TMI Blog2019 (11) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... s been issued, would obviously be a relevant factor, but that cannot be used to ritualistically deny refunds. AO is required to apply its mind and evaluate all the relevant factors before deciding the request for refund of tax. Such an exercise cannot be treated to be an empty formality and requires the AO to take into consideration all the relevant factors. The relevant factors, to state a few would be the prima facie view on the grounds for the issuance of notice under section 143(2); the amount of tax liability that the scrutiny assessment may eventually result in vis-a-vis the amount of tax refund due to the assessee; the creditworthiness or financial standing of the assessee, and all factors which address the concern of recovery of revenue in doubtful cases. Therefore, merely because a notice has been issued under section 143(2), it is not a sufficient ground to withhold refund under section 241A and the order denying refund on this ground alone would be laconic. Additionally, the reasons which are to be recorded in writing have to also be approved by the Principal Commissioner, or Commissioner, as the case may be and this should be done objectively. The entire exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the refund is likely to adversely affect the revenue. There are no reasons recorded in writing by him to justify withholding of the refund due to the petitioner in terms of Section 143(1) for the assessment year 2017-18 and we also find that the Principal Commissioner of Income Tax, in the present case, while granting his approval has also not examined the reasons for passing the order under Section 241A and the relevant and germane considerations have also not received the attention of the Principal Commissioner of Income Tax. We, accordingly, find that the entire exercise under Section 241A has not been correctly undertaken by the respondents. At the same time, we are conscious of the fact that the Scrutiny Proceedings under Section 143(2) were initiated by issuance of notice, as early as on 17.08.2018 i.e. even before the issuance of the intimation under Section 143(1), which was issued on 16.03.2019. We, therefore, grant two weeks time to the respondents to consider the aspect whether the amount found due to be refunded, or any part thereof, is liable to be withheld under Section 241A. While doing so, the Assessing Officer shall, firstly, with reasons, mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n thereof, by way of this order, we are recording detailed reasons for issuing the said directions. Brief facts 4. Briefly stated, facts of the case as narrated in the writ petition are that Petitioner Company is engaged in the business of providing multimodal logistics services including transportation through road, rail etc., for its customers. In terms of Section 194C of the Income Tax Act, the customers of the Petitioner are obligated to deduct TDS at the rate of 2% from the transport charges paid or payable to the Petitioner Company. Petitioner claims that in view of the nature of the business, major portion of transportation charges received/receivable are disbursed to the third party service providers. The margins retained by the Petitioner are less than 2% of the total consideration. The TDS deduction of 2% causes financial difficulties, as its margin remains stuck with the government department in the form of TDS, causing acute cash flow constraints. As a consequence thereof, Petitioner is unable to service its customers, lenders and pay its statutory dues in a timely manner. 5. In respect of Assessment Year (AY) 2017-18, on an application ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , for the Assessment Years 2018-19; AY 2019-20 and AY 2020-21, Petitioner has been filing applications under Section 197 of the 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 the revised income return dated 31.03.2018, Petitioner is entitled to refund of ₹ 5,50,78,280/- along with interest under Section 244A. Petitioner also claims that as the income tax returns have not been processed, the refund on account of excess TDS has accumulated over the years, which has resulted in causing acute financial crunch and liquidity crisis. This has rendered the Petitioner liable to pay penalties to its vendors and this has also led to issuance of default notices by the banks who have downgraded the CIBIL rating of the Petitioner. Petitioner is unable to deposit the statutory dues of GST in a timely manner and as a result, the GST department has initiated enquiry against the Petitioner. 9. In these compelling circumstances, Petitioner has approached this Court seeking appropriate directions. 10. On an application bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. He argued that the Respondent is, therefore, bound to release the refund amount for the said year. He submits that mere issuance of notice under section 143(2) of the Act in respect of the Assessment Year 2017-2018 cannot, ipso facto, provide a valid justification to withhold the payment of the refundable amount on account of deduction and deposit of higher tax at source. This, he submits, is not the scheme of section 241A of the Act. 13. Learned Senior Standing Counsel for the Revenue, on the other hand, argued that the Petitioner has suppressed material facts from the Court. She argued that the Petitioner was aware of the reasons for withholding the refund determined under Section 143(1) of the Act as the same finds mention in the intimation issued under Section 143 (1)(d) of the Act dated 16.03.2019 for AY 2017-18. Petitioner has deliberately concealed this fact and has, instead, approached the Court for directions for the refund of the amount determined under Section 143(1) of the Act without impugning the aforesaid reasons. The disclaimer recorded in fine print on the intimation reads as under:- The refund determined u/s 143(1) in this Intimation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- (1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the asssessee under sub-section (2): Provided that the provisions of this sub-section shall not apply to any return furnished for the assessment year commencing on or after the 1st day of April, 2017. 