Trueblue India Llp v. Deputy/Assistant Commissioner Of Income Taxcircle 43-1 & Ors

$~28 IN THE HIGH COURT OF DELHI AT NEW DELHI +W.P.(C) 10886/2022 TRUEBLUE INDIA LLP ..... Petitioner Through:Ms.Ananya Kapoor, Advocate. versus DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAXCIRCLE 43-1 & ORS ..... Respondents Through:Mr.Sunil Agrawal, Sr.StandingCounsel for the Revenue withMr.Tushar Gupta and Mr.UthkarshTiwari, Advocates. Date of Decision: 28[th]July, 2022 % CORAM:HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMOHAN, J (Oral): C.M.No.31680/2022 Exemption allowed, subject to all just exceptions. Accordingly, the application stands disposed of. W.P.(C) No.10886/2022 1.Present writ petition has been filed challenging the Order dated 15[th]June, 2022 passed under Section 241A of the Income Tax Act, 1961(hereinafter referred to as the ‘Act’). Petitioner further seeks a direction tothe Respondents to issue refund of Rs. 19,70,42,170/- along with up-to-dateinterest. W.P.(C) No.10886/2022 2.Learned counsel for the Petitioner states that the Respondents vide e-mail dated 27[th]January, 2022 confirmed that the Income Tax Return hasbeen processed and refund along with interest amounting to Rs.21.80 croreunder Section 244A of the Act has been determined as due to the Petitioner.She states that the refund due to the Petitioner was liable to be released atthe time of processing of the return under Section 143(1) of the Act. Sheemphasises that Section 143(1) of the Act is mandatory in nature andbinding and uses the expression “shall”. However, she states that despite theclear statutory provision, no refund has been issued to the Petitioner till date. 3.Learned counsel for the Petitioner emphasisesthat the impugnedorder only states that claim of deduction under Section 10AA of the Actneeds to be verified and it is likely to result in huge demand. She contendsthat the impugned order is bereft of any reasoning as to why the refundshould be withheld. 4.She further states that the impugned order is also factually incorrect asit states that the assessee has claimed deduction under Section 10AA of theAct for Rs.10,95,87,033/- and this is the first year of claim as new SEZ unithas been set up. 5.Learned counsel for the petitioner points out that there are two SEZunits i.e. Unit 1 (old unit) and Unit 2 (new unit). She states that for the Unit1, this is the fourth year of claim and for this SEZ unit, the deduction underSection 10AA of the Act has already been allowed in earlier years by theRespondents i.e. Assessment Years 2017-18 and 2018-19. She states thatfor Unit 2, this is the first year of claim.Hence, according to her, thequestion of allowability of deduction under Section 10AA of the Act for W.P.(C) No.10886/2022 SEZ Unit 1 does not arise as the same is already accepted by theRespondents. 6.She emphasizes that Rs.10,95,87,033/- is the total deduction claimedunder Section 10AA of the Act, out of which, Rs.10,44,91,121/- pertains tothe old unit i.e. Unit 1, while Rs.50,95,912/- pertains to the new unit i.e.Unit 2. Consequently, according to her, over 95% of the deduction underSection 10AA of the Act pertains to the old Unit 1, the deduction of whichalready stands accepted by the Respondents by virtue of Orders passedunder Section 143(3) of the Act for the previous assessment years. 7.Issue notice.Mr.Sunil Agrawal, learned Senior Standing Counselaccepts notice on behalf of the Respondents.8.He has handed over an e-mail dated 31[st]May, 2022 written to him bythe Jurisdiction Assessing Officer. The relevant portion of the said e-mail,after redacting the name of the officers in question is reproducedhereinbelow:- Email dated 31[st]May, 2022 7.Issue notice.Mr.Sunil Agrawal, learned Senior Standing Counselaccepts notice on behalf of the Respondents.8.He has handed over an e-mail dated 31[st]May, 2022 written to him bythe Jurisdiction Assessing Officer. The relevant portion of the said e-mail,after redacting the name of the officers in question is reproducedhereinbelow:- Email dated 31[st]May, 2022 "The assessee LLP has claimed huge deduction u/s. 10AAofRs.10,95,87,033/- and the claim needs to be considered forthorough verification during scrutiny as the case is selected forcomplete scrutiny involving claim of huge deduction u/s.10AA withconsequent result of refund. The asses see LLP has started a newSEZ during FY.2019-20 with effect from 01.01.2020. The claim ofdeduction u/s. 1 0AA in new SEZ along with the income admittedfrom SEZ unit and non-SEZ unit needs thorough verification in thepending scrutiny assessment proceedings. In view of the facts of case and the assessee 's claim of deductionu/s. 10AA is for 1[st]year the same needs to be considered forinvocation of provisions u/s. 241A so as to withhold the refund tillcompletion of pending scrutiny assessment proceedings. Thescrutiny assessment proceedings are likely to result in substantial W.P.