$ 25, 26 & 27 * IN HIGH COURT OF DELHI AT NEW DELHI Date of Decision: 18.02.2020 + W.P.(C) 10373/2019 ERICSSON INDIA PRIVATE LIMITED Petitioner Through: Mr.Vishal Kalra and Mr.S.S.Tomar, Advocates. versus ADDITIONAL COMMISSIONER OF INCOME TAX, SPECIAL RANGE-3, NEW DELHI & ANR. Respondents Through: Mr.Ruchir Bhatia, Senior Standing Counsel with Ms.Madhura M.N. and Mr.Achal Dubey, Advocates. + W.P.(C) 10374/2019 ERICSSON INDIA PRIVATE LIMITED ..... Petitioner Through: Mr.Vishal Kalra and Mr.S.S.Tomar, Advocates. versus ADDITIONAL COMMISSIONER OF INCOME TAX, SPECIAL RANGE-3, NEW DELHI & ANR. ..... Respondents Through: Mr.Ruchir Bhatia, Senior Standing Counsel with Ms.Madhura M.N. and Mr.Achal Dubey, Advocates. + W.P.(C) 10375/2019 ERICSSON INDIA PRIVATE LIMITED ..... Petitioner Through: Mr.Vishal Kalra and Mr.S.S.Tomar, Advocates. Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 1 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 versus ADDITIONAL COMMISSIONER OF INCOME TAX, SPECIAL RANGE-3, NEW DELHI & ANR. ..... Respondents Through: Mr.Ruchir Bhatia, Senior Standing Counsel with Ms.Madhura M.N. and Mr.Achal Dubey, Advocates. CORAM: HON'BLE MR. JUSTICE VIPIN SANGHI HON'BLE MR. JUSTICE SANJEEV NARULA SANJEEV NARULA, J (Oral): 1. All three writ petitions seek directions to revenue for refund of Rs. 48,361,57,240/-, Rs. 421,18,02,760/- and Rs. 349,41,45,020/- stated to be lying with Department in respect of Assessment Year (AY) 2017-18; 2016-17 and 2018-19. Since petitions raise similar grievance and issues are interlinked, same are being disposed of by this common order. Brief facts: 2. fact scenario in all three petitions is similar and thus for sake of convenience, relevant facts of W.P.(C) No. 10373/2019 are being discussed in extenso, as follows: 2.1 Petitioner is company engaged in business of trading, manufacturing/assembly of telecommunication carrier equipment for sale to independent customers, providing implementation, commissioning and Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 2 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 support services related to telecommunication systems. Petitioner is regularly assessed to tax. For AY 2017-18, Petitioner filed its return of income declaring loss of Rs.1,21,82,59,981/- and claim refund of Rs.4,69,12,90,300/-. return was revised on 28.03.2018 under Section 139(5) of Act, for claiming higher TDS credit and refund of Rs.4,83,61,57,240/-. return was selected for scrutiny by issuing notice dated 27.08.2018 under Section 143(2) of Act. Petitioner filed its revised return for second time in response to communication dated 29.01.2018 issued by CPC, Bengaluru, under Section 143(1)(a) of Act. Thereafter, Petitioner filed application on 13.04.2016 under Section 197 of Act for obtaining lower tax deduction certificates @3.12%. Pursuant thereto, revenue issued certificate on 04.07.2016 asking deductors to deduct tax @5% on payments to be made to Petitioner. As result of delay in issuance of certificate, TDS of Rs.4,89,54,62,680/- was deducted by deductors. Petitioner states that it has reported taxable loss in income tax return for AY 2017-18 and has claimed refund of Rs.4,83,61,57,240/-. It is asserted that refund is primarily on account of issuance of tax deduction certificates at considerably higher rate of 5%, in comparison to Petitioner s request of 3.12%. Besides, delay in issuance of certificates is also cited as factor that has resulted in refund claim. 3. Complainant made litany of requests to Respondent No.1 for grant of refund. It started with filing of representation on 30.10.2018, followed with personal visits and, making grievance with CPGRAM, explaining that huge refund claim was causing acute shortage of funds to Petitioner. Eventually, revenue disposed of grievance application on 12.03.2019 Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 3 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 stating that processing of return is in progress and further intimation would be sent in this regard. Despite this assurance, department did not process return and issue necessary refund. Petitioner then submitted other grievance applications and continued to follow up with respondents. Communications were also sent to DGIT (Systems) on 14.06.2019 requesting for expeditious processing of tax return. Petitioner s grievance still remains unresolved. In these compelling circumstances, it has now approached this Court seeking directions to respondent for grant of refund for assessment year in question. W.P. (C) NO. 10374/2019 4. This petition pertains to AY 2016-17 for which Petitioner filed return of income on 30.11.2016 declaring total income of Rs.395,24,48,020, claiming TDS credit of Rs. 601,30,24,216 and refund of Rs. 421,18,02,670. Before filing of return of income for subject assessment year, on 14.04.2015, petitioner made application for obtaining lower withholding tax certificates at 3.65% rate. certificates under section 197 were issued on 16.12.2015 directing vendors to deduct tax @ 5.5% on payments to be made to petitioner. As result of delay in issuance of certificates, TDS of Rs. 601,30,24,216 was deducted by deductors during year. 5. return filed by Petitioner was transferred by Centralized Processing Cell ("CPC"), Bengaluru to Respondent no. 1 on 22.01.2017. return was selected for scrutiny by issuance of notice dated 06.07.2017 under section 143(2) of Act. time limit to process return for this year under proviso to section 143(1) of Act was 31.03.2018. Petitioner Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 4 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 paid several personal visits to office of Respondent no.1 enquiring about status of processing of return. All efforts were in vain. No refund was granted and as result, Petitioner submitted representation to Respondent No.1 / AO on 03.01.2018, continued to visit his office and follow up with his staff. This also did not yield any positive outcome. 