2023 (3) TMI 1165 - HC - Income Tax

Withholding of refund - As submitted by Petitioner, that where refund has been withheld by the Revenue, the provisions of Section 241A require that reasons be recorded in writing by the concerned Officer to withhold the refund and also that the approval of Principal Commissioner or Commissioner is to be taken - HELD THAT - The issue of withholding of refund under the provisions of Section 241A of the Act is no longer res integra. This Court in various decisions has inter-alia held that a refund may be withheld subject, however, to reasons being recorded in writing on how the grant of refund in the opinion is likely to adversely affect revenue . It is well settled that a refund cannot simply be withheld if an Assessee is selected for scrutiny assessment or where a notice has been issued under sub-section (2) of Section 143 of the Act. AO is also required to give detailed and compelling reasons as to how the release of the refund will adversely affect the interest of the Revenue. The reasons as set forth in the communication are bereft of any details and only reproduce the wordings of Section 241A of the Act with some additional sketchy and vague details. There is also a complete absence of reasoning. Petitioner is a well reputed company with a large net-worth running into several billion dollars and not a fly-by-night operator. It is a tax Assessee for the last several years and the credit worthiness of the Assessee is also not in dispute. Merely because a notice has been issued under Section 143(2) of the Act, it is not a sufficient ground to withhold the refund under the provisions of the Act. As has been held in Maple Logistics case 2019 (11) TMI 340 - DELHI HIGH COURT it would be wholly unjust and inequitable for the AO to withhold a refund by citing the reason that a scrutiny notice has been issued and such an interpretation of the provision would be contrary to the intent of the legislature. The ReFAC(AU) has been completely swayed by the fact that the case of the Assessee has been selected by CASS for scrutiny assessment. PCIT (ReFAC)(AU) has also mechanically accorded permission to withhold the refund till the date of finalization of assessment without any application of mind in the matter. The orders are bereft of cogent reasons and are not in consonance with the principles enunciated in Maple Logistics case 2019 (11) TMI 340 - DELHI HIGH COURT and Ingenico International case 2021 (3) TMI 848 - DELHI HIGH COURT and hence, cannot be sustained. We set aside the order(s) - Respondents shall conduct a de novo exercise bearing in mind the provisions of Section 241A of the Act and principles articulated hereinabove, within six weeks of receipt of a copy of the Judgment.

Summary

Issues Involved:
1. Non-disbursal of a determined refund amount.
2. The legality of withholding the refund under Section 241A of the Income Tax Act, 1961.

Summary:

Issue 1: Non-disbursal of a determined refund amount

The Petitioner filed a return of Income Tax for AY 2020-2021 declaring a loss and claimed a refund. A revised return was filed, and a refund of Rs.33,05,84,840/- was determined under Section 143(1) of the Income Tax Act, 1961. Despite receiving an intimation of the refund, the amount was not credited to the Petitioner's account. The Petitioner's complaints and letters to the Respondents did not yield any response, prompting the Petitioner to file the present Petition.

Issue 2: The legality of withholding the refund under Section 241A of the Income Tax Act, 1961

The Respondents argued that the refund was withheld under Section 241A due to ongoing scrutiny assessment and potential adverse effects on revenue. The Petitioner contended that the reasons provided by the Respondents were insufficient and lacked substantive details as required under Section 241A. The Court noted that the power to withhold a refund under Section 241A is subject to specific conditions, including recording reasons in writing and obtaining approval from the Principal Commissioner or Commissioner.

The Court emphasized that merely being selected for scrutiny assessment or issuing a notice under Section 143(2) is not sufficient grounds to withhold a refund. The reasons must be detailed and compelling, demonstrating how the refund would adversely affect the revenue. The Court found that the reasons provided by the Respondents were vague and lacked specific details, failing to meet the requirements of Section 241A.

The Court held that the orders dated 30/31.05.2022 were bereft of cogent reasons and not in consonance with the principles enunciated in previous judgments, such as Maple Logistics P. Ltd. and Ingenico International India Pvt. Ltd. The Court set aside the orders and directed the Respondents to conduct a de novo exercise within six weeks, considering the provisions of Section 241A and the principles articulated.

The Petition was disposed of with directions for a fresh assessment, ensuring that the assessment proceedings, if pending, would continue without being influenced by the Court's observations.