Overview
The Directorate of Income Tax (Systems) [(DIT)(S)] vide Instruction No. 7 of 2022 dated 06.12.2022 has issued revised instruction for putting a time limitation on the process of withholding of Refund u/s 241A of the Act in the cases of pending scrutiny assessment.
About Section 241A
Where refund of any amount becomes due to the Assessee after processing of return u/s 143(1) of the Act and the Assessing Officer (AO) is of the opinion that grant of refund may adversely affect the recovery
of revenue, then the AO (with previous approval of the Principal Commissioner or Commissioner) can
withhold refund till assessment is completed by passing a speaking order.
Through such instructions, the time limit for intimation of decision by the AO to CPC whether refund is
to be withheld or released has been capped at 50 days. After expiry of 50 days, refunds due to the Assessee shall be released by the CPC without further notice to AO. This seems to be an effort to streamline the process of issuing refund by providing outer time limits.
However, where one may read these instructions, the larger issue of an opportunity to be given to the
Assessee to challenge such withholding of refund by the tax authorities, seems to be still missing. Even
after issue of such instructions read with previous instructions (i.e., Instruction no. 14 dated 16.02.2022),
the provisions of Section 241A lack the principal of natural justice since opportunity of being heard is
not provided to Assessee before passing order u/s 241A. Also, the order passed under this section is not
appealable. Accordingly, in cases where order u/s 241A is passed without specifying reasons, the only
remedy left with the Assessee is to file a Writ petition before High Court to sought relief from such
erroneous order. In the recent judgement in case of Trueblue India LLP v. Deputy/Assistant
Commissioner of Income-tax, the Assessee sought relief from High Court by way of writ petition against
the erroneous order passed u/s 241 by the AO.
SW Point of View: The revised instructions issued for implementation of Section 241A provisions provide for timelines within which the AO has to inform the CPC for withholding of refund, thus making the entire process time bound, but it nowhere gives the taxpayer right to put its case forward for submitting its objection to it.
