Introduction

The Income Tax Department of India has classified the income of an Indian citizen into five
broad categories based on income sources. These five categories are mainly salary, house
property, business, capital gains, and other sources. Every person with income is supposed to
pay an income tax to the government and. is required to file their tax returns within a fixed
deadline. The section is divided into several categories to deal with different types of returns,
and every Indian citizen is advised to follow these guidelines.

Section 139 of the Income Tax Act of 1961 1 has several subsections defining norms and
regulations as per different cases and circumstances. The following section will talk about
them in length.

What is Section 139(1)?

Section 139 (1)of the Income Tax Act acts as a framework that allows taxpayers to file late
returns, in case they miss the prescribed deadline. There are various sub-sections under
section 139(1) of the income tax act. The section 139(1) offers means to rectify the non-
submission of Income Tax Returns within the timeline.

Mandatory Returns Section 139(1)

Section 139(1) of the income tax act deals with the mandatory return policies while filing the
Income Tax Return. The following entities are to file their tax return:

 Every person with a total income that exceeds the exemption limit has to furnish the
income tax return within the defined due date.

 Any private, public, domestic, or foreign entity located in India or doing business in
India.

 Firms, including LLP (Limited Liability Partnership) or ULP (Unlimited Liability

Partnership).

 Residents who have assets located outside of India or any entity which retains authority
for an account based outside India.

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Act 43 of 1961
 Every HUF (Hindu Undivided Family), AOP (Association of Persons), and BOI (Body
of Individuals) has to file an Income Tax Return if their income exceeds the prescribed
exception limit.

 Voluntary Tax Returns are specific cases when individuals or entities are necessarily
required to file the return.

Under Section 139(1c), certain classes of people who fulfill a certain condition are exempt
from filing the tax return. The issued notice should be placed before each House of
Parliament for 30 days when sessions are held immediately following the notification. Only
upon agreement by both the houses the notification shall be effective.

Filing for Income Tax in the case of a loss

Section 139(3) deals with filing income tax returns in the case of a loss. It is usually quite
useful to file for the return in the case of losses, as the loss is allowed to be carried forward,
reducing the tax liability in subsequent years. The following are specifically defined cases-

In the case of an Individual Taxpayer, the tax return is not mandatory if the loss was incurred
in the previous financial year. However, in the cases of loss in companies and firms, the tax
return for a loss is mandatory.

If the loss for a company arises under the head “Profits and Gains of Business and
Profession” or “Capital Gains,” filing the tax return shall be mandatory in the case that the
company wants to carry ahead the loss and offset it with the future income. The option is only
available if the tax return is filed by the due date.

In the case of loss occurring in “House or residential property,” the loss can be carried
forward even if the tax return is filed beyond the due date.

Except "House and Property," other losses filed under Section 142(1) cannot be carried
forward, leaving out the unabsorbed depreciation value.

In the alternative case of loss being offset against some income in another category for the
same year, an offset is permitted even if the return is filed beyond the due date.

Losses incurred in previous years can be carried forward if the return is filed by the due dates,
having assessed the losses.

Belated Income Tax Return - u/s 139(4)

It is advisable for a taxpayer (whether an individual or any other entity), to furnish the tax
return before the due date as per Section 139(1) of the income tax act. However, if the return
file is still delayed, there is still the possibility of filing the belated return for prior years until
the expiry date of the current applicable year of assessment or before the financial year is
concluded. Nonetheless, if the taxpayer fails yet again, a penalty of 5,000 rupees is charged
under Section 271F of the IT Act, 1961. The penalty can be escaped if the income did not
require the mandatory filing as defined under Section 139(1) and the return was filed after the
due date.

Revised Income Tax Return - u/s 139(5)

Sometimes, it may happen that the Income Tax Return was filed in time, but some mistakes
occurred. The taxpayer has the provision to correct any mistake made in the file for revising
the return of income tax under Section 139(5). It can be filed at any time within the pertinent
year of assessment or before the completion of the assessment, whichever comes first. There
is no limit to the frequency of revising the tax return file as long as it is within the time frame.
The revising can be done either in the same form or by issuing a different return form. The
original return will be considered to be withdrawn once the new return is filed. It should be
noted that Section 139(5) is valid only in the case of "Omissions and Wrong Statements and
not "Concealment or false statements." Thereby, only unintentional mistakes can be revised,
and otherwise, the penalty shall be imposed.

