M/S MYNTRA DESIGNS PRIVATE LIMITED vs. THE NATIONAL FACELESS ASSESSMENT CENTRE

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WP/19995/2023HC KarnatakaKAHC01046287202316 November 2023Author: B M SHYAM PRASAD13 pages
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What did the High Court hold?

The High Court held that the consideration by the Assistant Commissioner of Income Tax and the Principal Commissioner of Income Tax for withholding the refund fell short of the requirements under Section 241A of the IT Act. The law mandates that the Assessing Officer must record in writing an opinion, with reasons, on how the revenue's interest would be adversely affected if the refund is allowed, especially after a notice under Section 143(2) has been issued. The Court found the reason provided ('Pending with TPO') to be insufficient and not indicative of an adverse impact on revenue. The Court noted that the petitioner had claimed refunds for prior assessment years, which were admitted, and that the petitioner reported a significant carry-forward loss for the current year. The Court emphasized that withholding refund in anticipation of a potential demand without proper justification is not permissible. Therefore, the petition was allowed, directing the respondents to refund the principal sum of Rs.29,30,46,736/- along with permissible interest under Section 244A within eight weeks, without prejudice to the revenue's right to recover any demand arising from the conclusion of pending proceedings.

What were the facts?

The petitioner, M/s Myntra Designs Private Limited, filed a writ petition seeking a direction to the respondents to issue a refund of INR 29,30,46,736/- along with applicable interest under Section 244A of the Income Tax Act, 1961. The refund was computed for Assessment Year 2021-22, with a total refund of Rs.31,94,20,940/- (including a principal amount of Rs.29,35,11,360/-) as of 22.09.2022. The refund was withheld. The petitioner contended that the refund was withheld without affording an opportunity and without recording the necessary opinion under Section 241A of the IT Act. The respondents placed on record a communication dated 20.12.2022, which indicated the withholding of refund due to a pending scrutiny assessment with the Transfer Pricing Officer (TPO).

What were the issues?

1. Whether the withholding of refund by the revenue authorities for Assessment Year 2021-22 was in accordance with the provisions of Section 241A of the Income Tax Act, 1961, specifically regarding the requirement for the Assessing Officer to record an opinion that the grant of refund is likely to adversely affect the revenue, supported by cogent reasons. Assessee's Contention: The petitioner argued that the refund was withheld without the Assistant Commissioner recording an opinion on the adverse impact on revenue and without proper application of mind, as evidenced by a standardized reason for multiple cases. They relied on the Supreme Court decision in *Additional Commissioner of Income-tax Vs. Ericsson India (P.) Ltd.*, emphasizing that pending regular assessment cannot be a reason for withholding refunds and that authorities cannot act as a "stifling force". Revenue's Contention: The revenue submitted that if there is a reference to the TPO for transfer pricing examination and an ongoing investigation, there is a likelihood that withholding the refund would be justified. They also stated that the assessment would be considered expeditiously, and any permissible refund would be allowed.

Which sections of the Income-tax Act were involved?

Section 244A,Section 241A,Section 143(1),Section 143(2)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF NOVEMBER, 2023 BEFORE THE HON'BLE MR JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 19995 OF 2023 (T-IT) BETWEEN:

M/S MYNTRA DESIGNS PRIVATE LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 THROUGH ITS AUTHORIZED SIGNATORY MS PAVITRA KUMAR, HAVING OFFICE AT BUILDINGS ALYSSA, BEGONIA AND CLOVE, EMBASSY TECH VILLAGE, OUTER RING ROAD, DEVARABEESANAHALLI VILLAGE, BENGALURU-560103 …PETITIONER (BY SRI. TARUN GULATI, SENIOR ADVOCATE FOR SRI. AJAY J NANDALIKE., ADVOCATE)

AND:

1.

THE NATIONAL FACELESS ASSESSMENT CENTRE THROUGH THE COMMISSIONER OF INCOME TAX-1 NATIONAL FACELESS ASSESSMENT CENTRE, 4TH FLOOR, MAYUR BHAWAN, CONNAUGHT CIRCUS NEW DELHI-110001

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 4(1) (1),

Digitally signed by NARASIMHA MURTHY VANAMALA Location: HIGH COURT OF KARNATAKA

BMTC BUILDING, 80 FT ROAD,

3.

THE ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 4(1), BMTC BUILDING, 80 FT ROAD,

4.

THE PRINCIPAL COMMISSIONER OF INCOME TAX-2 BMTC BUILDING, 80 FT ROAD,

5.

