Section 241A provides that where refund of any amount becomes due to the assessee under the provisions of section 143(1) and the Assessing Officer is of the opinion, having regard to the fact that a notice has been issued under section 143(2) in respect of such return, that the grant of the refund is likely to adversely affect the revenue, he may, withhold the refund up to the date on which the assessment is made. The AO will have record the reasons in writing and take previous approval of the Principal Commissioner or Commissioner, as the case may be.
In a recent case of GE Capital Mauritius, the Delhi High Court explained the scope of writ proceeding before High Court when order under section 241A is under challenge. The case is discussed below:
The Assessee filed tax return for AY 2018-19 on 31st October, 2018 claiming tax refund of Rs.226.72 crores. The Assessee had capital gains on sale of shares of an Indian company. The payer deducted the TDS. The Assessee claimed that the capital gains was not chargeable to tax in India in terms of Article 13(4) of the DTAA between India and Mauritius.
The time limit for sending intimation under Section 143(1)(d) of the Act expired on 31st March, 2020. The intimation under Section 143(1)(d) of the Act dated 25th November, 2019 was thus within time. Similarly, notice under Section 143(2) of the Act issued on 22nd September, 2019 was also before expiry of six months from end of financial year in which ITR was filed i.e. 30th September, 2019.
The petition was first heard in June 2020 and at that time Order under section 241A was not passed. The Order under section 241A was issued on 15th July 2020. Section 241A however does not prescribe the time limit within which order thereunder is to be made. The question before the HC was whether the order under Section 241A of the Act issued on 15th July, 2020, was within time.
The HC observed that the issuance of an order under Section 241A of the Act, so long as issued before the outer limit provided in the second proviso to Section 143(1) of the Act, cannot be challenged on the ground of delay. Since time limit to pass order was extended by Ordinance (due to Covid-19), the HC held that order is within time.
Next, the HC posed a question as to whether in a challenge to an order under Section 241A of the Act, it is open to the writ court to go into the question whether there is likelihood of any tax being found due from the Assessee when the said determination is a matter of assessment proceedings under Section 143(2) of the Act.
The HC observed that language of Section 241A empowers AO to pass order thereunder, “having regard to the fact that a notice has been issued under Section 143(2) in respect of such return”. The HC held that in writ proceedings to challenge an order under Section 241A of the Act, the court would not determine the tax liability, as that would tantamount to HC , in writ jurisdiction, entertaining a challenge to the assessment underway.
The HC held that “in the garb of a challenge to an order under Section 241A of the Act, a challenge to assessment underway cannot ordinarily be adjudicated. The scrutiny thereunder has to be confined to, whether grant of refund is likely to adversely effect the revenue i.e. whether there is no basis whatsoever for the opinion formed that if refund is granted today, tax if any found due on completion tomorrow of assessment underway of the ITR claiming refund, will not be recoverable. Of course, in a gross case, where it is found that though a notice under Section 143(2) has been issued but there is nothing to controvert the ITR, the Court would be entitled to quash the Section 241A order.“
The HC held that the writ Court cannot quash the order under Section 241A of the Act on the ground that no tax is due. The Court observed that to determine whether refund is likely to adversely affect the revenue, the HC has to conclusively hold that the Assessee has no tax liability in India. Once it is so held, there will be nothing left to be determined in the assessment underway pursuant to notice under Section 143(2) of the Act.
In this regard, the High Court observed that “A determination of tax liability in a challenge to an order under Section 241A would set at naught the entire statutory scheme of assessment and appeals, ultimately to this Court, opening the doors to every assessee to whom a notice under Section 143(2) of the Act is issued, to approach this Court contending that the ITR filed and being processed under Section 143(1) of the Act admits / permits of no scrutiny and should be accepted. This Court would then be appropriating to itself the entire statutory mechanism of assessment, First Appeals and Appeals to Income Tax Appellate Tribunal and thereafter to this Court.”
The writ petition of Assessee was dismissed.