Maple Logistics Private Limited & Anr v. Principal Chief Commissioner of Income-tax & Ors
[Citation -2019-LL-1014-130]

Citation 2019-LL-1014-130
Appellant Name Maple Logistics Private Limited & Anr
Respondent Name Principal Chief Commissioner of Income-tax & Ors
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 14/10/2019
Assessment Year 2017-18, 2018-19
Judgment View Judgment
Keyword Tags deduction of tax at source • processing of return • application of mind • outstanding amount • extension of time • excess deduction • deduction of tds • withhold refund • grant of refund • tax liability • refund claim
Bot Summary: Section 241A provides that where there is a refund payable on the returns furnished under Section 143 of the Act, and the Assessing Officer is of the opinion that grant of refund is likely to adversely affect the revenue, he may withhold the refund up to the date on which the assessment is made, subject to reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be. On a combined reading of Section 143, with section 241A, it can be discerned that by virtue of the new proviso, it is now mandatory to process the return under sub-section of section 143, and proceed with grant of the refund determined therein, unless, sufficient reasons exist under Section 241A showcasing that the grant of refund is likely to adversely affect the revenue. A combined reading of the said provisions and in particular, sub-section of section 143 would demonstrate that once a notice under sub-section of section 143 is issued, it would be discretionary for the Assessing Officer to process the return under section 143(1). Section 241A which was inserted simultaneously, now enables the Assessing Officer to withhold the refund in favour of the assessee which becomes due in terms of sub-section of section 143 if he is of the opinion that having regard to the fact that a notice has been issued under sub-section of section 143 that the grant of refund is likely to adversely affect the Revenue, he would do so by recording reasons in writing and with previous approval of the Principal Commissioner or Commissioner and withhold such refund till the date the assessment is made. We may recall that Section 241 which was omitted w.e.f. 01.06.2001 previously enabled the Assessing Officer to withhold the refund which becomes due and payable in terms of sub-section of section 143 under certain circumstances including in a situation where a notice has been issued or is likely to be issued under sub-section of W.P.(C) 7003/2019 Page 13 of 21 section 143 of the Act and the Assessing Officer is of the opinion that the grant of refund is likely to adversely affect the Revenue. At the same time, to address the concern of recovery of revenue in doubtful cases, the legislature introduced Section 241A,which enables the Assessing Officer to withhold the refund in favour of the assessee which becomes due in terms of sub-section of section 143, if he is of the opinion that having regard to the fact that a notice has been issued under section 143(2), the grant of refund is likely to adversely affect the revenue. On the contrary, section 241A enjoins the W.P.(C) 7003/2019 Page 18 of 21 AO to process the determined refunds, subject to the caveat envisaged under Section 241A. The language of section 241A envisages that the aforesaid provision is not resorted to merely for the reason that the case of the assessee is selected for scrutiny assessment.