6. Petitioner, after having exhausted remedy of following up with Respondents, filed grievance with CPGRAM on 4.09.2018, requesting to issue directions to process tax return and issue refund at earliest. grievance of Petitioner was disposed of on 27.09.2018 stating that tax return has been transferred to Respondent No. 1 on 22.01.2017. Petitioner was finally to follow up with him for further clarification. After orally discussing resolution of above CPGRAM, Petitioner filed fresh grievance with CPGRAM on 12.10.2018 requesting to direct Respondent No. 1 to process return and issue refund at earliest. above grievance application was disposed on 25.10.2018, stating that since return has been selected for scrutiny under section 143(2) of Act, necessary refund would be issued only after completion of assessment proceedings. Petitioner again filed e-Nivaran application on 06.06.2019 for grant of necessary refund. same was disposed of stating since tax return has been picked up for scrutiny, refund will be released after scrutiny assessment. W.P. (C) NO. 10375/2019 7. This petition pertains to AY 2018-2019 for which Petitioner filed return of income on 30.11.2018 declaring loss of Rs. 257,67,46,869, Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 5 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 claiming TDS credit and refund of Rs. 349,43,13,330. For this year as well, Petitioner filed application under section 197 of Act, for obtaining lower tax withholding certificates at 2.23% rate on 07.04.2017. certificates under section 197 were issued on 04.05.2017, directing deductor to deduct tax @ 3.5% from payments to be made to Petitioner. As result of higher withholding tax rate in certificates issued, TDS of Rs. 349,41,45,016 was deducted by deductors during year in question. This has resulted in huge refund claims. Proceedings in present petition: 8. Looking at unsettling facts of case noted above, at stage of admission, we had directed Respondents to examine claims and grant refunds, if found due. In event Respondents were to contest petition, they were to file counter affidavit giving explanation for denying fund to extent same was disputed. Respondents have not filed any counter affidavit to petition and we have, accordingly, heard submissions and proceed to dispose of present petitions on basis of submissions advanced by Mr. Bhatia on instructions given by Mr. Achal Dubey, ACIT Circle 8 (1), who is present in Court today. Mr. Bhatia explained that in respect of 2016-17, assessment has not been completed and draft order dated 30.12.2019-and objections thereto filed by Petitioner, are pending before DRP. Since there is no final order passed as on date, refund could not be processed. Mr. Bhatia also apprised court that with respect to assessment year 2011-12, refund has been processed and same would be released. In respect of assessment years 2017-18, 2018-19, it is submitted that claim for refund could not be Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 6 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 issued, on account of fact that there was order passed against Petitioner under Section 241A of Income Tax Act. During course of arguments, proposal seeking approval for withholding refund under Section 241A issued by Assistant Commissioner of Income Tax, Circle-8(2), New Delhi along with approval accorded by office of Principal Commissioner of Income Tax-3, were handed over and same were taken on record. Analysis and Findings 9. There are four assessment years that form subject matter of present order, viz. AY 2011-12, AY 2016-17, AY 2017-18 and AY 2018-19. Although AY 2011-12 is not subject matter of any of petitions, yet we are issuing directions for refund for reasons given hereinafter. Revenue has informed that amount of Rs. 84 crores is due as refund by virtue of judgment passed by this Court dated 25.09.2018, whereby penalty under Section 271G has been deleted. Petitioner contends that tax officer has not passed order giving effect to order of this Court and refund has not been issued. Mr. Bhatia, on instructions, assures this Court that refund order has now been processed and same would be issued. Taking his statement on record, we direct that revenue shall, within period of 30 days from today, issue refund for AY 2011-12 along with applicable interest. 10. This brings us to AY 2016-17 in W.P.