without fulfilling the conditions mentioned therein.

Issue-Wise Detailed Analysis:

1. Whether refund can be withheld under Section 241A without fulfilling the conditions mentioned therein:

The primary issue in this case is the legality of withholding refunds under Section 241A of the Income Tax Act, 1961. The petitioner sought the quashing of the order dated 8.11.2019, which withheld refunds for the assessment years 2017-18 and 2018-19. The court examined whether the conditions stipulated under Section 241A were met.

Section 241A stipulates that refunds can be withheld if:
(i) A notice under Section 143(2) has been issued,
(ii) The Assessing Officer believes that granting the refund would adversely affect the revenue,
(iii) The Assessing Officer has obtained prior approval from the Principal Commissioner or Commissioner,
(iv) The reasons for withholding the refund are recorded in writing.

The court noted that the section was introduced to address delays in issuing refunds for cases selected for scrutiny while protecting revenue interests in doubtful cases. However, it emphasized that mere pendency of proceedings under Section 143(2) is not sufficient to withhold refunds. The court highlighted that the language of Section 241A requires specific reasons demonstrating how the refund would adversely affect the revenue.

In the present case, the impugned order and the record lacked specific reasons for concluding that the refund would adversely affect the revenue. The court found that the reasons cited, such as pending scrutiny assessments and potential future demands, were not adequate. The court also observed that the Principal Commissioner's approval was based on insufficient grounds, specifically a pending demand of ?5 crores, which was not substantial enough to withhold a refund of approximately ?300 crores.

The court referred to previous judgments, including the Bombay High Court's decision in Vodafone Idea Limited v. Deputy Commissioner of Income Tax, which underscored the necessity of fulfilling Section 241A's requirements. The court also considered the Delhi High Court's decision in Maple Logistics Private Limited v. Principal Chief Commissioner of Income Tax, which emphasized the need for detailed reasoning in orders under Section 241A.

Ultimately, the court concluded that the authorities failed to provide adequate reasons to justify withholding the refund. The court quashed the impugned order and directed the respondents to issue the refunds along with statutory interest within four weeks. The court also expressed concern over the misuse of refund withholding procedures as delaying tactics and issued a notice to the responsible officers to show cause why costs should not be imposed on them personally.

The judgment underscores the importance of adhering to statutory requirements and providing detailed, reasoned orders when exercising powers under Section 241A.

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