Tax update
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Can an AO withhold tax refund due to an assessee on the account that its case has been selected for scrutiny assessment?
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Published on April 04, 2023
The answer is “No”. The Delhi High Court in its recent ruling in the case of OYO Hotels and Homes Pvt. Ltd. v. DCIT1 held that the income-tax authorities cannot withhold tax refund due to an assessee merely on the account that scrutiny assessment has been initiated against that assessee.
Facts of the case
A refund of Rs. 31 Cr. was determined as due to OYO in intimation u/s 143(1) of the Income-tax Act. Despite several complaints by OYO, no refund was received but was informed by the AO that refund is withheld. Aggrieved by this, OYO filed a writ petition before Delhi High Court and learned that the refund is withheld u/s 241A on the account that its case has been selected for scrutiny.
High Court observations
The High Court analysed the provisions of section 241A and held that refund can be withheld only upon satisfaction of the following conditions:
(i) AO must record reason (in writing) on how grant of refund is likely to affect the interest of the revenue
(ii) Prior approval of PCIT/CIT is taken
Section 241A should not be resorted to merely because the case of the assessee is selected for scrutiny assessment. While withholding a refund, the AO is required to investigate various factors, such as, the amount of tax liability which the scrutiny assessment may eventually lead to vis-a-vis the amount of tax refund due; financial standing of the assessee, whether there would be any doubts regarding recovery of tax liability.
Decision
The High Court set aside the order of the AO for withholding tax refund and directed him to consider the matter afresh taking into consideration provisions of section 241A.
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1. [2023] 148 taxmann.com 410 (Delhi)
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