Reasoned refund withholding required: a mechanical order is invalid, and statutory interest follows once withholding fails.

Refund withholding is valid only when proceedings are pending and the authority records a reasoned, material-based satisfaction that release of the refund is likely to prejudice recovery. A bare or mechanical recital is insufficient, and the order cannot be defended by reasons not contained in it. On that basis, the withholding order was held unsustainable and set aside. Once the withholding failed, the assessee became entitled to refund of the deposited amount with statutory interest, and the court directed release of the refund with interest while requiring cooperation in the pending reassessment proceedings.

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Issues: (i) Whether the order withholding refund was valid under the statutory power to withhold refund during pendency of proceedings; (ii) whether the assessee was entitled to refund with statutory interest.

Issue (i): Whether the order withholding refund was valid under the statutory power to withhold refund during pendency of proceedings.

Analysis: The power to withhold refund could be exercised only when proceedings were pending and the authority recorded a reasoned opinion that grant of refund was likely to adversely affect recovery. A bare recital that recovery would be adversely affected was insufficient. The impugned order contained no material or reasons showing why recovery would be jeopardized, and the order could not be supported by reasons not found in it. A withholding order involving a large refund could not be passed mechanically and required a balanced exercise of discretion.

Conclusion: The withholding order was unsustainable and was set aside.

Issue (ii): Whether the assessee was entitled to refund with statutory interest.

Analysis: Once the withholding order failed, the assessee became entitled to refund of the amount deposited. The delay in refund also attracted statutory interest. The Court directed payment of interest at the statutory rate, distinguishing the period of the first month of delay from the subsequent period.

Conclusion: The assessee was held entitled to refund with statutory interest.

Final Conclusion: The refund was directed to be released with interest, while the assessee was required to cooperate in the pending reassessment proceedings.

Ratio Decidendi: A refund can be withheld only on a reasoned and material-based satisfaction that release of the refund is likely to prejudice recovery; a laconic or mechanical order is invalid and cannot be justified by extraneous reasons.

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