$ 14 * IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision: 14.10.2019 + W.P.(C) 7003/2019 MAPLE LOGISTICS PRIVATE LIMITED &ANR Petitioner Through: Mr. Amit Sibal, Senior Advocate with Mr. Sandeep, Mr. Devang and Mr. Ashutosh, Advocates. versus PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX & ORS Respondents Through: Ms. Lakshmi Gurung, Mr. Tushar Gupta, Ms. EashaKadian and Mr. Sidharth Gupta, Advocates. CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA SANJEEV NARULA, J. (Oral): 1. Petitioner, by way of present petition under Article 226 and 227 of Constitution of India seeks writ in nature of Mandamus directing Respondent to refund income tax amount on account of excess deduction of tax at source in respect of Assessment Years 2017-18 and 2018-19, and other consequential directions to adjust outstanding amount of TDS and GST payable by Petitioner Company against pending refund amount without charging of any interest for delayed payments. 2. petition has been disposed of vide another order passed today, whereby certain directions were issued to Respondent to pass detailed W.P.(C) 7003/2019 Page 1 of 21 reasoned order under Section 241A of Income Tax Act (hereinafter referred to as Act ). said order reads as follows: We have heard learned counsels at length. Learned counsel for respondents has produced, before us, relevant file which contains proforma enlisting reasons for issuance of notice under Section 143(2) of Income Tax Act to petitioner which, she states, were reasons looked at by Assessing Officer while putting up his proposal to Principal Commissioner of Income-Tax for withholding of refund under Section 241 A. copy of relevant documents has been retained. Considering nature of controversy and since preparation of detailed order is likely to take some time, in view of urgency, we proceed to dictate operative part of order. We find that exercise undertaken by respondents under Section 241A of Act is not in consonance with Section 241A inasmuch, as Assessing Officer has not given due regard to facts of case and he has not applied his mind as to why refund is likely to adversely affect revenue. There are no reasons recorded in writing by him to justify withholding of refund due to petitioner in terms of Section 143(1) for assessment year 2017-18 and we also find that Principal Commissioner of Income Tax, in present case, while granting his approval has also not examined reasons for passing order under Section 241A and relevant and germane considerations have also not received attention of Principal Commissioner of Income Tax. We, accordingly, find that entire exercise under Section 241A has not been correctly undertaken by respondents. At same time, we are conscious of fact that Scrutiny Proceedings under Section 143(2) were initiated by issuance of notice, as early as on 17.08.2018 i.e. even before issuance of intimation under Section 143(1), which was issued on 16.03.2019. W.P.(C) 7003/2019 Page 2 of 21 We, therefore, grant two weeks time to respondents to consider aspect whether amount found due to be refunded, or any part thereof, is liable to be withheld under Section 241A. While doing so, Assessing Officer shall, firstly, with reasons, make prima facie assessment of probability that additions would be made in Scrutiny Assessment Proceedings, secondly; he shall make assessment of quantum of additions, if any, that may be made to income returned, and likely tax effect that such additions may have, thirdly; he should assess financials and financial standing of petitioner with regard to its ability to meet and service any demand for tax that may be raised as result of Scrutiny Proceedings; and also take into consideration such other factors eg. past demands, any outstanding litigation and past conduct of assessee etc. All aforesaid aspects should be examined to ascertain if payment of refund, or any part thereof, are likely to have adverse affect on Revenue. order must reflect due application of mind of Assessing Officer while making proposal whether, or not, to withhold any part of refund amount. Such proposal should be examined by Principal Commissioner of Income Tax with due application of mind on all aforesaid aspects. entire consideration, with approval of Principal Commissioner of Income Tax to withholding of refund amount, or any part thereof, should be completed within two weeks from today, failing which, we direct that without awaiting any further orders, respondents shall transmit amount of Rs. 4,79,93,740/- with interest to petitioner, upon petitioner furnishing undertaking that said amount shall forthwith be deposited with GST Authorities. We have laid down aforesaid time line considering fact that refund was found payable as early as on 16.03.2019. In eventuality of respondents recording any reasons for withholding part of, or entire amount due for refund to petitioner under Section 143(1), reasons thereof as approved by Principal Commissioner of Income Tax shall be provided to petitioner forthwith. Needless to state that reasons recorded for withholding of refund under section 241A would W.P.