Yes, you can decline a battle challenge and nothing will happen. Most battle challenges are to draw, trigger A-bomb, for deck/hand discard, or just to use the special ability of the hero to gain an advantage.
Case in point: You have no souls in your Land of Bondage. I don't have Harvest Time. I can activate Gifts of the Magi and make a battle challenge with Hur. I get seven new cards, you have to shuffle all but one and draw seven new cards. I hope that at least one of those seven cards is a Lost Soul.
Even if you didn't get a Lost Soul and didn't accept, I came out seven cards ahead, and made you shuffle and redraw.
Hur (Pa)
Type: Hero Char. • Brigade: Green • Ability: 4 / 4 • Class: None • Special Ability: Selected opponent must shuffle all but one card from hand back into draw pile and draw seven new cards. Cannot be interrupted, negated, or prevented. • Play As: Selected opponent must shuffle [return] all but one card from hand back into deck and draw seven new cards. Cannot be negated. • Identifiers: OT Male Human • Verse: Exodus 17:10 • Availability: Patriarchs booster packs (Rare)
Gifts of the Magi (F)
Type: Artifact • Brigade: None • Ability: None • Class: None • Special Ability: Each time an opponent draws a card because of a special ability on a character or enhancement, holder may draw a card. • Play As: When an opponent draws because of an ability on a character or enhancement, you may draw up to an equal number of cards. • Identifiers: None • Verse: Matthew 2:11 • Availability: F Deck