When companies merge and amalgamate into another, the transferor companies lose their
separate identity and character and cease to exist upon the approval of the Schemes of
Amalgamation. It is essential that every scheme of arrangement and amalgamation includes
an Appointed Date. This date signifies when the assets and liabilities of the transferor
company transfer to the transferee company. The Schemes become effective from the
Appointed Date, unless modified by the Court.

In accordance with the Scheme of Arrangement and Amalgamation, the assessment of the
Transferee Company must consider the income of both the Transferor and Transferee
Companies. In other words, when assessing the tax liabilities of the amalgamated company,
the income of both the transferor and transferee companies should be taken into account.
Case Laws

Case 1:

Commissioner of Income Tax vs Govind Nagar Sugar Limited (2011) 056 DTR 0035
Delhi High Court2

Fact of the Case

The present case relates to the assessment year 2001-02. The assessee filed return of this year
declaring loss at ₹ 6,75,38,576/-. The return was filed on 31st March, 2003, though the due
date of filing the return of loss in terms of Section 139(3) of the Income Tax Act was 31st
October, 2001. The Assessing Officer framed assessment under Section 143(2) on 31 st
October, 2003 at a loss of ₹ 6,03,14,560/-. The Assessing Officer, however, did not make any
observation in respect of carry forward of unabsorbed loss including unabsorbed depreciation
i.e., Assessing Officer did not allow the assesse to carry forward the unabsorbed loss
including depreciation. The assesse preferred an appeal before the Commissioner of Income
Tax (Appeals), who vide order dated 18th April, 2005 while confirming the order of the
Assessing Officer, held that the assesse was not allowed to carry forward the losses by virtue
of Section 80 of the Act as it had not filed loss return within the time prescribed under
Section 139(3) of the Act. In the appeal preferred by the assesse, the ITAT allowed
unabsorbed depreciation for this year and also for the assessment year 2000-01. The revenue
has preferred this appeal against the order of the ITAT.

Issue:

a) Whether for carried forward of unabsorbed depreciation, it was not necessary that the
return should have been filed within the time allowed under Section 139(1) read with Section
139(3) of the Income Tax Act?

b) Whether the provisions of Section 80 of the Income Tax Act do not apply to unabsorbed
depreciation covered by Section 32(2) of the Act?

Observation of the Court

For answering the questions on which this appeal has been admitted, we may see that the
issue involved in this appeal is as to whether the unabsorbed depreciation should be carried
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(2011) 056 DTR 0035 Delhi High Court
forward under Section 32(2) of the Act despite the fact that the return of the said year was
filed belatedly. The instant question involves interpretation of provision of Sections 32, 80
and 139 of the Act.

The question that follows for consideration is as to whether the loss referred under Section 80
of the Act also includes unabsorbed depreciation. For this we may examine the provisions of
losses referred to under Section 80 of the Act.

Section 72 provides for provisions with regard to carry forward and set off of business losses.
According to this Section, where for any assessment year, the net result of computation under
the head “profits and gains of business or profession “is a loss to the assesse, not being a loss
sustained in a speculation business, and such loss cannot be or is not wholly set off against
income under any head of income in accordance with the provisions of Section 71, then so
much of the loss shall be carried forward to the next assessment year. Similarly, Section 73
deals with losses in speculation business. Sub-section (2) of Section 73 provides that for any
assessment year any loss computed in respect of speculation business has not been wholly set
off under sub- section (1), so much of the loss as is not set off or the whole loss where the
assesse had no income from any other speculation business, shall be carried forward on
certain conditions.

Section 74 deals with losses under the head “capital gains”, which is not relevant for the
present case. On examining the aforesaid provisions, as referred in Section 80 of the Act,
prima facie, these sections do not cover or deal with procedure of setting off of unabsorbed
depreciation. Section 32 of the Act deals with different types of depreciations. From a plain
reading of provisions of Section 72 and 32 it is manifestly clear that Section 72 deals with
carry forward of unabsorbed business losses other than losses on account of depreciation and
that is so because the carry forward depreciation has been provided under Section 32(2) of
the Act. The manner of carry forward in the two provisions is entirely different.

In this manner of interpretation of the provisions of losses as noted above, we may see that
Section 80 and 139(3) of the Act apply to business losses and not to unabsorbed depreciation
which is exclusively governed by the provisions of Section 32(2) of the Act. That being so,
the period of limitation for filing loss return as provided under Section 139(1) shall not be
applicable for carrying forward of unabsorbed depreciation and investment allowances.