(C) 10374/2019, in relation to which Petitioner claims refund of Rs.4,21,18,02,760/-. In subject year, Petitioner filed income tax return in November, 2016 and claimed Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 7 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 refund. Petitioner has been regularly following up with Assessing Officer for processing of aforesaid return and grant of refund. Despite repeated follow ups, Petitioner's return has not been processed. Revenue has contended that tax return could not be processed, since revenue had issued notice under Section 143(2) of Act and Petitioner s case is under scrutiny. return cannot be processed and same can be done once scrutiny assessment is complete. Mr. Bhatia further submits that draft order is ready, however, since objections have been filed by assessee same are pending consideration by DRP. In these circumstances, refund has been withheld. He submits that proceedings before DRP would be completed shortly and, thereafter, refund would be processed. Mr. Bhatia further submits that though proceedings are not complete, yet on basis of draft assessment order, Revenue is likely to have tax claim of nearly 120 crores. He suggests that Court can issue directions to DRP to proceed to deal with objections and frame final assessment order so that refund can be processed forthwith. Mr. Bhatia fairly states that though such proceedings normally take time, but if Court were to issue directions, case can be taken up on priority basis and processed expeditiously. 11. We have considered this option. Issuing directions for giving precedence to Petitioner is one possible approach to follow. However, adopting this course of action would not correct Revenue's erroneous perspective that is evident from its apathetic attitude in processing of return, which is contrary to its own circulars as also judgment of this Court. We had very recently- in case of Maple Logistics Private Limited and Another vs. Principal Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 8 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 Chief Commissioner of Income Tax and Others in WP (C) No. 7003/2019 decided on 4.11.2019, dealt with legal position governing processing of returns and refunds. It seems that revenue has either chosen to ignore said decision, or is oblivious of same. We would now recapitulate and fortify same. In respect of AY 2016-17, Section 241A may not be relevant, as said provision was introduced by Finance Act, 2017 with effect from 1.04.2017. For subject assessment year, relevant provision would be Section 143(1D) of Act which existed prior to amendment introduced by Finance Act, 2017. Nonetheless, it does not mean that for relevant assessment year, revenue could withhold processing of return and refuse refunds, solely on ground that scrutiny assessment had been initiated pursuant to notice under Section 143(2) of Act. This Court in TATA Tele Services vs. CBTD (2016) 386 ITR 30 (Delhi) and Bombay High Court in case of Group M.Media India (P) Ltd. vs. Union of India 2016 388 ITR 594 (Bombay) have examined position that existed prior to 01.04.2017. In TATA Tele Services Ltd. (supra) court was considering challenge to Instruction no. 1 of 2015 dated 13.01.2015 issued by Central Board of Direct Taxes (CBDT), whereby Board sought to issue Instructions to clarify doubts expressed in view of words shall not be necessary used in Section 143(1D) of Act, interpreting language of said section as preventing issue of refund once notice is issued under Section 143(2) of Act. On strength of said Instructions, revenue on basis of notices issued under Section 143(2) of Act declined to issue refund. In that context, Court examined legislative history relating to introduction of Section 143(1) of Act and held that impugned Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 9 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 Instructions were unsustainable in law, and consequently, quashed same. Court observed that question whether return should be processed in cases where notices have been issued under Section 143(2) of Act would have to be decided by Assessing Officer concerned exercising his discretion in terms of Section 143(1D) of Act. relevant portion of said judgment reads as under: "22. Court finds that it is this very impugned instruction which is being relied upon by Department to deny refund, where notice has been issued under Section 143(2) of Act. This is evident from impugned letter dated 8 th September 2015, addressed to Petitioner. power of CBDT to issue such instructions can be traced only to Section 119 of Act. Therefore, such instruction also has to adhere to discipline of Section 119 of Act. 23. 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. 24. Consequently, Court is of view that impugned Instruction No. 1 of 2015 dated 13th January 2015 issued by CBDT is unsustainable in law and it is hereby quashed. It is directed that said instruction shall not hereafter be relied upon to deny refunds to Assessees in whose cases notices might have been issued under Section 143(2) of Act. question whether such return should be processed will have to Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 10 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 be decided by AO concerned exercising his discretion in terms of Section 143(1D) of Act." 12. From above extract, it is clear that Court has interpreted law to mean that in case where notice under Section 143(2) of Act has been issued, that, by itself, does not prevent revenue from processing returns. Thus, notice under Section 143(2) is not limiting factor to issue of refund under Section 143(1). In fact, judgment relied upon by revenue in case of Vodafone Mobile Services Ltd. vs. Assistant Commissioner of Income Tax [2019] 260 Taxman 417 (Delhi) is also in same vein. Mr.Bhatia has argued that decision in Vodafone (supra) distinguishes decision of TATA Tele Services (Ltd.) and decision of Bombay High Court in Group M Media India (P) Ltd. (supra). We