Delhi High Court Sets Aside Order Withholding Refund to OYO: AO Cannot Withhold Refund on the Ground that Assessee is Selected for Scrutiny Assessment

Delhi High Court Sets Aside Order Withholding Refund to OYO: AO Cannot Withhold Refund on the Ground that Assessee is Selected for Scrutiny Assessment

The Delhi High Court by its coram comprising of Justices Rajiv Shakdher and Tara Vitasta Ganju expressed their disappointment over Department’s order of withholding a refund of Rs. 33 crore due to OYO Hotels and Homes Private Limited and observed that it was wholly and unjust for Assessing Officer (AO) to withhold the refund amount due to it, merely on the ground that a scrutiny notice had been issued to OYO.

The petitioner- OYO Hotels and Homes Private Limited in the present case had filed a petition to sought directions for disbursal of a refund amount of Rs.31,48,42,701 along with applicable interest for the Assessment Year (AY) 2020-2021.

The Petitioner filed a return of Income Tax for AY 2020-2021 declaring a loss of Rs.16,13,83,22,476 and claimed a refund of Rs.31,46,26,494 on account of tax deducted at source under Section 139 of the Income Tax Act, 1961 [hereinafter “the Act”]. Pursuant to a de-merger and to give effect to the Scheme of Arrangement, the Petitioner filed a revised return of Income Tax for AY 2020-2021 on 27 March, 2021 [hereinafter “Revised Return”] declaring a loss of Rs.16,70,16,05,998 and claiming a refund of Rs.43,91,40,294.

Thereafter, the Petitioner was subjected to a scrutiny assessment under Section 143(2) of the Act by notice dated 29 June, 2021 which was responded to by the Petitioner with all the necessary clarifications as sought for, on 29 July, 2021. The Petitioner submitted the response. The Petitioner received an intimation under Section 143(1) of the Act which stated that a refund of Rs.33,05,84,840 (inclusive of interest) has been calculated as due to the Petitioner [hereinafter “Refund Intimation”]. The Refund Intimation also stated that the refund shall be credited within a period of 15 days from that date.

Despite the lapse of several months after the passing of the Refund Intimation, no refund was received by the Petitioner.

Learned counsel for the Petitioner, Mr. Sujit Ghosh, submitted that other than a cryptic email received on 11 November, 2022 from the Revenue stating there that the refund of the Petitioner for AY 2020-2021 has been withheld “in view of the letter dated 7 June, 2022 received from FAU”, no other details had been provided by the Respondents, until after the filing of the Petition.

The High Court remarked that the issue of withholding of refund under the provisions of Section 241A of the Act is no longer res integra.

The Court stated that in various decisions it has inter-alia held that a refund may be withheld subject, however, to reasons being recorded in writing on how the grant of refund in the opinion is “likely to adversely affect revenue.” It is well settled that a refund cannot simply be withheld if an Assessee is selected for scrutiny assessment or where a notice has been issued under sub-section (2) of Section 143 of the Act, stated the bench.

The Court noted that there were no worthwhile reasons recorded for withholding the refund by the Revenue. In this context, the Court pertinently mentioned that as such the AO is required to look into various factors in relation to an Assessee, such as, the amount of tax liability which a scrutiny assessment may eventually lead to, vis-a-vis the amount of tax refund due; the financial standing or credit worthiness of the Assessee, and whether there would be any doubts in the Revenue recovering amounts from the Assessee.

Afterwards, the AO is also required to give detailed and compelling reasons as to how the release of the refund will adversely affect the interest of the Revenue. However, in the present case, the Court was of the view that reasons as set forth in the communication of 30 May, 2022 were bereft of any details and only reproduce the wordings of Section 241A of the Act with some additional sketchy and vague details. There was also a complete absence of reasoning.

The Court acknowledged the fact that the Petitioner is a well reputed company with a large net-worth running into several billion dollars and not a “fly-by-night” operator. It was a tax Assessee for the last several years and the credit worthiness of the Assessee was also not in dispute.

In this regard the Court observed, “merely because a notice has been issued under Section 143(2) of the Act, it is not a sufficient ground to withhold the refund under the provisions of the Act. As has been held in Maple Logistics P. Ltd. And Anr. vs. Principal Commissioner of Income Tax and Ors case (supra), it would be wholly unjust and inequitable for the AO to withhold a refund by citing the reason that a scrutiny notice has been issued and such an interpretation of the provision would be contrary to the intent of the legislature.”

The Court accordingly, set aside orders dated 30 May, 2022 passed by the AO and directed the Respondents to conduct a de novo exercise bearing in mind the provisions of Section 241A of the Act.