Case Details:

Mcnally Bharat Engineering Company Limited vs. ACIT

Appeal No.:

WPO 80 of 2020

Order pronounced by:

Calcutta High Court

Date of Order:

06-08-2021

In favour of:

Assessee

Assessment Year:

2018-19

The petitioner (assessee) is a public company which filed its return of income for A.Y. 2018-19 on 30^th November, 2018 and claimed refund of TDS amounting to Rs. 18.31 crores. On 22^nd November, 2019, the assessee received a notice under the provisions of Section 143(2) of the Income Tax Act, 1961.

The assessee received another intimation from the A.O. on 13^th November, 2019 regarding the assessment under the provisions of Section 143(1) wherein it was declared that the principal refund amounts to Rs. 18.31 crores as assessed by the A.O. plus interest of Rs. 1.83 crores thus, total refund stood to Rs. 20.14 crores. A refund sequence No. 8769058640 was also mentioned in the said intimation stating that the process of income tax return was complete. The note appended to the said intimation shows that the refund determined under Section 143(1) has been withheld as per the provisions of Section 241A.

On behalf of the assessee, it is submitted that to invoke the provisions of Section 241A of the Act, the A.O. has to form an opinion that the grant of refund is likely to adversely affect the revenue. Referring to the note appended, it is submitted that the A.O. has not recorded any reason when and as to why he formed an opinion that the refund is likely to adversely affect the revenue.

It is further submitted that the assessee became entitled to refund on 13^th November 2019 when the assessment was made. At that point of time, there was no demand as against the petitioner for which the refund could have been withheld under the section. The demand to which the revenue is now referring to, for invoking the provisions of section 245 of the Act came into existence only on 27^th February, 2020 that is about almost a year after the date when the refund was required to be made.

Section 241A of the Income Tax Act provides for withholding of refunds if the officer concerned finds that refund will have an adverse effect on the revenue. In the instant case, the assessee was issued a notice for refund on 13^th November 2019 after the assessment on scrutiny proceedings for A.Y. 2018-19 was completed but the refund was withheld without assigning any reason. At the time when refund was notified, there was no other demand was pending against the assessee either for a previous or subsequent period.

The very essence of passing the order u/s 241A is application of mind by the A.O. to the issues which are germane for withholding the refund on the basis of statutory prescription contained in the said section. The power of the A.O. under section 241A can be exercised only after he forms an opinion that the refund is likely to adversely affect the revenue and thereafter with the prior approval of CIT or PCIT. In the instant case, after notice for refund was issued, the refund was withheld with no reasons given.

From the judgement reported in Maple Logistics Pvt. Ltd. vs. PCIT 2020 420 ITR 258: “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 u/s 143(1), and proceed with the grant of the refund determined therein, unless, sufficient reasons exist under Section 241A prima facie demonstrating that the grant of refund is likely to adversely affect the revenue.”

The scope of the power u/s 241A is narrow, making it clear that a speaking order is required to be passed culling out the reasons as to how the grant of refund is likely to affect the revenue. No reasons were assigned by the Officer concerned by referring to any materials that refund declared in case of the assessee on being actually made will adversely affect the revenue. No demand as against the petitioner was pending on the date when refund was notified. The A.O. could not have kept the refund withheld to link such refund with any demand against the assessee for a subsequent period when such demand was not in existence on the date when the refund was notified.

The powers u/s 241A cannot be used in a mechanical manner without application of mind. Refund can be withheld only after recording reasons and obtaining prior approval of PCIT or CIT as held in Vodafone Idea Limited vs. DCIT reported in 421 ITR 253. The assessee must also be given an opportunity of being heard before reasons are recorded for withholding the refund under this section. In absence of these proceedings being followed, the action of the A.O. withholding refund is amenable to judicial review by way of writ petition under Article 226 of the Constitution.

Following the principle paid down in the judgement reported in Nazir Ahmad vs. King Emperor AIR 1936 PC 253, “if a statue provides an act to be done by a particular authority and in a particular manner, it should only be done by that authority and in that manner or not at all”, the competent officer being authorised under the Act to withhold the refund if he as reasons to believe that the same will adversely affect the revenue can or could have withheld the refund after the same had been declared only after assigning reasons and not otherwise.