(C) 7003/2019 Page 3 of 21 only amount to tentative view and would not come in way of Assessing Officer to frame assessment under section 143(3) of Act. petition stands disposed of in aforesaid terms. detailed reasons/ order shall be recorded separately. 3. In continuation thereof, by way of this order, we are recording detailed reasons for issuing said directions. Brief facts 4. Briefly stated, facts of case as narrated in writ petition are that Petitioner Company is engaged in business of providing multimodal logistics services including transportation through road, rail etc., for its customers. In terms of Section 194C of Income Tax Act, customers of Petitioner are obligated to deduct TDS at rate of 2% from transport charges paid or payable to Petitioner Company. Petitioner claims that in view of nature of business, major portion of transportation charges received/receivable are disbursed to third party service providers. margins retained by Petitioner are less than 2% of total consideration. TDS deduction of 2% causes financial difficulties, as its margin remains stuck with government department in form of TDS, causing acute cash flow constraints. As consequence thereof, Petitioner is unable to service its customers, lenders and pay its statutory dues in timely manner. 5. In respect of Assessment Year (AY) 2017-18, on application made by Petitioner under Section 197 of IT Act, requesting for certificate for W.P.(C) 7003/2019 Page 4 of 21 lower rate of TDS at rate of 0.8% instead of standard rate of 2%, Assistant Commissioner of Income Tax allowed deduction of TDS at rate of 1%. On 25.10.2017, Petitioner filed income tax return for AY 2017-18. On account of operation of Section 115J of IT Act (Minimum Alternate Tax), Petitioner Company was required to pay total income tax of Rs. 68,45,266.00. Since total pre-paid taxes (including TDS of Rs. 5,51,49,566.00) of Company was Rs.5,56,96,802.00, Petitioner Company claimed refund of Rs. 4,88,51,540.00. On 27.03.2018, Petitioner Company filed revised income tax return in terms of Section 139(5) of IT Act to reduce total TDS amount from Rs. 5,51,49,566/- to Rs. 5,42,91,774/- due to non-deposit of TDS by its customers. Accordingly, its refund claim stood revised to Rs. 4,79,93,740/-. 6. Petitioner s case was chosen for scrutiny as per computer aided scrutiny selection. Deputy Commissioner of Income Tax, DCIT Circle 16 (1) (hereinafter Respondent No. 3 ), issued notice dated 17.08.2018, inter alia, requesting Petitioner to produce evidence/documents in support of claims made in its return. In response thereto, on 25.09.2018, Petitioner submitted its e-reply along with relevant documents. Petitioner has since not received any hearing notice, or assessment order in terms of Section 143 (3) of IT Act. Since Petitioner was facing acute financial crunch on account of blockage of funds in form of excess TDS and delay in processing of tax refund, it filed online complaint dated 12.11.2018 on portal of Centralized Public Grievance Redress And Monitoring System and requested Director of Income Tax, Centralized Processing (hereinafter Respondent No. 2 ) to expeditiously process pending income tax return W.P.(C) 7003/2019 Page 5 of 21 for AY 2017-18. 7. In meantime, on 16.03.2019, Respondent No. 2 issued intimation processing income tax return filed by Petitioner under Section 139 of IT Act, wherein tax liability of Petitioner was assessed as Rs. 68,45,266 and refund amount due to Petitioner Company for AY 2017-18 was determined as Rs. 4,79,93,740 along with eligible interest under section 244A of Act. 8. Petitioner claims that, similarly, for Assessment Years 2018-19; AY 2019-20 and AY 2020-21, Petitioner has been filing applications under Section 197 of IT Act requesting for lower rate of TDS, however, such applications have not been accepted and instead higher rate of TDS has been approved. Petitioner further claims that in respect of AY 2018-19, as per revised income return dated 31.03.2018, Petitioner is entitled to refund of Rs. 5,50,78,280/- along with interest under Section 244A. Petitioner also claims that as income tax returns have not been processed, refund on account of excess TDS has accumulated over years, which has resulted in causing acute financial crunch and liquidity crisis. This has rendered Petitioner liable to pay penalties to its vendors and this has also led to issuance of default notices by banks who have downgraded CIBIL rating of Petitioner. Petitioner is unable to deposit statutory dues of GST in timely manner and as result, GST department has initiated enquiry against Petitioner. 