2020 (7) TMI 668 - HC - Income Tax

Refund withheld u/s 241A - limited scrutiny under Section 143(2) - only ground for withholding refund is that since case of the petitioner has been selected for scrutiny u/s143(2) assessment is yet not complete and therefore genuineness of the refund claimed by the assessee is yet to be verified - Neither the copy of the order nor the reasons for withholding the refund were provided to the petitioner and accordingly, the present writ petition has been filed - HELD THAT - The exercise of withholding of refund u/s 241A pursuant to notice u/s 143(2) without recording justifiable reasons, is not in consonance with the legislative intent and mandate of the aforesaid provision. The reasons cited do not support the finding that refund would adversely affect the Revenue. Reasoning given by the Income-Tax Officer is contrary to Section 241A of the Act. Accordingly, we set aside the impugned communication/ order dated 10.01.2020 - grant three weeks' time to the respondents to re-consider the aspect whether the amount found due to be refunded, or any part thereof, is liable to be withheld under Section 241A in line with the decisions of this court as noted above. The entire consideration, with the approval of the Principal Commissioner of Income Tax to the withholding of the refund amount, or any part thereof, should be completed.

Summary

Issues:
Petitioner seeks mandamus for refund under Section 143(1) of the Income Tax Act. The respondent withheld the refund under Section 241A of the Act due to limited scrutiny. The main issue is whether the withholding of the refund is justified under the law.

Analysis:

1. The petitioner, a hospital service provider, filed for a refund of excess tax deduction for AY 2018-19. The Revenue processed the return under Section 143(1) but withheld the refund under Section 241A due to limited scrutiny. The petitioner challenged this action through a writ petition seeking directions.

2. The petitioner argued that the grounds for withholding the refund were flawed and contrary to Section 241A. They cited judgments where withholding refunds solely based on scrutiny notices was deemed unjust. The petitioner emphasized the need for a thorough evaluation before withholding refunds.

3. The Revenue contended that genuine reasons existed for withholding the refund, given the limited scrutiny status of the petitioner's case. They argued that until the assessment is finalized, withholding the refund was justified under Section 241A.

4. The reasons provided for withholding the refund highlighted the case's selection for scrutiny and the need to verify the genuineness of the refund claim. However, the court found this reasoning flawed and not in line with the legislative intent of Section 241A.

5. The court referred to previous judgments emphasizing that the mere issuance of a scrutiny notice is not sufficient grounds to withhold a refund. It stressed the importance of recording justifiable reasons and obtaining approval before withholding refunds under Section 241A.

6. Ultimately, the court held that the Income-Tax Officer's reasoning for withholding the refund was contrary to the law. They set aside the order and directed the Revenue to reconsider the withholding within three weeks. If no decision is made, the refund must be transmitted to the petitioner along with interest.

7. The court allowed the writ petition, granting relief to the petitioner and emphasizing the importance of following due process when withholding refunds under Section 241A. The judgment highlighted the need for valid reasons and approval before withholding refunds, ensuring fairness and compliance with the law.