Judgment:
We have already noted above that Section 32 deals with the different types of depreciation
whereas Section 80 deals with carry forward of unabsorbed losses other than losses on
account of depreciation. If that was not so, there was no need for legislature to provide
specific provision for carrying forward of depreciation under Section 32 of the Act. Section
72 contemplates loss other than unabsorbed depreciation and there was a time limit within
which loss can be adjusted, whereas in the case of unabsorbed depreciation there is no time
limit and further that under the statute there is a separate identity with respect to unabsorbed
depreciation though at the time of computation, it becomes a part of loss. From the above, it
comes out that the effect of Section 32(2) is that unabsorbed depreciation of a year becomes
part of depreciation of subsequent year by legal fiction and when it becomes part of current
year depreciation it is liable to be set off against any other income irrespective of the fact that
the earlier years return was filed in time or not.

Case 2:

Dalmia Power Limited & Ors. V ACIT3

Facts:

Dalmia Power Limited (Dalmia Power) and Dalmia Cement (Bharat) Limited (Dalmia
Cement) underwent separate amalgamation transactions with an appointed date of January 1,
2015, for the Assessment Year (AY) 2015-16. The National Company Law Tribunal (NCLT)
approved the scheme of amalgamation for Dalmia Power in October 2017 and for Dalmia
Cement in May 2018 (referred to as the "Scheme").

Both companies submitted revised income tax returns for AY 2015-16 and AY 2016-17 in
November 2018 in paper form, as electronic filing was not available at that time and the
statutory time limit for revising returns had expired. The Scheme allowed companies to file
such revised returns even after the statutory time limit had passed.

The tax department deemed the revised returns invalid for the following reasons:

- They were filed after the statutory time limit specified in Section 139(5) of the Indian
Income-tax Act, 1961, for revising a return.

- The revised returns were submitted in paper form instead of electronically, as required by
Rule 12(3) of the Indian Income-tax Rules, 1962.

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Civil Appeal Nos.949699 Of 2019
- The companies did not seek condonation from the Central Board of Direct Taxes (CBDT)
under Section 119(2)(b) of the Act, along with CBDT Circular No. 9 of 2015, for the delayed
filing of revised returns.

The companies contested the rejection of the revised returns through writ petitions in the
Madras High Court (Court). Initially, a single judge bench ruled in favor of the companies
after a detailed examination of the mentioned aspects.

However, the tax department appealed the decision to the Division Bench of the Court. The
Division Bench upheld the appeal, stating that the tax department is obligated to consider
revised returns filed following an NCLT-approved amalgamation scheme beyond the
statutory time limit only if the revised returns adhere to the prescribed statutory procedure,
including seeking condonation of delay.

The companies filed an appeal before the Supreme Court against the order of the Division
Bench of the Court.

Issue

Is it permissible for the tax department to allow companies to file revised tax returns after the
due date prescribed under Section 139(5) of the Income Tax Act, considering the ongoing
proceedings for amalgamation under Sections 230-232 of the Companies Act, 2013?

Judgement

The Supreme Court acknowledged that the Scheme explicitly allowed companies to file
revised returns even after the statutory time limit had lapsed. Consequently, the companies
submitted their revised returns after the deadline, impacting their total income, especially
concerning matters like carrying forward losses and unabsorbed depreciation.

The Court noted that the tax department did not raise objections to the Scheme during NCLT
proceedings, and once sanctioned by the NCLT, the Scheme gained statutory force.

Highlighting that the amalgamating companies ceased to exist from the appointed date, and
assets, profits, and losses were transferred to the books of the amalgamated companies, the
Supreme Court stated that Section 139(5) of the Act did not apply in this case. The delay in
filing revised returns was due to obtaining NCLT's approval for the Scheme, making it
impossible for the appellants to file before the due date.
Additionally, the Court emphasized that Section 119(2)(b) of the Act applies to genuine
hardships faced by taxpayers, and such provisions do not apply when a taxpayer has
restructured their business, filing a revised return with prior NCLT approval and without
objection from the tax department.

Relying on judicial precedents, the Supreme Court underscored that procedural rules serve
justice, and the purpose of assessment proceedings is to accurately assess the tax liability in
accordance with the law.

Considering Section 170(1) of the Act, which mandates assessing the successor of an
assessee in the income of the previous year after the date of succession, the Court stated that
the tax department must assess the income of the companies post-amalgamation, accounting
for the revised returns.