9. In these compelling circumstances, Petitioner has approached this Court seeking appropriate directions. W.P.(C) 7003/2019 Page 6 of 21 10. On application being filed vide CM (Appl) 40122/2019 seeking early hearing of petition, Respondent s counsel stated that refund for AY 2017-18 has not been granted in view of order passed under Section 241A of Act. She further apprised Court that such order was not retrievable from computer system, and efforts were being made to do so. Accordingly, direction was issued to Respondents to produce order recorded under Section 241A of Act before Court. 11. Today, Ms. Laxmi Gurung, learned Senior Standing Counsel for Revenue apprises Court that as per records, reason for not granting refund is that notice under sub-Section(2) of Section 143 in respect of AY 2017-18 has been issued and, as consequence, in accordance with Section 241A of Act, Assessing Officer, with prior approval of Principal Commissioner, has withheld refund up to date assessment is made. Ms. Gurung further submitted that Assessing Officer has also relied upon reasons which were recorded for selecting case of Petitioner for scrutiny under Section 143 (2) of Act to justify withholding of refund claim of Petitioner. Respondent also produced original file and on its perusal we find that following reasons have been recorded in terms of Section 241 of Act: As per ITBA Database below remarks are given by different authorities: 1. 11450354 _AO Remarks: case of assessee is under scrutiny u/s. 143(3). Thereis possibility of generation of additional demand which may be adjusted against therefund in future. 2. 11300268_RANGE Remarks: proposal of AU u/s 241A to W.P.(C) 7003/2019 Page 7 of 21 with hold refund tillregular assessment u/s 143(3) is submitted for kind approval. 3. 11200044_ CIT Remarks: Assessment is pending and there is likelihood of creationof demand. Hence, refund may be withheld as proposed. 12. Mr. Amit Sibal, learned Senior Counsel appearing on behalf of Petitioner has strongly urged that Respondents have no justification for withholding refund for AY 2017-18, as return for said year has been processed under Section 143(1) of Act vide intimation dated 16.03.2017, whereby Petitioner has been found eligible for refund of Rs. 4,79,93,740/- along with eligible interest under Section 244A of Act. He argued that Respondent is, therefore, bound to release refund amount for said year. He submits that mere issuance of notice under section 143(2) of Act in respect of Assessment Year 2017-2018 cannot, ipso facto, provide valid justification to withhold payment of refundable amount on account of deduction and deposit of higher tax at source. This, he submits, is not scheme of section 241A of Act. 13. Learned Senior Standing Counsel for Revenue, on other hand, argued that Petitioner has suppressed material facts from Court. She argued that Petitioner was aware of reasons for withholding refund determined under Section 143(1) of Act as same finds mention in intimation issued under Section 143 (1)(d) of Act dated 16.03.2019 for AY 2017-18. Petitioner has deliberately concealed this fact and has, instead, approached Court for directions for refund of amount determined under Section 143(1) of Act without impugning W.P.(C) 7003/2019 Page 8 of 21 aforesaid reasons. disclaimer recorded in fine print on intimation reads as under:- refund determined u/s 143(1) in this Intimation has been withheld as per provisions of section 241A of Income Tax Act, 1961. refund, if any,will be released on completion of assessment u/s 143(3)/144 as case may be, along with interest u/s 244A andsubjectto adjustment of arrear demand, if any u/s 245. Please contact Assessing Officerfor more details. Analysis 14. We have given due consideration to rival contentions of parties. Before proceeding further, it would be beneficial to analyze legislative history, leading to introduction of section 241A. 15. power to withhold refund was earlier envisaged in Section 241 of Act (omitted w.e.f. 01.06.2001), which read as under: 241. Power to withhold refund in certain cases. Where refund of any amount becomes due to assessee as result of order under this Act or under provisions of subsection (1) of section 143 after return has been made under section 139 or in response to notice under sub-section (1) of section 142 and Assessing Officer is of opinion, having regard to fact that (i) notice has been issued, or is likely to be issued, under sub- section (2) of section 143 in respect of said return ; or (ii) order is subject-matter of appeal or further proceeding ; or (iii) any other proceeding under this Act is pending, W.P.