My refund is being withheld under s.241A because my case is in scrutiny. Is a scrutiny notice enough?
No — but fix the year first. For AYs 2017-18 to 2022-23 the return had to be processed and the refund determined, and s.241A was the only route to hold it back: it needed a written, reasoned, approved order showing why paying THIS refund was likely to hurt the revenue, and repeating the words of the section, or pointing to the s.143(2) notice, is not a reason. Section 241A ceased to apply from 1 April 2023 (Finance Act 2023) and the withholding power now sits in s.245(2), which requires the same written reasons and the same previous approval of the Principal Commissioner or Commissioner. The reasoning below transfers, but for AY 2023-24 onwards the order to demand, and to attack, is a s.245(2) order.
Decided by the High Court (Vipin Sanghi J and Sanjeev Narula J) on 2019-10-14, reported as (2019) 184 DTR 408 / (2020) 312 CTR 141 / 420 ITR 258 / 268 Taxman 138 (Delhi)(HC); W.P.(C) 7003/2019. It bears on section 241A, section 143(1), section 143(1D), section 143(2), section 194C, section 197 of the Income Tax Act 1961, in Refunds, Interest & Condonation matters.
This is the single most common shape of a withheld refund: the officer says nothing beyond 'your case is under scrutiny'. The Delhi High Court set out both what the officer must do and the specific factors he must weigh, which gives you a checklist to test the order against.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner provides multimodal logistics services and much of the transport charges it receives are paid out to third party service providers, so its own margin is under 2 per cent while its customers deduct tax at source at 2 per cent under s.194C. For AY 2017-18 it obtained a certificate under s.197 permitting deduction at 1 per cent, filed its return on 25 October 2017 and, its liability being under the minimum alternate tax provisions, claimed a refund of Rs 4,88,51,540. A revised return filed on 27 March 2018 reduced the TDS claimed because some customers had not deposited the tax, and the refund claim became Rs 4,79,93,740. The return was selected for scrutiny and a notice under s.143(2) issued. The refund was not released. The company came to the High Court under Articles 226 and 227 seeking a mandamus for the refunds for AY 2017-18 and AY 2018-19. Reasons purporting to support the withholding were produced by the Revenue during the hearing.
The exercise under s.241A had not been correctly undertaken and directions were issued requiring a detailed reasoned order to be passed under that section. The mere issue of a notice under s.143(2) is not a sufficient ground to withhold a refund, and an order denying refund on that ground alone is laconic (paras 30, 33 and 34).
The Court traced the history of the power: the old s.241 (omitted with effect from 1 June 2001) allowed withholding on several grounds; after its omission the position was governed by s.143(1D); and from 1 April 2017 the Finance Act 2017 both confined s.143(1D) to returns for years before AY 2017-18 and inserted s.241A (paras 15 to 18). Reading s.143 with s.241A, it is now mandatory to process the return under s.143(1) and to grant the refund determined unless s.241A is properly invoked (para 19). Under the new section, adverse effect on the revenue is the sole ground, so the scope of the power is narrower than under s.241 and a speaking order is required (para 20). The Court applied the case law on the identical phrase in the old s.241 and on the parallel s.33C of the Andhra Pradesh sales tax law, which had condemned orders that merely reproduce the statutory phrase (paras 21 and 26). It held that the legislature did not intend refunds to be withheld just because scrutiny is pending; if it had, s.241A would have been worded so (para 29). The discretion is conditioned and channelised, must be exercised judiciously, and the application of mind must appear in the written reasons, which must in turn be objectively approved by the Principal Commissioner or Commissioner (paras 30 and 33). The Court listed the relevant factors: the prima facie view on the grounds for the s.143(2) notice; the likely tax on scrutiny assessment set against the refund due; the creditworthiness or financial standing of the assessee; and all factors addressing recovery of revenue in doubtful cases (para 32). On the facts, the reasons relied on were abysmally lacking and did nothing more than reproduce the wording of s.241A (para 31).
Therefore, merely because a notice has been issued under section 143(2), it is not a sufficient ground to withhold refund under section 241A and the order denying refund on this ground alone would be laconic.
