The Income-tax Officer can withhold a refund under Section 241 of the Income Tax Act, 1961, only if he forms an opinion that the grant of refund is likely to adversely affect the Revenue.

1. Income-tax assessment of the petitioner, M/s. Leader Valves pvt. Ltd. Jullundur, for the assessment year 1980-81, was completed by the Income-tax Officer on September 23, 1983. Eventually, the petitioner took the matter up in appeal before the Income-tax Appellate Tribunal, which vide its order dated July 9, 1985, annulled the assessment as being bared by time. Dissatisfied, the Revenue made an application under Section 256(1) of the Income-Tax Act, 1961 (hereinafter referred to as the "Act"), requesting the tribunal to state the case and refer the question regarding the assessment being barred by limitation, to the high Court for its opinion. The Tribunal, vide its order dated November 20, 1985, accepted the request made by the Revenue and stated the case referring the question of law for the opinion of the High Court which is still pending consideration.

2. The petitioner had, for the assessment year 1980-81, paid a sum of Rs, 7,40,802 as income-tax, which as a result of annulment of assessment by the Appellate Tribunal, became refundable to it under 240 of the Act. When the income-tax authorities did not refund and said amount, the petitioner, vide its letter dated July 20, 1985, requested the Inspecting Assistant Commissioner of Income-tax to do the needful. Thereupon, the Assistant Commissioner wrote a letter, dated December 9, 1985, informing the petitioner that he had, with the prior approval of the Commissioner of Income-tax, withheld the refund due to it till the decision of the High Court to whom the reference had been made in exercise of the powers under section 241 of the Act. Aggrieved, the petitioner has approached this Court for relief under article 226 of the Constitution.

Section 241 of the Act runs thus : "Where an order giving rise to a refund is the subject-matter of an appeal or further proceeding or where any other proceeding under this Act is pending, and the Income-tax Officer is of the opinion that the grant of the refund is likely to adversely affect the Revenue, the Income-tax Officer may, with the previous approval of the Commissioner, withhold the refund till such time as the Commissioner may determine."

3. It is true that under this section the Income-tax Officer is entitled with the prior approval of the Commissioner, to withhold during the pendency of the reference made to the High Court under Section 256(1) of the Act, the refund which became due to the petitioner, as a result of annulment of its assessment by the Income-tax Appellate Tribunal. A perusal of this section, however, shows that such powers to withhold the refund cannot be exercised merely because some proceedings under the Act (the reference made under section 256(1) of the Act) are pending. Before withholding the refund, the Income-tax Officer has also to form an opinion that the grant of refund is likely to adversely affect the Revenue. In our opinion, the section does not postulate that the grant of refund during the pendency of proceeding under the Act is an act which necessarily affects the Revenue adversely. The opinion whether the grant of refund during the pendency of some proceedings under the Act would adversely affect the interest of the Revenue, will depend upon the facts and circumstances of each case.

4. In the instant case, the communication dated December 9, 1985, made by the Inspecting Assistant Commissioner to the petitioner, did not indicate that before withholding the refund, the Appellate Assistant Commissioner had applied his mind to the question as to whether or not the said refund would adversely affect the Revenue. Accordingly, this Court required the counsel appearing for the Income-tax Department to produce the relevant file for its perusal. Mr. Ajay Mittal, advocate, has produced the relevant file for our perusal. The file does not indicate that before directing the withholding of refund, the Inspecting Assistant Commissioner formed an opinion that granting of the refund would adversely affect