do not find interpretation sought to be propounded by Mr. Bhatia to be correct. In Vodafone Mobile Services Ltd. vs. Assistant Commissioner of Income Tax (supra,) Court has essentially stressed that it is up to Assessing Officer to process refund, wherever possibility of issuing notice under Section 143(2) exists, or where such notice has been issued. This necessarily means that AO has to apply his mind and decide whether, given nature of return and potential or likely liability, refund can be given. relevant portion of said judgment reads as under: "44. Now in this case, acknowledgement or intimation had not been sent by AO. There is no doubt that period of one year indicated in second proviso to Section 143(1). However, Section 143(1D) begins with non-obstante clause that overbears that provision. Tata Teleservices (supra) and Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 11 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 Bombay High Court ruling in Group M Media India (supra) state that fact that regular assessment is resorted to, does not ipso facto mean that in every case, AO has to refuse refunds or there is automatic bar to refunds. AO has to apply his mind and make order keeping in perspective facts of case. 45. In this case, revenue has relied on order dated 28-7- 2018, which inter alia, stated that Considering pending special audit, pending scrutiny, opening demands of amount more than 4500 crore, it will be prejudicial to interest of revenue to process returns without completion of pending scrutiny cases. Therefore, exercising powers under section 143(1) and under section 241A of Act, undersigned decline processing of returns under section 143(1). senior counsel for Vodafone had attacked reliance on this order, stating that it was made later. However that is aspect this court cannot go into. Facially, order contains reasons. Therefore, unlike Tata Teleservices, reasoned order was made; that decision was based on circular, which fettered AO's discretion. Therefore, CBDT circular was set aside. 46. In facts of present case, for AYs in consideration, for AY 2014-15, petitioner has approached AAR and for AYs 2015-16 and 2017-18, scrutiny assessments are pending before AO. AO has exercised discretion under Section 143(1D) not to process returns considering fact that substantial demand has been raised on completion of scrutiny assessment of earlier years. 47. petitioner has undertaken two schemes of amalgamation involving merger of certain group companies in order to restructure its business operations and increase operational efficiencies. In light of above fact, assessments for AY 2012-13 and 2013-14 are under special audit and any demand that would arise from processing of said assessment years are to be allowed to be adjusted against refund claims. petitioner's position is that it is not in good financial condition. 48. There is some merit in revenue's argument that Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 12 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 substantial outstanding demand are pending against petitioner. Further, likelihood of substantial demands upon assessee after scrutiny for AYs is completed, cannot be ruled out. Revenue should have right to adjust demands against refunds that may arise but have not yet been determined due to ongoing scrutiny proceedings. 49. As far as argument that expiry of one year period, per second proviso to Section 143(1) resulting in finality of intimation of acceptance, this court is of opinion that deeming provision in question, i.e. Section 143(1)(d) only talks of two eventualities: shall be deemed to be intimation in case where no sum is payable by, or refundable to, assessee under clause (c), and where no adjustment has been made under clause (a). Secondly, that intimation or acknowledgement cannot confer any greater right than for assessee to ask AO to process refund and make over money; it is up to AO-wherever possibility of issuing notice under Section 143(2) exists, or where such notice has been issued, to apply his mind, and decide whether given nature of returns and potential or likely liability, refund can be given. It does not mean that when assessment- pursuant to notice under Section 143(2) is pending, such right to claim refund can accrue. This court also recollects decision of Supreme Court in Deputy Commissioner of Income Tax v. Zuari Estate Development & Investment Co. Ltd., (2015) 15 SCC 248 which held that intimation under Section 143(1) is not to be considered as assessment." (Emphasis Supplied) 13. In Vodafone Mobile Services Ltd. vs. Assistant Commissioner of Income Tax (supra), Court has also considered effect of TATA Tele Services Ltd. (supra) and not disagreed with or distinguished same. This is evident from observation in Para 41 of said judgment wherein it has been held that in cases where assessee claims refund and one year period is over, revenue cannot be inactive and AO must apply Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 13 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 his mind to consider whether facts and circumstances of case warrant refund of asseesee s claim. This to our mind is approach which ought to have been adopted by respondents. After expiry of one year period, revenue ought to have undertaken processing of return promptly, and AO should not have sat idle over petitioner s request for refund. revenue has conveniently chosen to decline refund