AO can’t withhold refund to adjust it with demand if no such demand exists at time of refund declaration: HC

Case Details: Mcnally Sayaji Engineering Ltd. v. ACIT - [2021] 130 taxmann.com 351 (Calcutta)

Judiciary and Counsel Details

• • Arindam Mukhrejee, J.
  • Sanjoy Bhowmik, A.D. Dey and Ms. Soma Chatterjee for the Petitioner. 
  • Asok Bhaumik for the Respondent.

Fcats of the Case

Assessee, a public company, filed its return of income for Assessment Year 2017-18, declaring loss. It claimed refund of the entire tax deducted at source (TDS). The assessee received intimation under section 143(1) by the Assessing Officer (AO).

A note appended to the said intimation shows that the AO had withheld the refund determined under section 143(1) as per provision of section 241A. Aggrieved-assessee filed a writ petition before the Calcutta High Order.

High Court Held

The Calcutta High Court held on a combined reading of section 143 with section 241A; it can be discerned that it is mandatory to process the return under section 143(1). It is also mandatory for AO to 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 affect the revenue adversely.

However, the scope of the power under section 241A is narrow and clarifies that a speaking order is required to be passed, culling out the reasons for how the grant of refund is likely to affect the revenue. The recording of reasons to substantiate why such withholding is necessary and how the refund will adversely affect the recovery of subsequent revenue.
However, in the instant case, no reasons were assigned by the AO concerned by referring to any materials that refund declared in case of the assessee on being made will adversely affect the revenue.

Further, no demand as against the assessee was pending on the date when the refund was notified. Thus, the assessee became entitled to the refund immediately on completion of assessment and refund on being notified. AO could not have kept the refund withheld to link such refund with any demand against the petitioner for a subsequent period when such demand was not in existence on the date when the refund was notified.

Case Review

• • Nazir Ahmad v. King Emperor AIR 1936 PC 253 (para 12) followed.

List of Cases Referred to

• • Maple Logistics (P.) Ltd. v. Pr. Chief CIT [2019] 112 taxmann.com 199/[2020] 268 Taxman 138/420 ITR 258 (Delhi) (para 9)
  • Union of India v. Mohan Lal Capoor AIR 1974 SC 87 (para 10)
  • Vodafone Idea Ltd. v. Dy. CIT [2019] 111 taxmann.com 451/267 Taxman 603 (Bom.) (para 11)
  • Nazir Ahmad v. King Emperor AIR 1936 PC 253 (para 12).