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TMI Blog2018 (12) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the claims for refund for the aforementioned AYs is as under:- ASSESSMENT YEAR AMOUNT OF REFUND CLAIMED (in Cr.) 2014-15 Rs. 1,532.09 2015-16 Rs. 1,355.51 2016-17 Rs. 1,128.4 7 2017-18 Rs. 743.67 Total Rs. 4759.74 2. The writ petition claims a direction upon the respondent to expeditiously process the refund claim made by Vodafone, and issue refund in respect of Vodafone's income tax returns for the relevant period under consideration, together with eligible interest under Section 244A of the Act. 3. Briefly, Vodafone is engaged in providing telecommunication services. There were a total of seven group entities providing telecom services in different circles, as named below : (1) Vodafone Mobile Services Ltd. ("VMSL") (2) Vodafone Cellular Limited ("VCL") (3) Vodafone Digilink Limited ("HVDL") (4) Vodafone East Limited ("VEL") (5) Vodafone South Limited ("VSL") (6) Vodafone Spacetel Limited ("VSPL") (7) Vodafone West Limited ("VWL") 4. Two amalgamation involving merger of certain Vodafone group companies were undertaken to re-structure business operations and increase operational efficiencies. Four Vodafone group entities (HVDL, VEL, VS Land VCL) amalga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its due and such considerable delay is against the mandate of the provisions of the Act and the law laid down by this court. Vodafone submits that the ITD System does have a functionality, enabling the revenue to manually grant credit of tax in case of a merger. Reliance in this regard is placed on the decision in the case of Times Internet v. Additional Commissioner of Income Tax WP (C) 3384 of 2017. The relevant para of the case is extracted hereunder for ready reference: "1. Pursuant to the order of this Court dated 6th July, 2017, a reply has been handed over today on behalf of the Respondents wherein it has been, inter alia, stated that 71% of the tax refund amount claimed by the Petitioner for the AYs 2013-14 and 2014-15 has been processed by the Department. It is sought to be explained by Mr. Rahul Chaudhary; the learned Senior Standing Counsel for the Revenue that new software has to be developed to process the refund claims and, pending the development of such software, manual credit for tax deducted at source, after verification, is being given. The Respondent seeks six more months' time to process all the refund claims and issue appropriate orders. 2. Mr. C. S. Agarwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the Revenue that the returns of income be processed expeditiously and if it were in disagreement then a personal hearing followed by a reasoned order as to why the returns of income were not being processed be given. In the interim, through notice dated 21.09.2017, the Revenue sought to delay the issuance of the refunds arising from the processing of the returns by issuing a letter to Vodafone, inter alia, calling for details of the amalgamating entities as well asking Vodafone to give "consent" to adjustment of refunds due to Vodafone against demands, which have already been stayed by the various Courts and Tribunals. In response, Vodafone filed a detailed reply pointing that the details sought were already part of an application filed by the Revenue before this court and also giving a detailed rebuttal; it further requested for refunds. Vodafone also stated that it filed its returns for AY 2017-18 on 25.11.2017 claiming a refund of Rs. 743.67 crore. The refund sought was because of delay in issuing the "Nil" withholding certificate sought by Vodafone in August, 2016. While Vodafone had sought a nil withholding order, a lower withholding order was issued, after a delay of five ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the perusal of section 241A of the Act, it is evident that all tax returns are necessarily to be processed within the time period as prescribed under Section 143(1) of the Act. In the instant case, it is note-worthy that the time period prescribed under Section 143(1) of the Act has expired and there has been no correspondence from the revenue that discretion under Section 143(1D) was exercised. 14. Appearing for Vodafone, Mr. Harish Salve, Senior counsel, urged that the Revenue deliberately did not process Vodafone's tax returns for the relevant assessing years, resulting in deprivation of refund of about approximately Rs. 5,500 crores despite repeated reminders and requests on its behalf. The Senior counsel further urged that for the AYs 2012-13 and 2013-14, the limitation period expired on 15.09.2018 and for AYs 2014-15, 2015-16 and 2016-17, the limitation expires on 31.12.2018. Mr. Salve alleged that the intention of the revenue is obvious and it defeats the very object and purpose of the enactment. 15. Counsel argued that Act does not provide for automatic adjustment towards the demand arising in any assessment year. In this regard, he relied on the decision of this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect to the issue of capitalization of license fees, the Revenue submitted that Vodafone debits the Revenue share of license to the P&L account as a revenue expenditure whereas considering the enduring nature of the benefit derived by Vodafone out of the telecom license and the intangible nature of the license, the license fee is treated as a capital expenditure and amortization is allowed over the period of the license agreement. Resultantly, an addition of Rs. 11,10,99,763/- was made in AY 2011-12. As the company underwent amalgamation, the total sum of the license fee paid by the companies is to be amortized, resulting in higher additions. Besides this, as the