Income Tax--Current Issues

Practice Update

V.K. Subramani

CAN A WRIT BE USED FOR SEEKING RELEASE OF REFUND WITHHELD UNDER SECTION 241A?

Section 241A empowers the Revenue to withhold refund after the ITR is processed under section 143(1). However, the caveat is that the Assessing Officer must be of the view that a notice under section 143(2) was issued and the grant/release of refund would affect the revenue. No definite finding or reason is required to withhold the refund. Such withholding must have the previous approval of PCIT/CIT. Now a question arises for our consideration about the time limit for issuing intimation by processing the ITR and time limit for grant or withhold of refund. The Finance Act, 2021 has reduced the time limit to 9 months from the end of the financial year in which the ITR was filed. Thus an order to withhold refund must also be issued within the same time limit.

Can a taxpayer approach the court by means of writ to seek refund withheld by Revenue? This issue came up before the Court in GE Capital Mauritius Overseas Investments v. Dy. CIT (2021) 433 ITR 270 (Bom) : 2021 TaxPub(DT) 1824 (Del-HC). It was held that though the order under section 241A is in the nature of attachment and since the determination of tax liability is not in the domain of the court, it cannot entertain a writ to decide correctness of reasons given for holding that the assessee may be ultimately found liable for tax. It drew the fine distinction in its exercise of powers under section260A in which it decides the substantial questions of law. Also, where there is attachment of assets before judgment it may go in to the question of prima facie merits of the case since the ultimate decision in this regard would rest with the court.

Thus when a refund is withheld it cannot be challenged by means of writ as the court would not interfere with such withholding made in exercise of the powers vested by virtue of section 241A.