TMI Blog2018 (12) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... the Finance Act, 2016 (with effect from the AY 2017-18) to provide that if scrutiny notice is issued under Section 143(2), processing of return shall not be necessary before the expiry of one year from the end of the financial year in which return is submitted. In this case, acknowledgement or intimation had not been sent by the AO. There is no doubt that the period of one year indicated in the second proviso to Section 143 (1). However, Section 143 (1D) begins with a non-obstante clause that overbears that provision. For the AYs in consideration, for AY 2014-15, the petitioner has approached the AAR and for AYs 2015-16 and 2017-18, scrutiny assessments are pending before the AO. The AO has exercised discretion under Section 143(1D) not to process the returns considering the fact that substantial demand has been raised on completion of scrutiny assessment of earlier years. The petitioner has undertaken two schemes of amalgamation involving merger of certain group companies in order to restructure its business operations and increase operational efficiencies. In light of the above fact, assessments for the AY 2012-13 and 2013-14 are under special audit and any demand that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner (hereafter Vodafone ) under Article 226 and 227 of the Constitution of India on account of inaction on the part of the Assistant Commissioner of Income Tax (hereafter referred as respondent ) in not processing income tax returns for four Assessment Years (hereafter referred as AY ) 2014-15 to 2017-18 (hereafter referred as the relevant period under consideration ) which will result in issuance of refunds aggregating to ₹ 4759.74 crores along with applicable interest under Section 244A of the Income Tax Act (hereafter referred as Act ). A tabular depiction of the claims for refund for the aforementioned AYs is as under:- ASSESSMENT YEAR AMOUNT OF REFUND CLAIMED (in Cr.) 2014-15 ₹ 1,532.09 2015-16 ₹ 1,355.51 2016-17 ₹ 1,128.4 7 2017-18 ₹ 743.67 Total ₹ 4759.74 2. The writ petition claims a direction upon the respondent to expeditiously process the refund claim made by Vodafone, and issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt s permission to process such return and adjust the refunds to the extent of the stayed outstanding tax demand. However, such application was later withdrawn. Therefore, there exists no reason why the legitimate refunds continue to be held back from Vodafone. 7. Further, by a letter dated 24.07.2017, Vodafone requested the revenue for expeditious processing of the pending income tax returns. It duly submitted that it was under financial stress and no recoverable demands are foreseeable, thus stating that there was no ground for delaying the processing of the returns and issuance of the consequent refunds. Thereafter, by letter dated 19.09.2017, Vodafone reiterated that it was under immense financial stress and, therefore, the returns should be processed forthwith. Vodafone also submitted that system related issues cannot be held against Vodafone so as to deny 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that issuance of refund would be detrimental to collection of demands which may arise, he may invoke the provision of Section 143(1D) of the Act. 9. Further, Vodafone submits that the intent of the court has also been accepted by the Government, which is evident by the fact that the Section 143(1D) has been amended. It is submitted that the intent of retaining discretion is evident by the insertion of Section 241A of the Act. From the perusal of the 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 present case, it is noteworthy that the time period prescribed under Section 143(1) of the Act has already expired and there has been no correspondence from the Respondents that discretion under section 143(1D) has been exercised. 10. On 27.09.2017, Vodafone again requested 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 dela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra). It is alleged that the revenue s inaction in not granting refunds has resulted in blocking of Vodafone s working capital and caused it grave financial hardship particularly, in view of its sustained losses incurred year after year. Withholding of refunds, says Vodafone violates of the principle contained in Articles 265 and 300A of the Constitution of India. 13. With respect to the delay in processing of the tax returns, Vodafone places reliance on the decision of this court in Tata Teleservices Limited vs Central Board of Direct Taxes (supra), and the decision of the Bombay High Court in Group M Media India (P) vs Union of India (supra), where it was held that the return should be processed within a year and only where the assessing officer is of the view that issuance of refund would be detrimental to collection of demands that may arise, he may invoke the provision of Section 143(1D) of the Act. 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication is registered under the provision. 