Section 241A of the Income-tax Act, 1961—Refund—The exercise of withholding of refund under section 241A pursuant to notice u/s. 143(2) without recording justifiable reasons is not in consonance with the legislative intent and mandate of the provision.
Facts: Petitioner, a company providing hospital services to the general public, filed its return of income claiming refund of Rs. 1,43,48,810/- on account of excess deduction of tax at source. Revenue selected the case of the petitioner for limited scrutiny under section 143(2) . Subsequently, the 'Centralised Processing Centre' processed the return of income videunder section 143(1) which resulted in refund of Rs. 1,57,83,688/-. However, since the said refund was not granted, petitioner submitted various representations dated 29-11-2019, 16-12-2019 and 17-12-2019 in this respect. Thereafter, in a personal hearing granted to the petitioner, it was informed that the refund had been withheld under section 241A. Neither the copy of the order nor the reasons for withholding the refund were provided to the petitioner and accordingly, the present writ petition has been filed seeking directions in this regard.
Held, that 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 power of the AO has been outlined and defined in terms of the Section 241A 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. The exercise of withholding of refund under section 241A pursuant to notice u/s. 143(2) without recording justifiable reasons, is not in consonance with the legislative intent and mandate of the provision. The reasons cited do not support the finding that refund would adversely affect the Revenue. In view of the aforesaid, we hold that the reasoning given by the Income-Tax Officer is contrary to Section 241A. Accordingly, we set aside the impugned communication/order dated 10-1-2020. The writ petition is accordingly allowed. - COONER INSTITUTE OF HEALTH CARE & RESEARCH CENTRE (P.) LTD. V/s ITO -  27 ITCD Online 042 (DELHI)