THE CENTRAL PROCESSING CELL THROUGH THE COMMISSIONER OF INCOME TAX CENTRAL PROCESSING CELL PRESTIGE ALPHA, POST BOX NO.2, ELECTRONIC CITY POST BENGALURU-560500 …RESPONDENTS (BY SRI. Y.V.RAVIRAJ A/W SRI. M.DILIP, ADVOCATES)

THIS WP IS FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA PRAYING TO DIRECT RESPONDENTS TO ISSUE REFUND OF INR 29,30,46,736/- AS COMPUTED UNDER REFUND INTIMATION DATED 22/09/2022 BEARING DIN CPC/2122/A6/243697378 (AT ANNEXURE-A) ALONG WITH APPLICABLE INTEREST UNDER SECTION 244A.

THIS PETITION, COMING ON FOR ORDERS, THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER

The petitioner has filed this petition for directions to the Respondents to issue refund of Rs.9,30,46,736/- as computed under Refund Intimation dated 22.09.2022 bearing DIN: CPC/2122/A6/243697378 [Annexure A] along with applicable interest under Section 244A of the Income Tax Act, 1961 [for short, ‘the IT Act’] in an expeditious and timely manner. Sri. Tarun Gulati, the learned Senior counsel for the petitioner, and Sri. Y.V.Raviraj, the learned Senior standing counsel for the respondents, are heard.

2.

The petitioner, for the Assessment Year 2021-22 is informed about the computed refund in a sum of Rs.31,94,20,940/- [including the principal amount in a sum of Rs.29,35,11,360/-], and this computation is as of 22.09.2022. On 16.05.2023, the third respondent [the jurisdictional Additional Commissioner of Income Tax], referring to the

withholding of refund to the petitioner for the Assessment Year 2021-2022, has informed the first respondent [the Assessing Officer with the National Faceless Assessment Centre - NaFAC] that:

• the petitioner is reporting a loss to the tune of Rs.3,325.85/- Crores and this loss can cover any addition proposed, and • in the past there have been no addition and as such, withholding of refund may be re-list- examined considering whether it would be so warranted despite carry forward loss as aforesaid.

3.

Sri. Tarun Gulati, the learned Senior counsel for the petitioner, on one of the previous hearing dates, had canvassed that the refund was being withheld without affording an opportunity and without recording an opinion as would be required under Section 241A of the IT Act, and as such, the respondents were permitted to place on record the

opinion recorded by the Assessing Officer and the permission granted by the concerned Principal Commissioner of Income Tax, if any.

4.

In response, Sri. Y.V.Raviraj, the learned Senior standing counsel for the respondents, has placed on record a copy of the Communication dated 20.12.2022 addressed by Commissioner of income Tax, ReAc (AU)-1(2)(1), Surat to the Principal Commissioner of Income Tax (AR)-1 and the approval granted by the aforesaid Principal Commissioner of Income Tax (AR)-1. Sri. Tarun Gulati, with the assistance of these documents, canvasses:

4.1 that Commissioner Income Tax, ReAc (AU)-1(2)(1), without recording an opinion on whether grant of refund would likely affect the revenue adversely as is required under the provisions of Section 241A of the IT Act, has stated that because scrutiny assessment is pending with the

Transfer Pricing Officer [TPO], the refund may be withheld,

4.2 that Commissioner Income Tax, ReAc (AU)-1(2)(1), in the Communication dated 20.12.2022, has referred to eleven different instances, including the petitioner’s instance citing the same reason and this indicates lack of application of mind.

4.3 that the Principal Commissioner of Income Tax (AU)-1, without even observing that the Assistant Commissioner of Income Tax, ReAc (AU)- 1(2)(1), Surat has not recorded that the revenue’s interest would be adversely impacted if refund is granted, has once again granted permission for withholding the refund recording the details.

4.4 that the first respondent has filed affidavit for first time before this mentioning a reference for transfer pricing parameter

and an investigation by the foreign jurisdiction to justify withholding the refund, but the reason must be as available as of the date the computation under Section 143(1) of the IT Act,

4.5 that if the petition is disposed of without directions to refund because of the reasons now filed this would be permitting supplementing reasons to justify an illegal decision.

5.