special audit for the AYs 2012-13 and 2013-14 is underway, the accounting treatments of the license and their amortizations will also result in huge additions being made. (iii) With respect to the issue of 3G spectrum fees, Vodafone claimed depreciation on the spectrum it acquired. The revenue here contends that rather than depreciation being claimed on the intangible asset of 3G spectrum, the capital expenditure which includes the interest incurred should be amortized over the life of the spectrum. On this count, an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erification of customers etc. The penalty is levied as per the Indian Telegraph Act, 1885. Hence, the penalty is not an allowable expenditure under Section 37 of the Act. The disallowance of this expenditure would lead to substantial additions for all the, amalgamating companies and would thereby result in creation of a substantial demand for Vodafone. (ix) With respect to Issue of Disallowance on account of network site rentals, the respondent submits that Vodafone pays network site rentals to the company M/s Indus towers Ltd., to which it has gifted the passive infrastructure assets, which has been held unreasonable by the department. The assesee in the AY 2011-12 had failed to furnish the ledgers duly certified by M/s Indus Towers Ltd, indicating the payments made. Thus, the amounts were not crystallized and an addition of Rs. 52.2 crore was made. Considering that Vodafone has merged into itself other subsidiary companies, the addition on account of network site rentals will be substantially higher. (x) It is urged that abundant caution needs be exercised because of the above concerns and refunds can be issued only on the completion of the assessment under Section 143(3) and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tata Teleservices (supra), is distinguishable. The petitioner there had not undergone retrospective mergers and had incurred substantial losses where no net demand could have been created. Whereas, in the facts of the present case, the returned loss in the AY 2011-12 was assessed as a profit in excess of Rs. 500 crore by the assessing officer. Tata Teleservices did not face outstanding demands amounting to Rs. 5,500 crores that were yet to be recovered. The assessments there were not under any special audit which were likely to result in substantial demands. However, this case involves three assessment years, where, revised returns were filed but that are subject to special audit. The shareholding pattern of Tata Teleservices is such that the money could not be repatriated abroad leaving the interest of revenue indefinitely compromised, which is not the case with Vodafone with the actual owner being a foreign company. Therefore, the decision in the Tata Teleservices case (supra), cannot be applied to the facts of the present case as such. 21. Counsel for the Revenue contended that for the relevant period under consideration, the Assessing Officer has already issued notice under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the processing of returns under section 143(1). The above decision has been taken after taking into cognizance the order of Honourable High Court of Delhi in TATA TELESERVICES LIMITED versus CENTRAL BOARD OF DIRECT TAXES & ANR dated 11-05-2016 in para 24 of the judgment: "The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143(1D) of the Act." 23. Mr. Hossain placed reliance on the decision of this court in the case of Indus Towers Limited Vs. Union of India & Ors (W.P.10293/2017), where the writ petition was withdrawn with liberty to approach the Commissioner by way of revision petition under Section 264 of the Act against the impugned order passed by the assessing officer refusing to issue refund. 24. It was pointed out that no doubt Tata Teleservices (supra) quashed the instructions issued by the CBDT. However, it still gave the revenue the ability to exercise the discretion provided for in Section 143(1D). The relevant portion of the judgment: "The Court is of the view that the impugned Instruction No.1 of 2015 dated 13th January 2015 issued by the CBDT is unsustainable in law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:] 94[Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;] (b) the tax 95[, interest and fee], if any, shall be computed on the basis of the total income computed under clause (a); (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax 95[, interest and fee], if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (1A), shall, as soon as may be after the notification is issued, be laid before each House of Parliament. [(1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2): Provided that the provisions of this sub-section shall not apply to any return furnished for the assessment year commencing on or after the 1st day of April, 2017.]" [(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority99, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return: Provided that no notice under this sub-section shall be served on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded : Provided further that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (iii) of subsection (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer: Provided also that notwithstanding anything contained in the first and the second provisos, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a notice has been issued under sub-section (2) of section 143 in respect of such return, that the grant of the refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be, withhold the refund up to the date on which the assessment is made." 28. It is noteworthy that till 01.06.2001, Section 241 of the Act enabled the Assessing Officer to withhold any refund under certain circumstances. Section 241, after the amendment of 01.04.1989 till it was withdrawn w.e.f. 01.06.2001 read as under: "Power to withhold refund in certain cases. 241. Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of sub-section (1) of section 143 after a return has been made under section 139 or in response to a notice under sub-section (1) of section 142 and the Assessing Officer is of the opinion, having regard to the fact that- (i) a notice has been issued, or is likely to be issued, under sub-section (2) of section 143 in respect of the said return; or (ii) the order is the subject-matter of an appeal o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30. To understand the relevance of the insertion of Section 143(1D) by the Finance Act, 2012, with effect from 1st July, 2012, the relevant portion of the Finance Act, 2012 is extracted hereunder for ready reference: "Amendment of Section 143. 61. In section 143 of the Income-Tax Act,- (a) after sub-section (1C), the following sub-section shall be inserted with effect from the 1st day of July, 2012, namely:- "(1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the assessee under subsection (2)." 31. The provision begins with a non-obstante clause, i.e. that notwithstanding anything contained in Section 143 (1), the processing of return shall not be necessary where a notice has been issued to the assessee under subsection (2) of section 143. The Memorandum to the Finance Bill, 2012 gives the explanation for the insertion of sub-section (1D). The relevant portion is extracted hereunder for reference: "Processing of return of income where scrutiny notice issued Under the existing provisions, every return of income is to be processed under sub-section (1) of section 143 and refund, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the AO concerned exercising his discretion in terms of Section 143(1D) of the Act." 33. This view of the court was relied upon by a Division Bench of the Bombay High court in Group M. Media India Pvt. Ltd. (supra). The relevant paras of the judgment are extracted hereunder for ready reference: "9. The only contention on behalf of the Revenue to oppose the petition is that as the Assessing Officer has time available to process the refund till 31st March, 2017, no mandamus can be issued till 31st March, 2015. We repeatedly asked of Mr. Mohanty, the learned Counsel for the Revenue, if there was any reason why the return could not be processed before 31st March, 2017. No reasons are forthcoming from the Revenue as to why the Assessing Officer will not able to dispose of the application for refund or process the return under Section 143(1) of the Act before 31st March, 2017. This conduct / stand of the Assessing Officer, to say the least, is most disturbing in the context of the fact that Vodafones have been seeking refund since April, 2016. First, he does not deem it proper to inform the petitioner in writing why he cannot deal with the application and after the petitioner moves t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... today." 34. In Uttar Bihar Gramin Bank vs. The Principal Commissioner of Income Tax, Muzaffarpur & Ors. (2018) 303 CTR (Pat) 303, the Patna High Court disposed of the writ petition giving the liberty to the petitioner to approach the authority as the matter was pending for scrutiny assessment. 35. In Corrtech International Pvt. Ltd. vs. Deputy Commissioner of Income Tax [2018] 401 ITR 355(Guj), the Gujarat High Court explained the application of Section 143(1D) in co-relation to Section 241A in similar cases. The relevant paras are extracted hereunder for ready reference: "13. If we analyze section 143 of the Act as it existed prior to the amendment of the Finance Act 2017, the return filed by the assessee would be processed by the Assessing Officer as provided under sub-section (1) of Section 143 permitting him to make adjustments and compute the tax or refund intimating to the assessee the culmination of such exercise and granting the refund if due to him in terms of clause (e) of sub-section (1) of section 143. The first proviso to sub-section (1) also required the Assessing Officer to send an intimation to the assessee in case where the loss declared in the return by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope thereafter for the Assessing Officer to withhold the refund arising out of the return filed by the assessee. 17. This position would become clear if we compare the provisions of section 143(1D) as amended by the Finance Act, 2017 read with newly inserted Section 241A. Under the new sub-section (1D) the legislature provides that notwithstanding anything contained in sub-section (1) the processing of return would not be necessary where a notice has been issued to an assessee under sub-section (2). This would make it clear that once notice under section 143(2) has been issued, the Assessing Officer shall not process the return under section 143(1). The original proviso to subsection (1D) has been substituted by a new proviso under which it is clarified that the proviso under said sub-section shall not apply to any return furnished for the assessment year commencing on or after 01.04.2017. Section 241A which was inserted simultaneously, now enables the Assessing Officer to withhold the refund in favour of the assessee which becomes due in terms of sub-section (1) of section 143 if he is of the opinion that having regard to the fact that a notice has been issued under sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Pvt. Ltd. Mumbai (supra), it would be wholly inequitable for the Assessing Officer to merely sit over the petitioner's request for refund citing the availability of time up to