(C) 7003/2019 Page 9 of 21 that grant of refund is likely to adversely affect revenue, Assessing Officer may, with previous approval of Chief Commissioner or Commissioner, withhold refund till such time as Chief Commissioner or Commissioner may determine 16. After omission of aforesaid provision, process of refund was governed by Section 143(1D) of Act. said provision as it existed prior to amendment by Finance Act 2017 w.e.f 01.04.2017 (hereinafter 2017 amendment ), read as under:- (1D) Notwithstanding anything contained in sub-section (1), processing of return shall not be necessary before expiry of period specified in second proviso to sub-section (1), where notice has been issued to assessee under sub-section (2): Provided that such return shall be processed before issuance of order under sub-section (3). 17. After amendment, said provision reads as under:- (1D) Notwithstanding anything contained in sub-section (1), processing of return shall not be necessary, where notice has been issued to asssessee under sub-section (2): Provided that provisions of this sub-section shall not apply to any return furnished for assessment year commencing on or after 1st day of April, 2017. 18. aforenoted amendment was simultaneous to insertion of Section 241A by Finance Act 2017 w.e.f. 01.04.2017, which reads as under: W.P.(C) 7003/2019 Page 10 of 21 For every assessment year commencing on or after 1st day of April, 2017, where refund of any amount becomes due to assessee under provisions of sub-section (1) of section 143 and Assessing Officer is of opinion, having regard to fact that notice has been issued under sub-section (2) of section 143 in respect of such return, that grant of refund is likely to adversely affect revenue, he may, for reasons to be recorded in writing and with previous approval of Principal Commissioner or Commissioner, as case may be, withhold refund up to date on which assessment is made. 19. Section 241A provides that where there is refund payable on returns furnished under Section 143 (1) of Act, and Assessing Officer is of opinion that grant of refund is likely to adversely affect revenue, he may withhold refund up to date on which assessment is made, subject to reasons to be recorded in writing and with previous approval of Principal Commissioner or Commissioner, as case may be. On combined reading of Section 143, (pre and post amendment) with section 241A, it can be discerned that by virtue of new proviso, it is now mandatory to process return under sub-section (1) of section 143, and proceed with grant of refund determined therein, unless, sufficient reasons exist under Section 241A showcasing that grant of refund is likely to adversely affect revenue. 20. It may also be noted that in Section 241, reason that grant of refund is likely to adversely affect revenue was, inter alia, one of grounds mentioned for withholding of refund. However, in newly inserted Section 241A, adverse effect on revenue is sole ground for such withholding. Therefore, scope of power has been further narrowed, W.P.(C) 7003/2019 Page 11 of 21 making it clear that speaking order is required to be passed culling out reasons as to how grant of refund is likely to affect Revenue. 21. At this juncture, it would be meaningful to refer to case law in context of older section 241, since it also uses words likely to adversely affect revenue . In several decisions it has been held that order withholding refund must essentially reflect that grant of refund is likely to adversely affect revenue. Reference may be made to decisions in Ashwin D Mehta (HUF) v. Commissioner of Income Tax, (1995) 215 ITR 411(Gujarat), Naurata Ram v. Commissioner of Income-tax, (1998) 100 TAXMAN 266 (PUNJ. & HAR.), Shreyans Industries Ltd. v. Commissioner of Income-tax, (1998) 101 TAXMAN 498 (PUNJ. & HAR.), Pioneer Sports Works (P.) Ltd. v. Commissioner of Income Tax, (1997) 94 TAXMAN 29 (PUNJ. & HAR.). 22. question, that arises for consideration is present case, is as to scope and ambit of newly inserted provision- Section 241A. same has been elaborately discussed by Gujarat High Court in Corrtech International (P) Ltd. v Deputy Commissioner of Income Tax, (2017) 86 Taxmann.com 156 (Gujarat), relevant portion whereof is extracted hereinbelow: 15. combined reading of said provisions and in particular, sub-section (1D) of section 143 would demonstrate that once notice under sub-section (2) of section 143 is issued, it would be discretionary for Assessing Officer to process return under section 143(1). time limit envisaged in further proviso to sub-section (1) would not apply but that same can be done only before issuance of order of assessment under sub-section (3). W.P.