solely on basis of issuance of notice under Section 143(2) of Act. In our view, AO should have undertaken expeditious disposal of petitioner s request for refund, and taken decision on same having regard to views expressed by this Court in TATA Tele Services (supra) and that of Bombay High Court in case of Group M Media Ltd. (supra) and also view of Gujarat High Court in Kortek International (P) Ltd. vs. DCIT 2017 251 taxman 48 (Gujarat). We also do not find any prudence in manner respondents have acted by withholding petitioner s refund. Indisputably, petitioner is regular taxpayer being assessed by department year after year. We are not able to discern any application of mind by revenue in declining refund. It is unjust and arbitrary approach to withhold refunds-in anticipation of additions/disallowances that may be made after completion of assessment proceedings, particularly, since in facts of present case, there is no history of high tax demand. This becomes evident from fact that for subject assessment year 2016-17 in which petitioner has refund claim of Rs.4,21,18,02,760/-, draft assessment order - though not finalised, raises demand of not more than 120 crores. In these circumstances, AO ought to have exercised his discretion objectively in good faith, by considering relevant material and basing his decision thereon in logical Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 14 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 manner. respondents have failed to process returns amounting to more than Rs.1300 crores due to petitioner from department accumulated over years. On these refunds, interest costs under Section 244A of Act are also being incurred by revenue at cost of public exchequer. In addition to above, we cannot lose sight of fact that petitioner would be facing fund shortage, taking into account refunds that are withheld by respondents. revenue authorities cannot become stifling force and stumbling block for trade and commerce. They should realize and be sensitive to fact that by their acts and omissions, they are impeding growth of trade and commerce. They are filing very hen that lays golden egg. If businesses are not permitted to operate - by clocking fund flow due to unjustified acts and omissions of revenue authorities in not granting refunds where due, very source of revenue generation i.e. taxable income would fall. revenue authorities have to be mindful of this. They cannot take fool hardy and short sighted approach by withholding refunds where due. Revenue's failure to perform its duty mandated by Act cannot be countenanced and we disapprove same. 14. Mr.Bhatia is unable to demonstrate any cogent reasoning for withholding refunds, except for arguing that since regular assessment was pending, department was not obliged to issue refund. For reasons discussed above, we do not find stand of respondent to be reasonable. We direct respondent to forthwith process return of petitioner and pass consequential orders. AO while passing order will take into consideration views expressed by us in present Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 15 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 judgment, as also take into account dicta of this Court in judgments referred above. above exercise should be completed within period of 6 weeks from today. 15. With respect to AY 2018-19, legal position is clearly in favour of petitioner. refund mechanism for subject year would be governed by Section 241A as, in terms of proviso inserted to Section 143(1D), said section is not to apply to any return furnished for assessment year commencing on or after 01.04.2017. On this aspect, we would like to reiterate views expressed by us in case of Maple Logistics Private Limited and Another vs. Principal Chief Commissioner of Income Tax and Others (supra), wherein relying upon observations made by Gujarat High Court in Kortek International (P) Ltd. (supra), we had observed that Section 241A enjoins AO to process determined refunds and discretion vested in him has to be exercised judiciously. relevant portion of said judgment read as under: "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 1 st 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 Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 16 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 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 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. 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 Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 17 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 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 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. 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 Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 18 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 parties. 16. revenue has denied refunds on ground that there is order passed under Section 241A of Act. proposal and approval for withholding of refund submitted in this behalf by ACIT read as under: To, Pr. Commissioner of Income Tax Delhi-03, New Delhi (Through Proper Channel) Sir, Sub: Proposal seeking approval to withhold refund under Section 241A of Income Tax Act, 1961 in case of assessee company M/s Ericsson India Pvt. Ltd. for A.Y. 2017-18- reg. Kind reference is invited to above. 