Withholding of refund of Income tax due to issuance of intimation under section 143(1)/ scrutiny notice under section 143(2): Validity of reason to affect the revenue adversely as per the provisions of Section 241A
- The Assessee was a company providing hospital services to the general public. It filed its return of income for the Assessment Year 2018-19 on 29.10.2018 claiming refund of Rs.1.43 Crs on account of excess deduction of tax at source.
- Later, the revenue selected the case of the Assessee for limited scrutiny under Section 143(2) of the Act vide notice dated 22.09.2019. Subsequently, the Centralised Processing Center processed the return of income vide order dated 12.11.2019 under section 143(1) of the Act which resulted in refund of Rs.1.57 Crs.
- However, since the said refund was not granted, the Assessee submitted various representations dated 29.11.2019, 16.12.2019 and 17.12.2019 in this respect. Thereafter, in a personal hearing granted to the Assessee, it was informed that the refund was withheld under Section 241A of the Act. Neither the copy of the order nor the reasons for withholding the refund were provided to the Assessee.
- Thus, the present writ petition was filed by the Assessee seeking directions in this regard. During the course of hearing, the reasons for withholding the refund were provided to the Assessee vide the order dated 10.01.2020 whereby the refund was withheld.
- Additionally, the reasons which were to be recorded in writing have to be approved by the Principal Commissioner or Commissioner of Income Tax as the case may be and this should be done objectively.
- In the present facts of the case, the exercise of withholding of refund under section 241A of the Act, pursuant to notice under Section 143(2) of the Act, without recording justifiable reasons was not in consonance with the legislative intent and mandate of the provisions of law. The reasons cited do not support the finding that refund would adversely affect the Revenue.
- On persual of reasons recorded, it was apparent that only ground for withholding refund was that since case of the Assessee was selected for scrutiny for Assessment Year 2018-19 under Section 143(2) of the Act, the assessment was yet not complete and therefore, genuineness of the refund claimed by the Assessee was yet to be verified.
- The Hon’ble High Court placed reliance on the decision in the case of Maple Logistics and Ericsson India Private Limited wherein it was concluded that merely because a notice was issued under Section 143(2), it was not a sufficient ground to withhold refund under Section 241A and the order denying refund on this ground alone would be laconic.
- Therefore, the reasoning given by the Income-Tax Officer was contrary to Section 241A of the Act in the case of Assessee.