Refund – Withholding of refund – Condition precedent – A.O. must apply his mind before withholding refund – Reasons for withholding must be recorded in writing and approval of Commissioner or Principal Commissioner obtained – Discretion to withhold refund must be exercised in judicious manner – Withholding of refund without recording reasons – Not sustainable

Refund – Withholding of refund – Condition precedent – A.O. must apply his mind before withholding refund – Reasons for withholding must be recorded in writing and approval of Commissioner or Principal Commissioner obtained – Discretion to withhold refund must be exercised in judicious manner – Withholding of refund without recording reasons – Not sustainable

For the A.Y. 2017-18, the assessee declared loss in its return of income and claimed refund of the entire tax deducted at source. The assessee received a notice u/s 143(2) and an intimation u/s 143(1) regarding the refund payable thereunder with interest for the A.Y. 2017-18 u/s 244A. Subsequently, the refund was withheld u/s 241A by the A.O. without assigning any reasons.

The Calcutta High Court allowed the writ petition filed by the assessee and held as under:

‘i) The very essence of passing of the order u/s 241A was application of mind by the A.O. to the issues which were germane for withholding the refund on the basis of statutory prescription contained in section 241A. The power of the A.O. under the provisions of section 241A could be exercised only after he had formed an opinion that the refund was likely to adversely affect the Revenue and with the prior approval of the Chief Commissioner or Commissioner as an order for refund after the assessment u/s 143(3) pursuant to a notice u/s 143(2) was subject to appeal or further proceedings.

ii) Having not done so, the officer had acted arbitrarily. At the point of time when the refund was notified, there was no other demand pending against the assesse either for a prior or a subsequent period. The procedure followed by the A.O. did not also show proper application of two independent provisions as in section 241A and section 143 wherein once a refund was declared after scrutiny proceedings and such refund was withheld, a reasoned order had to follow because the assessment in such a case was done after production of materials and evidence required by the A.O. No reasons were assigned by him by referring to any materials that the refund declared would adversely affect the Revenue.

iii) That apart, the assessee was a public limited company whose accounts were stringently scrutinised at the internal level. It was, therefore, more important to apply the provisions more cautiously while withholding the refund after it had been declared on completion of assessment on scrutiny. The assessee became entitled to the refund immediately on the completion of the assessment and the refund having been notified. The A.O. could not have withheld the refund 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.

iv) The competent officer being authorised under the statute to withhold the refund if he had reasons to believe that it would adversely affect the Revenue, could or could have withheld the refund after the refund had been declared only after assigning reasons and not otherwise. The A.O. had withheld the refund without assigning any reason though the statute mandated the recording of reasons. Having not done so, the A.O. had acted arbitrarily. The withholding of the refund for the A.Y. 2017-18 was not sustainable and therefore was set aside and quashed. The assessee was entitled to refund with interest till the actual date of refund.’