CA Sanjeev Lalan

1. Section 241A deals with withholding of refund in certain cases, where a refund becomes due to an assessee under section 143(1) and notice for assessment is issued to him under section 143(2), the Assessing Officer may withhold such refund till the date such assessment is made, if he is of the opinion that the grant of refund is likely to adversely affect the interest of the revenue. Where an assessee had declared huge loss in a given year, refund could not be withheld merely on the ground that in the immediately preceding year huge income was declared and therefor thorough investigation was necessary [(2021) 131 taxmann.com 128 (SC)]. In the instant case department’s SLP was dismissed. In Mcnally Bharat Engineering Company Ltd. vs. ACIT 1(1) Kolkata, it was held that where notice for refund was issued after scrutiny assessment but refund was withheld without assigning any reasons, action on part of department in withholding refund was not sustainable in law and was to be set aside.
2. Such withholding can be done after recording the reasons for doing so and with prior approval of the PCIT / CIT and the said provision is applicable to assessment years on or after 2017-18.
3. Most of the litigation in cases where refund has been withheld, under section 241A, have revolved around the reasons recorded or approval granted. In Trueblue India LLP vs. D/ACIT [(2022) 142 taxmann.com 506 (Del)] it was held that merely because a notice u/s.143(2) was issued to verify the

   claim of deduction, refund payable could not be withheld u/s.241A. In Ericsson India

   (P) Ltd. vs. ACIT [(2022) 136 taxmann.com 228 (Del)] it was held that when assessee was following consistent practice to account for unearned revenue, refund cannot be withheld without taking into account wherewithal of the assessee and such withholding was not founded on cogent ground. Withholding of reund u/s. 241A pursuant to notice u/s. 143(2), without justifiable reasons has been held to be untenable [Cooner Institute of Health Care & Research Centre (P) Ltd. (2020) 118 taxmann. com 69 (Del); Huawei Telecommunications (India) Company (P) Ltd. (2020) 122 taxmann. com 4 (P&H); Corrtech International (P) Ltd. (2017) 86 taxmann.com 156 (Guj)]

4. In Tata Communications Ltd. (2019) 111 taxmann.com 63 (Bom) the assessee had filed ITR as well as a revised ITR. Refund was sought to be withheld without processing the original or revised ITR u/s.143(1). It was held that where refund was sought to be withheld u/s.241A without processing the ITR as well as revised ITR u/s.143(1), said action of Assessing Officer being without authority of law, deserved to be set aside.
5. Section 245 deals with set off of refunds against tax demand remaining payable. It provides that where refund is found to be due to any person under any provisions, the Assessing Officer or other income-tax authorities mentioned in the section, may, in lieu of payment, set-off part or whole of such refund against any sum remaining payable by such person, after giving him an intimation in writing regarding the proposed action.
6. It is now realized that, there is an overlap between the two provisions. Therefore, it is proposed to integrate the two sections by substituting section 245 and omitting section 241A. The proposed amendment is that, where under any of the provisions of the Act, a refund is due to any person, the Assessing Officer or CIT or PCIT or CCIT or PCCIT, may, in lieu of payment of the refund, set-off the amount to be refunded or any part of that amount, against any sum remaining payable under the Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.
7. It is also proposed to provide that where a part of the refund has been set-off under sub-section (1) or where no amount is set- off, and refund becomes due to a person, then, the Assessing Officer, having regard to the fact that proceedings of assessment or reassessment are pending in such case and grant of refund is likely to adversely affect the revenue, and for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, may withhold the refund till the date on which such assessment or reassessment is made.
8. The proposed amendment under section 245 would have an impact on cases referred to in sub-section (1A) of section 244A, i.e., where refund due to the assessee is withheld by the Assessing Officer under section 245(2) till the date of the making assessment or reassessment. It is proposed to amend section 244A(1A), by inserting a proviso, that in case of an assessee where proceedings for assessment or reassessment are pending, the additional interest shall not be payable to the assessee under this sub- section, for the period beginning from the date on which such refund is withheld by the Assessing Officer, till the date on which the assessment or reassessment pending in such case, is made.
9. However, the proposed amendment shall not impact the existing position with regard to all other types of interest which can be paid to an assessee. However, additional interest under sub-section (1A) of section 244A, payable to the assessee as required under the Act shall not be granted, in view of the proposed amendment, for the refund so held back.
10. The Income-tax Simplification Committee, constituted under the Chairmanship of Justice R.V. Easwar had submitted some Recommendations to promote ease of doing business and simplify procedures. One of it’s suggestion was on grant of timely refund with interest and also providing for payment of higher interest in case of delayed refund. Another suggestion was on rationalization of the provisions relating to set off of refunds due to an assessee. While on one hand the scope of TDS provisions is being continuously widened but on the other hand such measures are brought in to withhold refund and also not paying adequate interest on the same. In case of Non-residents this problems gets compounded further.
11. While there may have been gap in the existing provisions, it is necessary to strengthen the faith of public and foreign business community by introducing necessary provisions to give wings to the concept of “Ease of Doing Business in India” by ensuring that-
    1. Refunds are duly processed and paid in time;
    2. Where refunds are withheld on genuine reasons, assessments u/s.143(2) are completed by reducing the existing time barring dates for such cases and
    3. Introducing accountability in all cases where refunds are withheld and at the same time ensuring that there are no high-pitched assessments in such cases.
12. These amendments will take effect from the 1st day of April, 2023.