Processing of return 143(1):

The processing of a return under section 139 or in response to a notice under section 142(1)
involves several steps as outlined below:

(a) The total income or loss is computed, and adjustments are made for arithmetical errors,
incorrect claims evident from the return, disallowance of loss claimed beyond the due dates,
disallowance of certain expenditures and deductions if the return is filed late. The taxpayer is
informed of these adjustments, and their response is considered before making any changes.
If there is no response within 30 days, adjustments are made.

(b) Tax and interest are then calculated based on the total income computed in step (a).

(c) The amount payable by the taxpayer or the refund due is determined after adjusting for tax
deducted at source, tax collected at source, advance tax, relief under specified sections, self-
assessment tax, and any other amounts paid.

(d) An intimation is prepared and sent to the taxpayer specifying the determined amount
payable or refundable.

(e) The refund amount, if any, is granted to the taxpayer. Intimations are also sent in cases
where the declared loss is adjusted but no tax or interest is payable or refundable.

The intimation process is subject to a one-year time limit from the end of the financial year in
which the return is filed. Incorrect claims are defined as those inconsistent with other entries,
lacking required supporting information, or exceeding specified statutory limits for
deductions.

Additionally, when no amount is payable or refundable, and no adjustments are made, the
acknowledgment of the return is considered the intimation.

Notice under Section 143(2)

If a return is filed under section 139 or in response to a notice under section 142(1), the
Assessing Officer (AO) or the prescribed income-tax authority may issue a notice under
section 143(2) when it is deemed necessary to ensure that the assessee has not understated
income, computed excessive loss, or underpaid taxes. The notice requires the assessee to
attend the office or produce evidence supporting the return on a specified date. However, no
notice can be served after the expiration of 6 months from the end of the financial year in
which the return is submitted.

Regular/Scrutiny Assessment [Section 143(3)]

On the specified date or soon after, following the presentation of evidence by the assessee
and any additional evidence required by the AO, and considering all relevant material
gathered, the AO will issue a written order. This order will assess the total income or loss of
the assessee and determine any amount payable or refundable based on this assessment.

Case 3:

Vodafone Idea Ltd. Vs. Assistant Commissioner of Income Tax AIR 2020 SC 24224

Facts of the case: -

The taxpayer is engaged in providing telecommunication services in different circles. By

virtue of amalgamation effective from 1 April 2011, four group entities merged with the
taxpayer. By second scheme of amalgamation, two other group entities got merged with the
taxpayer effective from 1 April 2012. While the proceedings in the instant case were pending,
under a scheme of arrangement between the taxpayer and another company, the amalgamated
/transferee company (hereafter referred as the taxpayer) assumed all the rights and liabilities
of the amalgamating/transferor companies. The taxpayer filed tax returns of different
assessment years and claimed tax refunds. Subsequently, scrutiny notices were issued by the
AO for the said assessment years without processing tax returns.

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AIR 2020 SC 2422
The taxpayer filed a writ petition before the High Court contending that there was complete
inaction on the part of the AO for processing the returns and in issuing appropriate refund.
The taxpayer contended that the AO should be directed to process the returns and grant
refunds along with due interest.

The tax department contended that the returns raised multiple issues like transfer pricing
adjustment, capitalisation of licence fees, 3G spectrum fees, asset restoration cost obligation
including the effect of amalgamation of group entities which required thorough scrutiny and
determination.

The taxpayer relied on various decisions where it was held that the return should be
processed within a year and only if the AO was of the view that issuance of refund would be
detrimental to collection of demands, he may invoke Section 143(1D) of the Act (whereby
the processing of a return shall not be necessary in case scrutiny notice has been issued). It
was contended that after the lapse of one-year, the right to claim refund was vested in the
taxpayer.

The tax department contended that Section 143(1D) of the Act starts with a non-obstante
clause. It provides that tax return shall be processed before the issuance of an order under
Section 143(3) of the Act. Therefore, Section 143(1D) overrides Section 143(1) of the Act.
Therefore, under Section 143(1D) of the Act, the processing of return shall not be necessary,
where scrutiny notice has been issued under Section 143(2) of the Act.