18. The aforenoted amendment was simultaneous to the insertion of Section 241A by the Finance Act 2017 w.e.f. 01.04.2017, which reads as under: For every assessment year commencing on or after the 1st day of April, 2017, where refund of any amount becomes due to the assessee under the provisions of sub-section (1) of section 143 and the Assessing Officer is of the opinion, having regard to the fact that a notice has been issued under sub-section (2) of section 143 in respect of such return, that the grant of the refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be, withhold the refund up to the date on which the assessment is made. 19. Section 241A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income Tax, (2017) 86 Taxmann.com 156 (Gujarat), relevant portion whereof is extracted hereinbelow: 15. A combined reading of the said provisions and in particular, sub-section (1D) of section 143 would demonstrate that once a notice under sub-section (2) of section 143 is issued, it would be discretionary for the Assessing Officer to process the return under section 143(1). The time limit envisaged in the further proviso to sub-section (1) would not apply but that the same can be done only before issuance of the order of assessment under sub-section (3). 16. Under such provision, therefore, it would be open for the Assessing Officer to process the return under section 143(1) and, if the culmination of such exercise is to deny a refund to the assessee, send such an intimation, as provided, under the proviso to sub section (1). Once however the time frame envisaged in the further proviso to sub-section (1) expires and is not extended by virtue of the operation of sub-section (1D) of section 143, there would be no scope thereafter for the Assessing Officer to withhold the refund arising out of the return filed by the assessee. 17. This position wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for scrutiny assessment. However, 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 (1) 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. He would, however, 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. 24. The issuance of notice under Section 143(2) of the Act has often been cited as a ground for withholding of refund and it would also be profitable to note views of the court in pre-amendment scenario. In Tata Teleservices v Central Board of Direct Taxes (2016) 386 ITR 30, held that in the event a notice is issued under section 143(2), it will be a matter of discretion of the concerned AO whether he should process the return or not. The relevant portion is extracted as under : 23.The real effect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment, belief or conviction resulting from what one think on a particular question. This should be passed on grounds short of proof. If one is to form an opinion and the opinion is to govern, he must form it himself on such reasons and grounds as seen good to him. Mere filing of an appeal or pendency of further proceedings under the Act can not per se be a ground for withholding a refund. The opinion that grant of refund is likely to adversely affect the revenue must be formed. In the facts of the case before it the Orissa Division Bench in Gannon Dunkerley Co. Ltd. concluded that the revenue/assessing authority must be in possession of all relevant material which are relevant for taking a decision (to withhold the refund). Financial stability, creditworthiness are relevant considerations when considering the question whether grant of refund would adversely affect the revenue, observed the Bench. 68. In Shreyans Industries Ltd. (supra) the court observed that the singular fact that an order (giving rise to a refund) is under challenge either before the Tribunal or the High Court is not a ground to withhold the refund or to reach a conclusion that the refund would adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions would be applicable. In our considered opinion, the AO has completely misunderstood the refund mechanism and the import of Section 241A of the Act. The legislative intent is clear and explicit. The processing of return cannot be kept in abeyance, merely because a notice has been issued under section 143(2) of the Act. Post amendment, sub-section (1D) of section 143 is inapplicable to returns furnished for the AY commencing on or after 1st Day of April 2017. The only provision that empowers the AO to withhold the refund in a given case presently, is section 241A.Now the refunds can be withheld only in accordance with the said provision. The aforesaid provision is applicable to such cases where refund is found to be due to the Assessee under the provisions of Sub-Section (1) of Section 143, and also a 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 a notice has been issued under Sub-Section (2) of Section 143 and the case of the Assessee is selected for scrutiny assessment, the determined refund has to be withheld. 29. The legislature has not intended to withhold the refun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A and he must proceed giving due regard to the fact that the refund has been determined. The fact that notice under section 143(2) has been issued, would obviously be a relevant factor, but that cannot be used to ritualistically deny refunds. The AO is required to apply its mind and evaluate all the relevant factors before deciding the request for refund of tax. Such an exercise cannot be treated to be an empty formality and requires the AO to take into consideration all the relevant factors. The relevant factors, to state a few would be the prima facie view on the grounds for the issuance of notice under section 143(2); the amount of tax liability that the scrutiny assessment may eventually result in vis-a-vis the amount of tax refund due to the assessee; the creditworthiness or financial standing of the assessee, and all factors which address the concern of recovery of revenue in doubtful cases. 33. Therefore, merely because a notice has been issued under section 143(2), it is not a sufficient ground to withhold refund under section 241A and the order denying refund on this ground alone would be laconic. Additionally, the reasons which are to be recorded in writing have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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