(C) 7003/2019 Page 12 of 21 16. Under such provision, therefore, it would be open for Assessing Officer to process return under section 143(1) and, if culmination of such exercise is to deny refund to assessee, send such intimation, as provided, under proviso to sub section (1). Once however time frame envisaged in further proviso to sub-section (1) expires and is not extended by virtue of operation of sub-section (1D) of section 143, there would be no scope thereafter for Assessing Officer to withhold refund arising out of return filed by assessee. 17. This position would become clear if we compare provisions of section 143(1D) as amended by Finance Act, 2017 read with newly inserted Section 241A. Under new sub- section (1D) legislature provides that notwithstanding anything contained in sub-section (1) processing of return would not be necessary where notice has been issued to assessee under sub section (2). This would make it clear that once notice under section 143(2) has been issued, Assessing Officer shall not process return under section 143(1). original proviso to sub-section (1D) has been substituted by new proviso under which it is clarified that proviso under said sub-section shall not apply to any return furnished for assessment year commencing on or after 01.04.2017. Section 241A which was inserted simultaneously, now enables Assessing Officer to withhold refund in favour of assessee which becomes due in terms of sub-section (1) of section 143 if he is of opinion that having regard to fact that notice has been issued under sub-section (2) of section 143 that grant of refund is likely to adversely affect Revenue, he would, however, do so by recording reasons in writing and with previous approval of Principal Commissioner or Commissioner and withhold such refund till date assessment is made. We may recall that Section 241 which was omitted w.e.f. 01.06.2001 previously enabled Assessing Officer to withhold refund which becomes due and payable in terms of sub-section (1) of section 143 under certain circumstances including in situation where notice has been issued or is likely to be issued under sub-section (2) of W.P.(C) 7003/2019 Page 13 of 21 section 143 of Act and Assessing Officer is of opinion that grant of refund is likely to adversely affect Revenue. (Emphasis supplied) 23. On perusal of new proviso added to sub-section (1D), it becomes evident that said sub-section providing for extension of time limit for processing of return in cases where section 143(2) notice has been issued, will not apply to any return furnished for assessment year commencing on 01.04.2017. intention of introducing Section 241A simultaneous with insertion of aforenoted proviso was to address grievance of assessees relating to delay in issuance of refund in genuine cases which are routinely selected for scrutiny assessment. However, at same time, to address concern of recovery of revenue in doubtful cases, legislature introduced Section 241A,which enables Assessing Officer to withhold refund in favour of assessee which becomes due in terms of sub-section (1) of section 143, if he is of opinion that having regard to fact that notice has been issued under section 143(2), grant of refund is likely to adversely affect revenue. He would, however, do so by recording reasons in writing and with previous approval of Principal Commissioner, or Commissioner, and withhold such refund till date assessment is made. 24. issuance of notice under Section 143(2) of Act has often been cited as ground for withholding of refund and it would also be profitable to note views of court in pre-amendment scenario. In Tata Teleservices v Central Board of Direct Taxes (2016) 386 ITR 30, held that in event notice is issued under section 143(2), it will be matter of discretion of W.P.(C) 7003/2019 Page 14 of 21 concerned AO whether he should process return or not. relevant portion is extracted as under : 23.The real effect of instruction is to curtail discretion of AO by 'preventing' him from processing return, where notice has been issued to Assessee under Section 143(2) of Act. If legislative intent was that return would not be processed at all once notice is issued under Section 143 (2) of Act, then legislature ought to have used express language and not expression "shall not be necessary". By device of issuing instruction in purported exercise of its power under Section 119 of Act, CBDT cannot proceed to interpret or instruct income tax department to 'prevent' issue of refund.In event that notice is issued to Assessee under Section 143 (2) of Act, it will be matter discretion of concerned AO whether he should process return. 