Facts of the Case

The petitioner, M/s FIS Payment Solutions & Services India Pvt. Ltd., filed a writ petition under Articles 226/227 of the Constitution of India seeking directions for the release of a substantial tax refund amounting to ₹74,88,99,152/- along with applicable interest under Section 244A of the Income Tax Act for Assessment Year 2018–19.

The petitioner’s return for AY 2018–19 was processed under Section 143(1), determining a refund. However, the Revenue authorities withheld the refund citing ongoing scrutiny proceedings under Section 143(3) and invoked Section 241A of the Income Tax Act, 1961.

The withholding was approved by the Principal Commissioner of Income Tax on 09.03.2020 based on concerns that granting the refund could adversely affect revenue recovery.

Issues Involved

  1. Whether the Income Tax Department was justified in withholding the refund under Section 241A of the Income Tax Act.
  2. Whether the petitioner was entitled to immediate release of refund along with interest under Section 244A.
  3. Whether the pendency of scrutiny assessment is sufficient ground to deny refund.

Petitioner’s Arguments

  • The petitioner contended that the refund had already been determined under Section 143(1) and therefore must be released.
  • It was argued that mere initiation of scrutiny proceedings cannot justify withholding of refund without valid reasons.
  • The petitioner relied on the earlier direction of the High Court dated 03.03.2020, which observed no justification for withholding the refund and directed release within four weeks.
  • The petitioner further challenged the subsequent approval under Section 241A as arbitrary and unlawful.

Respondent’s Arguments

  • The Revenue argued that the case was selected for complete scrutiny based on multiple risk parameters including:
    • Large refund claim
    • High-value intangible assets
    • Possible non-compliance with Income Computation and Disclosure Standards
  • It was submitted that in the previous assessment year (AY 2017–18), substantial additions were made, indicating potential tax liability.
  • The authorities justified invoking Section 241A, stating that granting refund at this stage could adversely impact revenue recovery if demand arises after assessment.

Court Order / Findings

  • The Court noted that subsequent to the earlier order directing refund, the Revenue passed an order dated 09.03.2020 approving withholding under Section 241A.
  • The petitioner had already challenged the said order in a separate writ petition (W.P.(C) 3273/2020).
  • Considering this development, the Court permitted the petitioner to withdraw the present petition with liberty to pursue the subsequent petition.
  • Accordingly, the writ petition was disposed of as infructuous.

Important Clarification

  • The Court did not adjudicate on the legality of withholding under Section 241A in this petition.
  • The matter was left open for consideration in the subsequent writ petition challenging the approval order dated 09.03.2020.
  • The case highlights procedural interplay between refund determination and withholding powers of tax authorities.

Sections Involved

  • Section 143(1), Income Tax Act, 1961 – Processing of Return
  • Section 143(3), Income Tax Act, 1961 – Scrutiny Assessment
  • Section 241A, Income Tax Act, 1961 – Withholding of Refund
  • Section 244A, Income Tax Act, 1961 – Interest on Refund
  • Articles 226/227, Constitution of India – Writ Jurisdiction

 Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2032-DB/TWS04062020CW22432020_145941.pdf

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