The High Court observed that assessment provision empowers the AO to issue notice to the
taxpayer to produce documents or other evidence, to prove the genuineness of the income tax
return. As per Section 143(1D) of the Act processing of a return under Section 143(1) was
not necessary where a scrutiny notice was issued. However, this provision has been amended
with effect from AY 2017-18 to provide that if a scrutiny notice is issued, processing of a
return shall not be necessary before the expiry of one year from the end of the financial year
in which return is submitted. The High Court held that wherever the possibility of issuing a
scrutiny notice exists, or where such notice has been issued, AO has to apply his mind, and
decide whether given the nature of the returns and the potential or likely liability, the refund
can be given. It does not mean that when an assessment pursuant to scrutiny notice is
pending, such right to claim refund can accrue. Aggrieved, the taxpayer filed the appeal
before the Supreme Court.

Issues: -
Whether the appellant is entitled for refund by processing of return under Section 143(1) of
the Income Tax Act when the scrutiny proceedings have been initiated?

Judgement: -

The inter-relation between the erstwhile provisions of Section 143 of the Act, was subject
matter of discussion in the case of Gujarat Electricity Board 10 which in turn referred the
decision in the case of Gujarat Poly Avx Electronics Ltd. 11. The Court in the case of Gujarat
Poly Avx Electronics Ltd. had held that once regular assessment proceedings have
commenced, it is a limitation on the jurisdiction of the AO to commence proceedings under
Section 143(1)(a) of the Act. There was no dispute that Section 143(1)(a) of the Act enacts a
summary procedure for quick collection of tax and quick refunds. Under the scheme if there
was a serious objection to any of the orders made by the AO determining the income, it is
open to the taxpayer to ask for rectification.

Section 143(1) of the Act stands modified and now specifies with clarity the nature of
adjustments. The Finance Act, 2016 substituted certain provision effective from 1 April 2017.
The Finance Act, 2017 also inserted provision of Section 241A in the Act. The intimation
under Section 143(1) of the Act to be generated was on the basis of such exercise exercise
and if any refund was due, the same has to be granted. Thus, at every stage in processing the
return submitted by the taxpayer forms the foundation, with respect to which, if any of the
inconsistencies, appropriate adjustments are to be made.

The basic distinction between the two is that the procedure under Section 143(1) of the Act
was summary in nature designed to cause adjustments which are apparent from the return.
However, under scrutiny assessment, the AO has to scrutinise the return and cause deeper
probe to arrive at the correct determination of the liability of the taxpayer.

The exercise of power under the scrutiny provision was thus premised on non-acceptance of
what was evident from the return itself and to ensure that there was no avoidance of tax in
any manner. The dimension of such power is far greater and deeper than mere adjustments to
be made in respect of what is available from the return. Once such scrutiny is undertaken and
proceedings are initiated, it would be anomalous and incongruent that while such proceedings
so initiated are pending, the return be processed, which may in a given case, entail payment
of refund. If the return itself is under probe and scrutiny, such return cannot be the foundation
to sustain a claim for refund till such scrutiny is not complete.
Considering the nature of power exercisable under these two limbs of Section 143, the
inescapable conclusion is that the processing of return must await the further exercise of
power of scrutiny assessment. If the power under Section 143(2) of the Act is initiated in a
manner known to law, there cannot be any insistence that the processing be completed, and
refund be made before the scrutiny pursuant to notice under Section 143(2) is over.

The aforesaid conclusion is fortified and strengthened by clear stipulation to that effect in
Section 143(1D) of the Act. Irrespective of some change in the text of said provision which
was introduced by the Finance Act, 2016 and not accepted by the Finance Act, 2017, the
legislative intent is clear from the expression, and by use of non-obstante clause. Though the
period for which it would not be necessary to process the return was sought to be specified by
the Finance Act, 2016, mere absence of such period in the provision as it stands today, makes
no difference.

The use of non-obstante clause in Section 143(1D) provide sufficient clarity that in cases
where scrutiny notice is issued, and proceedings are initiated, the processing of a return shall
not be necessary. The expression 'shall not be necessary' is used in various statutes and even
in the Constitution of India. As against the general principle which mandates an action in a
particular manner, when an exception is to be carved out, the relevant provisions stipulate 'it
shall not be necessary' to adhere to and follow the manner mandated by such general
principle; and if the contingency contemplated by such exception arises, the general principle
is to stand overridden.

The intent to have the general principle emanating from Section 143(1) overridden, in case
where the proceedings are initiated pursuant to scrutiny notice, gets more pronounced and
emphasised by use of non- obstante clause.

The Supreme Court held that in respect of AYs ending on 31 March 2017 or before, if a
notice was issued in conformity with the requirements stated in Section 143(2) of the Act, it
shall not be necessary to process the refund under Section 143(1) of the Act and that the
requirement to process the return shall stand overridden.