25. Further, in Group M Media India Pvt. Ltd. v Union of India, (2016) 388 ITR 594, Bombay High Court observed that, Assessing Officer is required to independently apply his mind and take decision in terms of section 143(1D) whether, or not, to grant refund in facts and circumstances of Petitioner s case. Thus, prior to amendment, though discretion rested with Assessing officer whether, or not, to process refund, however, same could not be exercised merely because notice under section 142(2) stood issued. 26. We would also like to refer to judgment in case of Pulp N Pack Private Ltd. v Commercial Tax Officer, MANU/AP/0094/2009, where High Court of Andhra Pradesh dealt with normative range of circumstances that could be considered as having adverse effect on revenue within meaning of said expression in section 33C of W.P.(C) 7003/2019 Page 15 of 21 Andhra Pradesh General Services Tax Act, 1957. It was held therein that every refund where dues consequent on order giving rise to refund cannot be considered as adversely affecting revenue. Looking at decisions in Consolidated Petrotech Industries v. Assistant Commissioner of Income Tax, (1993) 202 ITR 306 (Guj), Shreyansh Industries Ltd. v. Commissioner of Income Tax, MANU/PH/0987/1998 and Gannon Dunkerley& Co. Ltd. v Sales Tax Officer, (2003) 133 STC 534, Court observed as follows: 67. Pasayat, J. (as His Lordship then was) in Gannon Dunkerley& Co. Ltd. (supra) observed that opinion means judgment, belief or conviction resulting from what one think on particular question. This should be passed on grounds short of proof. If one is to form opinion and opinion is to govern, he must form it himself on such reasons and grounds as seen good to him. Mere filing of appeal or pendency of further proceedings under Act can not per se be ground for withholding refund. opinion that grant of refund is likely to adversely affect revenue must be formed. In facts of case before it Orissa Division Bench in Gannon Dunkerley&Co. Ltd. concluded that revenue/assessing authority must be in possession of all relevant material which are relevant for taking decision (to withhold refund). Financial stability, creditworthiness are relevant considerations when considering question whether grant of refund would adversely affect revenue, observed Bench. 68. In Shreyans Industries Ltd. (supra) court observed that singular fact that order (giving rise to refund) is under challenge either before Tribunal or High Court is not ground to withhold refund or to reach conclusion that refund would adversely affect revenue. court found that while huge amount was withheld on mere ground of pending appeal before Tribunal, no material was available on record which justified withholding of refund. court W.P.(C) 7003/2019 Page 16 of 21 observed that petitioner was not found to be in default of any payment of income tax dues or even in matter of filing of returns. Consequently order withholding refund was quashed. 69. From cases that come before this Court involving exercise of power Under Section 33C of Act of 1957, there is apparent, as in this batch of cases, mechanical approach to exercise of structured grant of discretionary power. Often, order withholding refund merely reproduces statutory phrase that grant of refund would adversely affect revenue. (Emphasis supplied) 27. In said judgment, it was also noted that condition of obtaining previous approval of Commissioner is one of conditions for withholding of refund and is in nature of procedural prescription, legislatively intended to provide check on possible arbitrary exercise of discretion by assessing or licensing authority, as case may be, by enjoining that exercise of discretion be preceded by previous approval of higher authority. Reference may be made to relevant paras as under: other structural condition as to prior approval of higher authority is, as already observed, legislatively intended to operate as check on what would otherwise have been sole discretion of assessing authority. provisions of Section 33C are in parimateria borrowed from Section 241 of Income Tax Act 1961 (omitted by Finance Act 2001, w.e.f. 1.1.2001). Another legislative intendment of prescription (that order must be preceded by approval of higher authority), appears to be that assessing authority ought not exclusively be conferred discretion, as exercise of such discretion in event of eventual success of assessee would mulct exchequer with liability to interest for period W.P.