High Court slams AO for withholding refunds so as to window dress collection of tax revenue

High Court slams AO for withholding refunds so as to window dress collection of tax revenue

Huawei Telecommunications (India) Company (P.) Ltd. v. Union of India – [2020] (Punjab & Haryana)
The issue before the Punjab & Haryana High Court was:

Whether refund can be withheld under section 241A without the conditions mentioned therein being fulfilled?

The High Court held that section 241A applies to the assessment year commencing on or after 01-04-2017. The refund due under section 143(1) can be withheld till assessment is made if: (i) there is a notice under section 143 (2); (ii) the Assessing Officer believes that revenue would be adversely affected in case of grant of refund; (iii) the Assessing Officer has to get previous approval of the Principal Commissioner or Commissioner; and (iv) the reasons are to be recorded in writing.

In cases where the above-said conditions are fulfilled, Section 241A empowers withholding of refund. The check mechanism is inbuilt in the provision i.e. for reasons to be recorded in writing. This ensures that the opinion of the Assessing Officer is based on some material.

In the instant case, there was no reason recorded for concluding that the grant of the refund was likely to adversely affect the revenue. As per the note of approval of the Principal Commissioner, the only reason mentioned was there was an outstanding of Rs. 5 crores odd against the petitioner and for the said reason, the refund was withheld.

Pendency of demand of Rs. 5 crores wasn’t good enough to withhold the refund of more than Rs. 300 crores. In the instant case and also from the number of cases, it was evident that procedure for refund and withholding of refund was often being used as delaying tactics for various reasons including window dressing of collection of revenue.

The method adopted was a short-sighted vision. Apart from harassment to the assessee, it results in paying interest on the delayed amount of refund putting further burden on the exchequer

There cannot be the second opinion that the revenue collection and securing the interest of the revenue is of great importance, at the same time the revenue is to be collected like an apiarist extracts honey from a beehive without destroying it.