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Handle my notice → Ask a CA on WhatsAppNo — but fix the year first. For AYs 2017-18 to 2022-23 the return had to be processed and the refund determined, and s.241A was the only route to hold it back: it needed a written, reasoned, approved order showing why paying THIS refund was likely to hurt the revenue, and repeating the words of the section, or pointing to the s.143(2) notice, is not a reason. Section 241A ceased to apply from 1 April 2023 (Finance Act 2023) and the withholding power now sits in s.245(2), which requires the same written reasons and the same previous approval of the Principal Commissioner or Commissioner. The reasoning below transfers, but for AY 2023-24 onwards the order to demand, and to attack, is a s.245(2) order. This was decided by the High Court (Vipin Sanghi J and Sanjeev Narula J) and bears on section 241A, section 143(1), section 143(1D), section 143(2), section 194C, section 197 of the Income Tax Act 1961. It is reported as (2019) 184 DTR 408 / (2020) 312 CTR 141 / 420 ITR 258 / 268 Taxman 138 (Delhi)(HC); W.P.(C) 7003/2019. This is the single most common shape of a withheld refund: the officer says nothing beyond 'your case is under scrutiny'. The Delhi High Court set out both what the officer must do and the specific factors he must weigh, which gives you a checklist to test the order against. If it applies to you, the first step is this: Ask in writing for a copy of the withholding order and of the Principal Commissioner's or Commissioner's approval — under s.241A for AYs 2017-18 to 2022-23, under s.245(2) for AY 2023-24 onwards; if no order exists, say so, because without one the determined refund is simply payable.
The petitioner provides multimodal logistics services and much of the transport charges it receives are paid out to third party service providers, so its own margin is under 2 per cent while its customers deduct tax at source at 2 per cent under s.194C. For AY 2017-18 it obtained a certificate under s.197 permitting deduction at 1 per cent, filed its return on 25 October 2017 and, its liability being under the minimum alternate tax provisions, claimed a refund of Rs 4,88,51,540. A revised return filed on 27 March 2018 reduced the TDS claimed because some customers had not deposited the tax, and the refund claim became Rs 4,79,93,740. The return was selected for scrutiny and a notice under s.143(2) issued. The refund was not released. The company came to the High Court under Articles 226 and 227 seeking a mandamus for the refunds for AY 2017-18 and AY 2018-19. Reasons purporting to support the withholding were produced by the Revenue during the hearing. The matter was decided on 2019-10-14 by the High Court (Vipin Sanghi J and Sanjeev Narula J). On those facts the High Court held as follows. The exercise under s.241A had not been correctly undertaken and directions were issued requiring a detailed reasoned order to be passed under that section. The mere issue of a notice under s.143(2) is not a sufficient ground to withhold a refund, and an order denying refund on that ground alone is laconic (paras 30, 33 and 34).
The Court traced the history of the power: the old s.241 (omitted with effect from 1 June 2001) allowed withholding on several grounds; after its omission the position was governed by s.143(1D); and from 1 April 2017 the Finance Act 2017 both confined s.143(1D) to returns for years before AY 2017-18 and inserted s.241A (paras 15 to 18). Reading s.143 with s.241A, it is now mandatory to process the return under s.143(1) and to grant the refund determined unless s.241A is properly invoked (para 19). Under the new section, adverse effect on the revenue is the sole ground, so the scope of the power is narrower than under s.241 and a speaking order is required (para 20). The Court applied the case law on the identical phrase in the old s.241 and on the parallel s.33C of the Andhra Pradesh sales tax law, which had condemned orders that merely reproduce the statutory phrase (paras 21 and 26). It held that the legislature did not intend refunds to be withheld just because scrutiny is pending; if it had, s.241A would have been worded so (para 29). The discretion is conditioned and channelised, must be exercised judiciously, and the application of mind must appear in the written reasons, which must in turn be objectively approved by the Principal Commissioner or Commissioner (paras 30 and 33). The Court listed the relevant factors: the prima facie view on the grounds for the s.143(2) notice; the likely tax on scrutiny assessment set against the refund due; the creditworthiness or financial standing of the assessee; and all factors addressing recovery of revenue in doubtful cases (para 32). On the facts, the reasons relied on were abysmally lacking and did nothing more than reproduce the wording of s.241A (para 31). In the words reproduced by the source cited on this page: "Therefore, merely because a notice has been issued under section 143(2), it is not a sufficient ground to withhold refund under section 241A and the order denying refund on this ground alone would be laconic." The decision followed or applied Corrtech International (P) Ltd. v. Deputy Commissioner of Income Tax (2017) 86 taxmann.com 156 (Gujarat) — relied on and extracted; Tata Teleservices v. Central Board of Direct Taxes (2016) 386 ITR 30 — applied; Group M Media India Pvt. Ltd. v. Union of India (2016) 388 ITR 594 (Bombay) — referred to; Pulp N'Pack Private Ltd. v. Commercial Tax Officer, MANU/AP/0094/2009 — relied on for the meaning of adverse effect on revenue.
