Witholding refund on issue of notice u/s 143(2). If recording satisfaction required? SC explains

Witholding / Processing of refund on issue of notice u/s 143(2)-SC explains the Law. From AY 2017-18 onwards, recording of satisfaction must if refund is to be withheld 

ABCAUS Case Law Citation:
ABCAUS 3302 (2020) (04) SC

Important case law relied upon by the parties:
Vaishali Abhimanyu Joshi v. Nanasaheb Gopal Josh

Witholding refund on issue of notice u/s 143(2)

In a recent judgment the Apex Court had an occasion to explain the law on witholding of income tax refund where notice is issued u/s 143(2) of the Income Tax Act, 1961 (the Act).

The Hon’ble Supreme Court has held that in respect of Assessment Years ending on 31st March 2017 or before, if a notice was issued in conformity with the requirements stated in Section 143(2) of the Act, it shall not be necessary to process the refund u/s 143(1) of the Act and that the requirement to process the return shall stand overridden.

The question arose whether any intimation is required to be given to the assessee that because of initiation of proceedings u/s 143(2) of the Act processing of return u/s 143(1) of the Act, would stand deferred.  

The Hon’ble Supreme Court observed that the processing of return in terms of sub-section (1A) of Section 143 of the Act is to be done through centralized processing centre (CPC) and, the scope of processing under sub-section (1) of Section 143 of the Act is purely summary in character. However, once a deeper scrutiny is undertaken and the matter is being considered from the perspective whether there is any avoidance of tax in any manner, issuance of notice under sub-section (2) itself is sufficient indication.   Sub-section (1D) of Section 143 of the Act does not contemplate either issuance of any such intimation or further application of mind that the processing must be kept in abeyance. Therefore, there is no requirement to send a separate intimation. 

The Hon’ble Supreme Court opined that issuance of notice under under Section 143(2) is enough to trigger the required consequence. Any other intimation is neither contemplated by the statute nor would it achieve any purpose.

However, the Hon’ble Supreme Court pointed out that for the returns filed in respect of assessment year commencing on or after the 1st April, 2017, a different regime has been contemplated by the Parliament.  Section 241-A of the Act now envisages exercise of power of withholding of refund in a particular manner. It requires a separate recording of satisfaction on part of the Assessing Officer that having regard to the fact that a notice has been issued u/s 143(2), the grant of refund is likely to adversely affect the revenue;   then, with the   previous approval of the Principal Commissioner or Commissioner and for reasons to be recorded inwriting, the refund can be withheld.

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