17. It was contended that after the lapse of the one year period, by reason of second proviso to Section 143 (1), the right to claim refund is vested in any assessee. Counsel argued that this is independent of the Revenue s power to issue a scrutiny notice under Section 143 (2), for which the period of limitation is longer. However, if the AO does not issue any notice, or intimation, if the assessee can claim refund, that right is a statutorily vested one if, within the said period of one year, a reasoned order is not made under Section 143 (1D) within the said one year period. The Revenue s stand 18. The Revenue argued that processing of returns without scrutiny would be prejudicial to its interests as there is a likelihood of additions to Vodafone s income on the following grounds, namely, (i) Certain additions are made pursuant to adjustment by the Transfer Pricing officer. (ii) With respect 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 derive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gave discount to its distributors, of prepaid SIM cards, which is in the nature of commission for which no TDS was deducted. The amount to be disallowed is likely to be much more as compared to a disallowance of ₹ 50.85 crore made by the revenue in the AY 2011-12. (vii) With respect to the additions made on account of Section 14A, the Revenue stated that Vodafone made various investments in the AYs 2012-13, 2013-14 and 2014-15. They were used to earn exempt income i.e., dividend income. Since Vodafone failed to include the expenses incurred to earn untaxable income, an addition of ₹ 1,39,10,000/- was made to the income. Considering that the group has just undertaken a merger and the shares and investments would have been redistributed and/or extinguished, considerable demand is likely to arise in the pending assessment proceedings. (viii) On penalty levied by the DoT, the Revenue alleged that there have been penalties levied by the Department of Telecom on Vodafone for non-verification 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of appeal effects) are ₹ 3,23,09,941 and ₹ 355,52,00,613 respectively for AY 2007-08 and 2008-09 and for VWL it is ₹ 82,65,79,837 (for AY 2004-05). Attachment on account of rectifications for various group companies (VCL, VSPL, HVDL and VEL) is for a total sum of ₹ 2,14,26,18,683 for various assessment years. 19. The revenue denies allegations of deliberate omission to refund amounts aggregating to ₹ 4759.74 crores along with applicable interest and states that income tax returns were not processed under Section 143(1). The assessment years under consideration were picked up for scrutiny under Section 143(3) and there is a prima facie likelihood of a substantial demand being raised by the Income tax department, as has been done earlier in Vodafone s earlier case. Further, the revenue submitted that in Vodafone s own case for the AY 2011-12 wherein the returned loss was ₹ 33,93,397 and subsequently, the income determined by the AO was ₹ 546,64,25,250/-. 20. Mr. Zoheb Hossain, the Revenue s counsel urged that Tata Teleservices (supra), is distinguishable. The petitioner there had not undergone retrospective mergers an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for scrutiny as follows; for the AY 2012-13 and 2013-14, the assessment is under special audit and for the AY 2014-15, the assessee approached the AAR and lastly, returns for AYs 2015-16 and 2016-17, are under scrutiny. The assessment years for which request has been made to process the return under section 143(1) are already under scrutiny for the various AYs. Therefore, exercising the power under Section 143(1D), the Assistant Commissioner declined the processing of returns under Section 143(1). Further, the case is under compulsory scrutiny for AY 2017-2018, exercising the power Section 241A, the Assistant Commissioner declined the processing of returns under section 143(1). The relevant portion of the letter dated 23.07.2018 is extracted here under: Considering pending special audit, pending scrutiny, opening demands of amount more than 4500 crore, it will be prejudicial to the interest of the revenue to process the returns without completion of the pending scrutiny cases. Therefore, exercising powers under section 143(1) and under section 241A of the Act, the undersigned decline the processing of returns under section 143(1). The above decision has been taken after takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er: 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) the total income or loss shall be computed after making the following adjustments, namely:- (i) any arithmetical error in the return; 92[***] (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; 93[(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; (b) the acknowledgement of the return 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). (1A) For the purposes of processing of returns under subsection (1), the Board may make a scheme for centralised processing of returns with a view to expeditiously determining the tax payable by, or the refund due to, the assessee as required under the said sub-section. (1B) Save as otherwise expressly provided, for the purpose of giving effect to the scheme made under sub-section (1A), the Central Government may, by notification in the Official Gazette, direct that any of the provisions of this Act relating to processing of returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no direction shall be issued after the 31st day of March, 2012. (1C) Every notification issued under sub-section (1B), along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (vi) or any hospital or other medical institution referred to in subclause (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless- (i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or subclause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, by such research association, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place; and (ii) the approval granted to such research association or other association or fund or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided that no direction shall be issued after the 31st day of March, 2020. (3C) Every notification issued under sub-section (3A) and sub-section (3B) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] (4) Where a regular assessment under sub-section (3) of this section or section 144 is made,- (a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment ; (b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. 27. Section 241A was inserted by the Finance Act,2017, w.e.f. 01.04.2017 which reads as under: 241A. Withholding of refund in certain cases.