It was decided by the High Court on 2019-10-14 and is reported as (2019) 184 DTR 408 / (2020) 312 CTR 141 / 420 ITR 258 / 268 Taxman 138 (Delhi)(HC); W.P.(C) 7003/2019. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 241A, section 143(1), section 143(1D), section 143(2), section 194C, section 197, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The exercise under s.241A had not been correctly undertaken and directions were issued requiring a detailed reasoned order to be passed under that section. The mere issue of a notice under s.143(2) is not a sufficient ground to withhold a refund, and an order denying refund on that ground alone is laconic (paras 30, 33 and 34). It arises in Refunds, Interest & Condonation matters, on section 241A, section 143(1), section 143(1D), section 143(2), section 194C, section 197 of the Income Tax Act 1961, and was decided by Vipin Sanghi J and Sanjeev Narula J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read the reasons against the four factors the Court named: the prima facie view on the grounds for the s.143(2) notice, the likely tax on scrutiny compared with the refund, your creditworthiness, and anything else going to recoverability. If the order only recites the language of s.241A or relies on the scrutiny notice alone, that is the 'laconic' order the Court condemned; write to the officer quoting paragraphs 30 to 33 before moving to a writ petition. Check the year at both ends. For returns of AY 2016-17 and earlier the applicable provision is s.143(1D), not s.241A, and the reasoning here does not transfer directly. For AY 2023-24 onwards s.241A does not apply at all — the Finance Act 2023 provided that the section shall not apply from 1 April 2023 and moved the withholding power into s.245(2) — so ask for the s.245(2) reasons and approval instead, and read Instruction No. 02/2023 dated 10 November 2023, which confines s.245(2) withholding to refunds of Rs 10 lakh or more. Ask for the fallback the Court gave here as well as for a reasoned order: a direction that if the reconsideration is not completed within the time allowed, the refund be transmitted with interest without awaiting further orders.
Superseded by amendment. No decision overruling or doubting it was located. It should be read alongside the later Delhi Division Bench decision in GE Capital Mauritius Overseas Investments v. DCIT (W.P.(C) 3617/2020, decided 26 March 2021), which upheld a s.241A order and held that a writ court will not, in a challenge to such an order, decide the tax liability itself. The two are consistent on the requirement of reasons but differ in how far the court will probe them: Maple Logistics quashes reasons that are empty, GE Capital declines to test reasons that are detailed. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The petition itself was disposed of by a separate order dictated in open Court on the same day; this judgment records the reasons for the directions given there (paras 2 and 3), and paragraph 34 refers back to that directive portion. That order is reproduced in full in this judgment, as the block extract introduced at paragraph 2 with the words 'The said order reads as follows:' and running from 'We have heard learned counsels at length' to 'The detailed reasons/ order shall be recorded separately'. It grants the respondents two weeks to consider whether the refund, or any part of it, is liable to be withheld under s.241A; requires the Assessing Officer to make a prima facie assessment of the probability of additions in the scrutiny proceedings, of their quantum and likely tax effect, and of the petitioner's financial standing and other factors such as past demands and outstanding litigation, and the Principal Commissioner to apply his mind to all of them; and directs that failing completion within that time the respondents shall, without awaiting further orders, transmit Rs 4,79,93,740 with interest to the petitioner upon the petitioner furnishing an undertaking that the amount shall forthwith be deposited with the GST authorities. On the report citation: the judgment text itself carries none, and 420 ITR 258 as given above is confirmed independently of the itatonline digest by the Bombay Chartered Accountants' Society journal, which prints 'Maple Logistic P. Ltd. vs. Principal CIT; [2020] 420 ITR 258 (Del.) Date of order: 14th October, 2019'. The secondary references giving the case as 419 ITR 258 are unsupported; 420 ITR 258 is settled and should be used. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The exercise under s.241A had not been correctly undertaken and directions were issued requiring a detailed reasoned order to be passed under that section. The mere issue of a notice under s.143(2) is not a sufficient ground to withhold a refund, and an order denying refund on that ground alone is laconic (paras 30, 33 and 34).
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