(C) 7003/2019 Page 17 of 21 refund is withheld. (Emphasis supplied) CONCLUSION 28. With this backdrop, we now consider situation at hand. Here return has been filed on 25.10.2017 for AY 2017-2018 and, therefore, amended provisions would be applicable. In our considered opinion, AO has completely misunderstood refund mechanism and import of Section 241A of Act. legislative intent is clear and explicit. processing of return cannot be kept in abeyance, merely because notice has been issued under section 143(2) of Act. Post amendment, sub-section (1D) of section 143 is inapplicable to returns furnished for AY commencing on or after 1st Day of April 2017. only provision that empowers AO to withhold refund in given case presently, is section 241A.Now refunds can be withheld only in accordance with said provision. aforesaid provision is applicable to such cases where refund is found to be due to Assessee under provisions of Sub-Section (1) of Section 143, and also notice has been issued under Sub-Section (2) of Section 143 in respect of such returns. However, this does not mean that in every case where notice has been issued under Sub-Section (2) of Section 143 and case of Assessee is selected for scrutiny assessment, determined refund has to be withheld. 29. legislature has not intended to withhold refunds just because scrutiny assessment is pending. If such would have been intent, Section 241A would have been worded so. On contrary, section 241A enjoins W.P.(C) 7003/2019 Page 18 of 21 AO to process determined refunds, subject to caveat envisaged under Section 241A. language of section 241A envisages that aforesaid provision is not resorted to merely for reason that case of assessee is selected for scrutiny assessment. Sufficient checks and balances have been built in under said provision and same have to be given due consideration and meaning. order under section 241A should be transparent and reflect due application of mind. 30. AO is duty bound to process refund where same are determined. He cannot deny refund in every case where notice has been issued under Sub-Section (2) of Section 143. discretion vested with AO has to be exercised judiciously and is conditioned and channelized. Merely because scrutiny notice has been issued should not weigh with AO to withhold refund.The AO has to apply his mind judiciously and such application of mind has to be found in reasons which are to be recorded in writing. He must make objective assessment of all relevant circumstances that would fall within realm of adversely affecting revenue . 31. In present case, AO has completely lost sight of words in provision to effect that, grant of refund is likely to adversely affect revenue. reasons that are relied upon by Revenue to justify witholding of refund in present case, are abysmally lacking in reasoning. Except for reproducing wordings of Section 241A of Act, they do not state anything more. entire purpose of Section 241A would be negated, in case AO was to construe said provision in manner he has sought to do. It would be wholly unjust and inequitable W.P.(C) 7003/2019 Page 19 of 21 for AO to withhold refund, by citing reason that scrutiny notice has been issued.Such interpretation of provision would be completely contrary to intent of legislature. AO has been completely swayed by fact that since case of assessee has been selected for scrutiny assessment, he is justified to withhold refund of tax. 32. power of AO has been outlined and defined in terms of Section 241A and he must proceed giving due regard to fact that refund has been determined. fact that notice under section 143(2) has been issued, would obviously be relevant factor, but that cannot be used to ritualistically deny refunds. AO is required to apply its mind and evaluate all relevant factors before deciding request for refund of tax. Such exercise cannot be treated to be empty formality and requires AO to take into consideration all relevant factors. relevant factors, to state few would be prima facie view on grounds for issuance of notice under section 143(2); amount of tax liability that scrutiny assessment may eventually result in vis-a-vis amount of tax refund due to assessee; creditworthiness or financial standing of assessee, and all factors which address concern of recovery of revenue in doubtful cases. 33. Therefore, merely because notice has been issued under section 143(2), it is not sufficient ground to withhold refund under section 241A and order denying refund on this ground alone would be laconic.Additionally, reasons which are to be recorded in writing have to also be approved by Principal Commissioner, or Commissioner, as case may be and this should be done objectively. W.P.(C) 7003/2019 Page 20 of 21 34. Thus in view of foregoing discussion, entire exercise under Section 241A has not been correctly undertaken by respondents. petition is disposed of and directive portion of judgment as recorded in order dated as dictated in open Court must be duly adhered by parties. Corrected and uploaded on 4th November 2019 SANJEEV NARULA, J VIPIN SANGHI, J OCTOBER 14, 2019 ss W.P.(C) 7003/2019 Page 21 of 21 Maple Logistics Private Limited & Anr v. Principal Chief Commissioner of Income-tax & Or
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