(C) No.10886/2022 demand consequent to such verification of claim of deduction u/s.10AA as per the provisions of I.T. Act. In view of the comprehensive reasons mentioned above and alsoin view of provision of section 241A of I.T. Act the claim isconsidered for withholding of refund u/s. 241A by the Hon 'ble Pr.Commissioner of Income Tax, xxxxxx vide email approval dated12.04.2022 communicated to the concerned Faceless AssessingOfficer (FAO) directing to withhold refund u/s. 241A of the I.T.Act. The copy of detailed email approval granted by Pr.Commissioner of Income Tax, xxxxxxxx is herewith enclosed forkind perusal and placed on record. In view of the above facts, it is humbly requested to represent thesame before the Hon 'ble High Court of Delhi not to hold assessee's plea whatsoever in withholding the refund as per the law and asper the provisions of section 241A of I.T. Act as the same is devoidof merit. Yours faithfullyxxxxxxx” 9.Having heard the learned counsel for the parties, this Court is of theview that an Order under Section 241A of the Act cannot be passed in amechanical and routine manner. Refunds cannot be withheld just becausethe Notice under Section 143(2) of the Act has been issued and theRespondents want to verify the claim for deduction under Section 10AA ofthe Act. In the present case the impugned Order under Section 241A of theAct is a generic Order and no attempt has been made by the Respondents tosubstantiate how the grant of the refund is likely to adversely affect theRevenue. 10.It is settled law that the refund due to the Petitioner is liable to bereleased at the time of issuance of the intimation/order under Section 143(1)of the Act unless an Order for withholding of refund has been passed under W.P.(C) No.10886/2022Page 4 of 8 Section 241A of the Act explicitly recording that the grant of refund is likelyto adversely affect the Revenue. This Court in Maple Logistics (P.) Ltd. Vs.Principal Chief Commissioner of Income Tax, 2019 SCC OnLine Del10961 has held as under:- 10.It is settled law that the refund due to the Petitioner is liable to bereleased at the time of issuance of the intimation/order under Section 143(1)of the Act unless an Order for withholding of refund has been passed under W.P.(C) No.10886/2022Page 4 of 8 Section 241A of the Act explicitly recording that the grant of refund is likelyto adversely affect the Revenue. This Court in Maple Logistics (P.) Ltd. Vs.Principal Chief Commissioner of Income Tax, 2019 SCC OnLine Del10961 has held as under:- “28. With this backdrop, we now consider the situation at hand.Here the return has been filed on 25.10.2017 for AY 2017-2018and, therefore, the amended provisions would be applicable. Inour considered opinion, the AO has completely misunderstood therefund mechanism and the import of Section 241A of the Act. Thelegislative intent is clear and explicit. The processing of returncannot be kept in abeyance, merely because a notice has beenissued under section 143(2) of the Act. Post amendment, sub-section (1D) of section 143 is inapplicable to returns furnished forthe AY commencing on or after 1[st]Day of April 2017. The onlyprovision that empowers the AO to withhold the refund in a givencase presently, is section 241A. Now the refunds can be withheldonly in accordance with the said provision. The aforesaidprovision is applicable to such cases where refund is found to bedue to the Assessee under the provisions of Sub-Section (1) ofSection 143, and also a notice has been issued under Sub-Section(2) of Section 143 in respect of such returns. However, this doesnot mean that in every case where a notice has been issued underSub-Section (2) of Section 143 and the case of the Assessee isselected for scrutiny assessment, the determined refund has to bewithheld. 30. The AO is duty bound to process the refund where the sameare determined. He cannot deny the refund in every case where anotice has been issued under Sub-Section (2) of Section 143. Thediscretion vested with the AO has to be exercised judiciously andis conditioned and channelized. Merely because a scrutiny noticehas been issued should not weigh with the AO to withhold therefund. The AO has to apply his mind judiciously and suchapplication of mind has to be found in the reasons which are to berecorded in writing. He must make an objective assessment of all W.P.(C) No.10886/2022 the relevant circumstances that would fall within the realm of“adversely affecting the revenue”. 