Sri. Tarun Gulati, insofar as the law on the issue relies upon the decision of the High Court of Delhi in Ericsson India (P.) Ltd. Vs. Additional Commissioner of Income Tax1 stating that this decision is confirmed by the Hon’ble Supreme Court in Additional Commissioner of Income-tax Vs. Ericsson India (P.) Ltd2. [the learned Senior Counsel emphasizes that the revenue authorities cannot act as a stifling force or a stumbling block and create

1 . [2020] 117 taxmann.com 381 (Delhi) 2 [2021] 128 taxmann.com 418 (SC)

constraints in unjustifiably withholding refund taking a short cited approach; that a pending regular assessment cannot be a reason for withholding the funds, and that the Assessing Officer must, while seeking permission of the Principal Commissioner of Income Tax, must record an opinion that grant of refund would in all likelihood affect the revenue adversely and such opinion must be supported by cogent reasons.

6.

Sri. Y.V.Raviraj submits that the petitioner cannot dispute that if there is a reference to the TPO to examine the transfer pricing and the investigation is on, that there is every likelihood that the withholding of refund would be justified, and in any event, assessment would be considered expeditiously and the permissible refund would be allowed.

7.

The rival submissions are considered in the light of the law as exposited in Ericsson India

(P.) Ltd. Vs. Additional Commissioner of Income Tax supra. The material part of the provisions of Section 241A of the IT Act read as hereunder:

where refund of any amount becomes due to the assessee under the provisions of sub-section (1) of section 143 and the Assessing Officer is of the opinion, having regard to the fact that a notice has been issued under sub-section (2) of section 143 in respect of such return, that the grant of the refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be, withhold the refund up to the date on which the assessment is made.

The concerned Assistant Commissioner of Income Tax, ReAC (AU)-1(2)(1), Surat, notwithstanding the requirements under Section 241A of the IT Act, has record thus in the Communication dated 20.12.2022:

Name of the Assessee PAN A.Y. Amount Remark s MYNTRA DESIGNS PRIVATE LIMITED AAECM9636P 2021-22 319420940 Pending with TPO

This reason is typical to the other instances mentioned in this Communication. The Principal Commissioner of Income-tax (AU)-1 has approved the withholding of refund recording that reference to the TPO is pending and there is every likelihood of raising a demand.

8.

This Court, upon examining the opinion reasoning offered by Commissioner of Income Tax, ReAC (AU)-1(2)(1), Surat and the reasons recorded while granting approval, must opine that the consideration falls short of the requirements under the provisions of Section 241A of the IT Act, which stipulate that the Assessing Officer, having regard to the fact that notice has been issued under sub-section (2) of Section 143, must record in writing an opinion with reasons on how the revenue’s interest would be adversely affected if refund allowed. The withholding of the refund in the manner as now

considered by the Assistant Commissioner of Income Tax, ReAC (AU)-1(2)(1), Surat cannot be accepted, and there must be interference by this Court.

9.

This must record that it undisputed that the petitioner has claimed refund for the Assessment Years prior to the Assessment Year 2021-22. The Principal Commissioner of Income-tax (AU)-1 has granted approval recording the details of the carry forward losses for the corresponding years, and consequentially, the petitioner is admitted to refund for the Assessment Years 2018-19, 2019-20 2000-21 in sums Rs.3,74,99,394/-, Rs.6,46,37,530/- Rs.14,34,81,214/- respectively. The petitioner has reported a carry forward loss to the tune of Rs.3,325.85/- Crores for the present Assessment year. The Revenue as against the principal sum of Rs.29,35,11,360/- will have to pay interest in excess of Rs.2,00,00,000/-,

imposing a burden on the exchequer, if there is a delay.

10.

Further, if indeed a reference to the transfer pricing officer is under investigation, it would suffice for this Court to observe that if the adjudication, after due process, results in a demand, the petitioner will have to answer the demand, but in anticipation of a conclusion for a demand without even recording the reasons, the petitioner cannot be denied refund.

There are overwhelming circumstances as established by the undisputed facts. In the light of the above, the petition must be allowed directing the respondents to refund a sum of Rs.29,30,46,736/- along with interest as permissible in law within a timeframe without prejudice to recover demand on the conclusion of the pending proceedings. Hence, the following:

ORDER i. The petition is allowed. ii. The first and the fifth respondents [National Faceless Assessment Centre through the Commissioner of Income Tax-1 and Central Processing Cell through the Commissioner of Income Tax], are directed to take appropriate action for refund of a sum of Rs.29,30,46,736/- along with permissible interest under Section 244A of the IT Act, and the measures shall be taken by the aforesaid respondents to ensure that the petitioner has the advantage of the refund as afore permitted within eight [8] weeks from the date of receipt of a certified copy of this order.

Sd/- JUDGE

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