A Challenge To Assessment Underway Cannot Ordinarily Be Adjudicated, In The Garb Of A Challenge To An Order Under S.241A: Delhi High Court

The Division Bench comprising Justice Rajiv Sahai Endlaw & Justice Asha Menon of Delhi High Court in its recent judgment in case of GE Capital Mauritius Overseas vs. Dy CIT & Anr, observed that the scrutiny has to be confined to, whether grant of refund is likely to adversely affect the revenue i.e. whether there is no basis whatsoever for the opinion formed that if refund is granted today, tax, if any found due on completion tomorrow of assessment underway of the ITR claiming refund, it will not be recoverable. 

“Of course, in a gross case, where it is found that though a notice u/s 143(2) of the Income Tax Act,1961 has been issued but there is nothing to controvert the ITR, the Court would be entitled to quash the Section 241A order” said the Court. 

For the writ Court to quash the order u/s 241A of Income Tax Act,1961 (“Act”) on the ground that no tax is due and thus question of refund likely to adversely affect the revenue does not arise, this Court has to conclusively hold that the petitioner has no tax liability in India. Once it is so held, there will be nothing left to be determined in the assessment underway pursuant to notice u/s 143(2) of the Act.

The AO and the Principal Commissioner, in exercise of powers u/s 241A, are required to take a prima facie view of the outcome of the assessment pursuant to notice u/s 143(2). The authority vested with the power of final determination is the best authority to take a prima facie view.

In such statutory scheme, u/s 260A, appeal lies to the High Court against orders of the Income Tax Appellate Tribunal. A determination of tax liability in a challenge to an order u/s 241A would set at naught the entire statutory scheme of assessment and appeals, ultimately to this Court, opening the doors to every assessee to whom a notice u/s 143(2) is issued, to approach this Court contending that the ITR filed and being processed u/s 143(1) admits / permits of no scrutiny and should be accepted. 

This Court would then be appropriating to itself the entire statutory mechanism of assessment, First Appeals and Appeals to Income Tax Appellate Tribunal and thereafter to this Court.

Section 241A of the Act, though in the nature of attachment before judgment, but owing to the determination of tax liability being not in the domain of this Court, save u/s 260A, but in the domain of the statutory scheme under the Income Tax Act, this Court in writ jurisdiction, while entertaining a challenge to an order u/s 241A, will ordinarily not enter into the correctness of reasons given for holding that the assessee may be ultimately found liable for tax.

The Courts, when in exercise of powers of attachment before judgment, go into the question of prima facie merits of the claim of the party seeking attachment before judgment, are empowered to do so because the ultimate decision in the said respect also rests in the Court. 

However the Court does not have jurisdiction qua the determination of tax and which jurisdiction is exercised by this Court only in exercise of powers u/s 260A, on a substantial question of law arising and not otherwise. 

When this Court has not been empowered to assess tax liability in the first instance, it would ordinarily not form a prima facie view even of what it is not finally empowered to do. 

Rather, the AO and Principal Commissioner also, in exercise of powers u/s 241A, are concerned largely with the question of grant of refund likely to adversely affect revenue i.e that the tax, if ultimately found due, being not recoverable; though the AO and Principal Commissioner have in the impugned order given detailed reasons, but were not required to, as the same is likely to prejudice the assessment underway. 

The Court thus clarified that the same will have no bearing in the final assessment.

Case Title: GE Capital Mauritius Overseas vs. Dy CIT & Anr