31. In the present case, the AO has completely lost sight of thewords in the provision to the effect that, “the grant of the refund islikely to adversely affect the revenue”. The reasons that are reliedupon by the Revenue to justify the witholding of the refund in thepresent case, are abysmally lacking in reasoning. Except forreproducing the wordings of Section 241A of the Act, they do notstate anything more. The entire purpose of Section 241A would benegated, in case the AO was to construe the said provision in themanner he has sought to do. It would be wholly unjust andinequitable for the AO to withhold the refund, by citing the reasonthat the scrutiny notice has been issued. Such an interpretation ofthe provision would be completely contrary to the intent of thelegislature.The AO has been completely swayed by the fact thatsince the case of the assessee has been selected for scrutinyassessment, he is justified to withhold the refund of tax. xxxxxxxxx 33. Therefore, merely because a notice has been issued undersection 143(2), it is not a sufficient ground to withhold refundunder section 241A and the order denying refund on this groundalone would be laconic. Additionally, the reasons which are to berecorded in writing have to also be approved by the PrincipalCommissioner, or Commissioner, as the case may be and thisshould be done objectively.” (emphasis supplied) 11.Subsequently, inEricsson India Private Limited Vs. AdditionalCommissioner of Income Tax, Special Range-3, New Delhi & Anr.,W.P.(C) 10373/2019 dated 18[th]February, 2020 this Court has held asunder:- xxxxxxxxx 33. Therefore, merely because a notice has been issued undersection 143(2), it is not a sufficient ground to withhold refundunder section 241A and the order denying refund on this groundalone would be laconic. Additionally, the reasons which are to berecorded in writing have to also be approved by the PrincipalCommissioner, or Commissioner, as the case may be and thisshould be done objectively.” (emphasis supplied) 11.Subsequently, inEricsson India Private Limited Vs. AdditionalCommissioner of Income Tax, Special Range-3, New Delhi & Anr.,W.P.(C) 10373/2019 dated 18[th]February, 2020 this Court has held asunder:- “18. The refund of amounts claimed – where they appear justified,by itself cannot be said to be adverse to the interest of the revenue.The interest of revenue lies in collecting revenue in a legal and W.P.(C) No.10886/2022 justified manner. It does not lie in retaining the collected taxes inexcess of what is justified, since the excess collection cannot evenbe properly termed as “revenue”. The excess collection of tax is aliability of the State and it lies in the interest of the revenue of theState to discharge its interest bearing liability without any delay.The sovereign cannot, but, be seen as fair, honest and credible inits dealings with its subjects. Any lapse in this regard tarnishes theimage and credibility of the sovereign. It certainly cannot act likeany unscrupulous businessman, who is seen to dodge his liabilitiesby resort to frivolous excuses and devious ways.” 12.Keeping in view the aforesaid mandate of law, this Court is of theview that the impugned Order lacks sufficient reasoning to hold that theRevenue would be adversely affected by the grant of refund.Accordingly,the impugned Order dated 15[th]June, 2022 passed under Section 241A of theAct is quashed and the matter is remanded back to the Office of theAssistant Commissioner of Income Tax Circle 43(1), Delhi with a directionto pass a fresh speaking order within six weeks. 13.However, as the tax amount payable on the disputed amount ofRs.10.95 crore (being the claim for deduction under Section 10AA) underSection 115JB would be Rs.2,36,14,691/- and under the normal provisionsof Act would be Rs.3,82,94,093/-, this Court is of the view that even if thehigher amount of the aforesaid amounts is withheld, the Petitioner wouldstill be entitled to refund of Rs.16,68,98,449/- forthwith along withapplicable interest under Section 244A of the Act (which we are informedtotals to Rs.2,42,00,275/- till 01[st]August, 2022). 14.Consequently, till the Assistant Commissioner of Income Tax Circle43(1), Delhi passes a fresh Order within the stipulated time, this Courtdirects the Respondents to refund Rs.16,68,98,449/- along with applicable W.P.(C) No.10886/2022 interest under Section 244A of the Act till the date of refund within twoweeks. 15.With the aforesaid directions, present writ petition stands disposed of.Needless to state, the assessment proceedings shall go on without beinginfluenced by any observations made by this Court. MANMOHAN, J JULY 28, 2022KA MANMEET PRITAM SINGH ARORA, J W.P.(C) No.10886/2022 Page 8 of 8