Once deeper scrutiny is undertaken, and the matter is being considered from the perspective
whether there is any avoidance of tax in any manner, issuance of scrutiny notice is sufficient
indication. Section 143(1D) of the Act does not contemplate either issuance of any intimation
or further application of mind. Therefore, it would not be proper to read into said provision
the requirement to send a separate intimation. In our view, issuance of notice under Section
143(2) of the Act is enough to trigger the required consequence.

Insofar as returns filed in respect of AY commencing on or after the 1 April 2017, a different
regime has been contemplated by the Parliament. Section 241A of the Act requires a separate
recording of satisfaction on part of the AO that having regard to the fact that a scrutiny notice
has been issued, the grant of refund is likely to adversely affect the revenue; where after, with
the previous approval of the senior tax officer and for reasons to be recorded in writing, the
refund can be withheld. Since the statute now envisages exercise of power of withholding of
refund in a particular manner, it goes without saying that for AY commencing after 1 April
2017, the requirements of Section 241A of the Act must be satisfied.

In the present case, the exercise of power was not only after issuance of scrutiny notice and
after recording due satisfaction in terms of Section 241A of the Act but was also well within
the period contemplated by the provision of Section 143(1) of the Act for causing due
intimation. The Supreme Court was satisfied that there was nothing in the exercise of power
that led to the passing of the assessment order which could be said to have violated any
statutory requirements.

Analysis: -

The issue of granting of refund by processing of return under Section 143(1) of the Act where
scrutiny notice was sent has been a subject matter of litigation before the Courts.

Some of the Courts have held that refund to the taxpayer could not be denied merely due to
issuance of notice for scrutiny under Section 143(2) of the Act. The Bombay High Court had
held that under Section 143(1D) of the Act, the tax officer is ought to apply his mind and
grant a refund, if any, expeditiously.

In order to address the grievance of delay in issuance of refund in genuine cases which are
routinely selected for scrutiny assessment, provisions of Section 143(1D) were ceased to
apply in respect of returns furnished for AY 2017-18 and onwards by the Finance Act, 2017.
Simultaneously, to address the concern of recovery of revenue in doubtful cases, a new
Section 241A was introduced to provide that, for the returns furnished for AY commencing
on or after 1 April 2017, where refund of any amount becomes due to the taxpayer under
Section 143(1) and the AO is of the opinion that grant of refund may adversely affect the
recovery of revenue, the AO with the previous approval of the Principal Commissioner or
Commissioner, withhold the refund upto the date on which the assessment is made.

The Supreme Court in the present case held that till Assessment Year (AY) 2016-17, if a
scrutiny notice is issued, the tax return is not required to be processed for grant of refund to
the taxpayer. However, from AY 2017-18, a different regime was prescribed under Section
241A of the Act. It requires separate recording of satisfaction by the AO having regard to the
issue of scrutiny notice. Accordingly, as per the new regime, the AO can withhold the refund
only with the prior approval and by recording the reasons in writing.

Comment: -

The Supreme Court clarified the evolution of the legal landscape concerning the processing
of refunds in cases where scrutiny notices were issued. Until Assessment Year (AY) 2016-17,
some courts held that the issuance of a scrutiny notice did not automatically bar the grant of a
refund, emphasizing the need for the tax officer to apply their mind promptly under Section
143(1D) of the Income Tax Act.

However, recognizing the need for balance between timely refunds and safeguarding revenue
recovery, the Finance Act, 2017, ceased the application of Section 143(1D) for returns filed
for AY 2017-18 and onwards. Simultaneously, a new provision, Section 241A, was
introduced. This section allows the Assessing Officer (AO), with the approval of the
Principal Commissioner or Commissioner, to withhold the refund if there is a belief that
granting the refund may adversely affect revenue recovery. The AO is required to record the
reasons in writing for withholding the refund.

The Supreme Court, in the context of the present case, affirmed that for AY 2016-17 and
prior years, the scrutiny notice did not automatically preclude the processing of the return for
a refund. However, starting from AY 2017-18, a different regime under Section 241A was
established, emphasizing the necessity of the AO's separate satisfaction, prior approval, and
written reasons for withholding a refund in cases where a scrutiny notice has been issued.
This conclusion reinforces the evolving statutory framework aimed at balancing the interests
of taxpayers and revenue recovery in the scrutiny assessment process.

Conclusion