the last date of framing the assessment under sub-section (3) of section 143. At least once the time limit envisaged in the proviso to sub-section (1) of section 143 is over without the Assessing Officer processing the return under sub-section (1) and even though notice under sub-section (2) of section 143 may have been issued, the Assessing Officer, by all reasonable interpretation of the statutory provisions would be expected to respond to the assessee's request for either granting refund or indicating that in terms of the adjustments impermissible under sub-section (1) of section 143, such refund or part thereof was not available to the assessee. We simply cannot accept the interpretation of the counsel for the Revenue that once a notice under subsection (2) of section 143 is issued, the suspension of the refund arising out of the return filed by the assessee would be automatic and till the passing of the order of assessment under sub-section (3) of section 143. The reasonable interpretation of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act come to an end. Thus, though technically there is no assessment framed in such a case, yet the proceedings as far as section 143 of the I.T. Act is concerned, the same stand terminated. Though the procedure of centralised processing under subsection 1A of Section 143(1) of the I.T. Act finds place under the heading "Assessment" under section 143 of the I.T. Act, there appears to be a clear distinction and dichotomy in procedure. Between April 1, 1998, and May 31, 1999, sending of an intimation under section 143(1)(a) of the I.T. Act, was mandatory." 37. Explanatory Notes to the provisions of the Finance Act, 2017 issued by the CBDT, by Circular No.2/2018 dated 15.02.2018 explained the insertion of Section 241A and co-relation with Section 143(1D). The relevant portion is extracted hereunder for reference: "59. Processing of return within the prescribed time and enable withholding of refund in certain cases. 59.1 Before amendment by the Finance Act, 2016, the provisions of sub-section (1D) of section 143 of the Income-tax Act specify that the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2) of the said section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be appreciated that the time limit for finalization of assessment in a case, where notice for scrutiny has been issued under Section 143(2), could extend upto 32 months or even 40 months (in a case of International Transfer Pricing) from the date of filing tax return. In such cases, it is grossly unfair to the assessee that the refund due to him under his tax return and payable within six months is withheld on the pretext that no processing of the tax return has taken place. 8.2 It is, therefore, recommended that Section 143(1D) should be deleted with effect from 1-7-2016." 39. A reading of the above judgements and the relevant provisions, clearly shows that Section 143(2) empowers, the AO to issue notice to the assessee to produce documents or other evidence, to prove the genuineness of the income tax return. Under section 143(1D) of the Act as introduced by the Finance Act, 2012 processing of a return under Section 143(1)(a) is not necessary where a notice has been issued under Section 143(2) of the Act. This provision has now been amended by the Finance Act, 2016 (with effect from the AY 2017-18) to provide that if scrutiny notice is issued under Section 143(2), processing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n sent under Section 143 (1) (a) shall be without prejudice to the provisions of Sub-section (2). The Legislature, therefore, intended that, where the summary procedure under Subsection (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available; a regular assessment proceeding having been commenced under Section 143 (2), there is no need for a summary proceeding under Section 143 (1) (a)." 43. Earlier, the Calcutta High Court, in Modern Fibotex India Ltd. & Anr. vs Deputy Commissioner of Income Tax, 1995 (212) ITR 496 (Cal) had explained the constraint of the revenue, in dealing with a request based on adjustments under Section 143(1)(a): "59. In my view, apart from the concession in this case, generally, this is the third limitation on exercise of power under 143 (1) (a) of the Act, namely, once the notice under 143 (2) has been issued there is no scope for the authorities either to make prima facie adjustment on the basis of the return as filed or issue an intimation under 143(1)(a)" 44. Now in this case, acknowledgemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue's argument that substantial outstanding demand are pending against the petitioner. Further, the likelihood of substantial demands upon the assessee after the scrutiny for the AYs is completed, cannot be ruled out. The Revenue should have the right to adjust the demands against the refunds that may arise but have not yet been determined due to ongoing scrutiny proceedings. 49. As far as the argument that the expiry of the one year period, per second proviso to Section 143 (1) resulting in finality of the intimation of acceptance, this court is of opinion that the deeming provision in question, i.e. Section 143 (1) (d) only talks of two eventualities: "shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a)." Secondly, that intimation or acknowledgement cannot confer any greater right than for the assessee to ask the AO to process the refund and make over the money; it is up to the AO- wherever the possibility of issuing a notice under Section 143 (2) exists, or where such notice has been issued, to apply his mind, and decide whether given the nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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