2. In this regard, it is submitted that case of assessee company M/s Ericsson India Pvt. Ltd. has been selected for scrutiny under CASS for AY 2018-19. assessee company s case has issues which led to huge additions in past including TP additions. assessee company has claimed refund of Rs.349,41,45,020/- which could not be issued as of now having regard to fact that notice under section 143(2) of Act has already been issued to assessee company and grant of refund is likely to adversely affect revenue. 3. In view of above facts, you are requested to kindly grant approval to withhold refund for AY 2018-19 in case of above mentioned assessee company under Section 241A of Income Tax Act, 1961 till date on which assessment is made. 4. Submitted for your kind approval and further necessary Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 19 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 directions please. Sd/- To, Pr. Commissioner of Income Tax Delhi-03, New Delhi (Through Proper Channel) Sir, Sub: Proposal seeking approval to withhold refund under Section 241A of Income Tax Act, 1961 in case of assessee company M/s Ericsson India Pvt. Ltd. for A.Y. 2017-18- reg. Kind reference is invited to above. 2. In this regard, it is submitted that case of assessee company M/s Ericsson India Pvt. Ltd. has been selected for scrutiny under CASS for AY 2018-19. assessee company s case has issues which led to huge additions in past including TP additions. assessee company has claimed refund of Rs.349,41,45,020/- which could not be issued as of now having regard to fact that notice under section 143(2) of Act has already been issued to assessee company and grant of refund is likely to adversely affect revenue. 3. In view of above facts, you are requested to kindly grant approval to withhold refund for AY 2018-19 in case of above mentioned assessee company under Section 241A of Income Tax Act, 1961 till date on which assessment is made. 4. Submitted for your kind approval and further necessary directions please. Sd/- 17. aforesaid orders, are legally unsustainable and not in consonance Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 20 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 with observations made by us in Maple Logistics Private Limited and Another vs. Principal Chief Commissioner of Income Tax and Others (supra). We are unable to discern any reasons for denying refunds, except for reproduction of phraseology of section 241A. Such orders, in light of observations made in Maple Logistics Private Limited and Another vs. Principal Chief Commissioner of Income Tax and Others (supra) cannot be sustained and, accordingly, said orders are set aside. 18. refund of amounts claimed where they appear justified, by itself cannot be said to be adverse to interest of revenue. interest of revenue lies in collecting revenue in legal and justified manner. It does not lie in retaining collected taxes in excess of what is justified, since excess collection cannot even be properly termed as revenue . excess collection of tax is liability of State and it lies in interest of revenue of State to discharge its interest bearing liability without any delay. sovereign cannot, but, be seen as fair, honest and credible in its dealings with its subjects. Any lapse in this regard tarnishes image and credibility of sovereign. It certainly cannot act like any unscrupulous businessman, who is seen to dodge his liabilities by resort to frivolous excuses and devious ways. 19. In absence of any cogent reasons justifying withholding of refund due to petitioner under Section 143(1) for AY 2017-18, 2018-19, we find that proposal as well as approval granted by Principal Commissioner of Income Tax lacks consideration of relevant and germane conditions. We, accordingly, set aside order and direct respondents to undertake Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 21 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 exercise afresh and pass order under Section 241A. We, therefore, grant six 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 estimation of probability that additions would be made in Scrutiny Assessment Proceedings; secondly, he shall make estimation of quantum of additions/disallowances, if any, that may be made to income returned, and likely tax effect that such additions/disallowances may have, thirdly; he should consider 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 six weeks from today, failing which, we direct that without awaiting any further orders, respondents shall transmit amount of Rs. 48,361,57,240/- (for AY 2017- 18), Rs. 421,18,02,760/- (for AY 2016-17) and Rs. 349,41,45,020/- (for AY 2018-19) with interest to petitioner. In eventuality of respondents Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 22 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 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. It shall be open to petitioner to take remedial steps in respect of any orders for withholding of refund that may be passed. Needless to state that reasons recorded for withholding of refund under section 241A would only amount to tentative view and would not come in way of Assessing Officer to frame assessment under section 143(3) of Act. 20. petitions stand disposed of. SANJEEV NARULA, J VIPIN SANGHI, J FEBRUARY 18, 2020/v Signature Not Verified Digitally Signed W.P.(C) 10373/2019 Page 23 of 23 By:SAPNA SETHI Signing Date:11.03.2020 17:32:25 Ericsson India Private Limited v. Additional Commissioner of Income-tax, Special Range-3, New Delhi & Anr