--For every assessment year commencing on or after the 1st day of April, 2017, where refund of any amount becomes due to the assessee under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efund due to the assessee. Section 143(1)(d) stipulates that an intimation shall be prepared or generated and sent to the assessee specifying the sum determined payable by, or the amount of refund due to the assessee under clause(c). Section 143 (1) (e) provides that the amount of refund due in pursuance of the determination under clause (c) shall be granted to the assessee. A reading of proviso to Section 143 (1) reveals that it mandates that the intimation as provided in Section 143 (1) (d) should be issued before the expiry of one year from the end of the financial year in which the return is made. Before proceeding to Section 143 (1D) as it stood at the relevant time, it is essential to refer to Section 143 (2) and (3). Sub-section (2) contemplates issuance of a notice in the contingency covered by the said provision. Subsection (3) provides that once such a notice is served, after following the procedure laid, the Assessing Officer is required to pass an order in writing making an assessment of the total income or loss and determine the sum payable by the assessee or refund of any amount due to him on the basis of the assessment. It is also relevant to notice that whether it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tata Teleservices(supra). The relevant discussion in the decision are relevant read thus: 23. The real effect of the instruction is to curtail the discretion of the AO by preventing him from processing the return, where notice has been issued to the Assessee under Section 143(2) of the Act. If it the legislative intent was that the return would not be processed at all once a notice is issued under Section 143(2) of the Act, then the legislature ought to have used express language and not the expression shall not be necessary . By the device of issuing an instruction in purported exercise of its power under Section 119 of the Act, the CBDT cannot proceed to interpret or instruct the income tax department to prevent the issue of refund. In the event that a notice is issued to the Assessee under Section 143(2) of the Act, it will be a matter the discretion of the concerned AO whether he should process the return. 24. Consequently, 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 it is hereby quashed. It is directed that the said instruction shall not hereafter be relied upon to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason why the Assessing Officer has not processed the refund and taken a decision to grant or not grant a refund under Section 143(1D) of the Act. This attitude on the part of the Assessing Officer leaves us with a feeling (not based on any evidence) that the Officers of the Revenue seem to believe that it is not enough for the assessee to please the deity (Income Tax Act) but the assessee must also please the priest (Income Tax Officer) before getting what is due to him under the Act. The officers of the State must ensure that their conduct does not give rise to the above feeling even remotely. 11. Lastly, we must for the benefit of the Revenue reiterate that our powers under Article 226 of the Constitution are very wide for the purpose of doing justice. The powers of a Court under Article 226 of the Constitution of India are not limited only to prerogative writs but also to issue any direction or order for doing justice. Therefore, Article 226(1) of the Constitution empowers the Court to issue directions, orders or writs, including writs in the nature of habeas corpus, mandamus, certiorari or any of them. Therefore, in view of the conduct of the Assessing Officer, we are com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return was filed after which, no such adjustment would be permissible. Under sub-section (1D), however, if notice under subsection (2) of section 143 was issued to the assessee, it would not be necessary for the Assessing Officer to process the return under sub-section (1) within the time limit provided under the further proviso. However, if he desired to process the return under sub-section (1) the same would have to be done before issuance of an order under subsection (3) of section 143. 15. A combined reading of the said provisions and in particular, sub-section (1D) of section 143 would demonstrate that once a notice under sub-section (2) of section 143 is issued, it would be discretionary for the Assessing Officer to process the return under section 143(1). The time limit envisaged in the further proviso to sub-section (1) would not apply but that the same can be done only before issuance of the order of assessment under sub-section (3). 16. Under such provision, therefore, it would be open for the Assessing Officer to process the return under section 143(1) and, if the culmination of such exercise is to deny a refund to the assessee, send such an intimation, as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to withhold the refund arising out of a return filed by the assessee if an intimation was sent under sub-section (1) of section 143 after completing the processing of the return as envisaged therein. If notice under sub-section (2) of section 143 was issued, such time limit for processing would get extended till the passing of the order of assessment. However, the Revenue cannot contend that even though no intimation under sub-section (1) of section 143 was issued within the time envisaged and no notice under sub-section (2) of section 143 was issued, the Assessing Officer can sit tight over the refund claimed by the assessee arising out of the return filed. Mere issuance of notice under section 143(2) of the Act claiming extended period for processing refund under section 143(1), would not be sufficient to withhold refund. 21. Coming back to the facts on hand, so far as the assessment of the year 2015-16 is concerned, the return was filed on 29.09.2015 for which, the time limit under the normal provision of sub-section (1) of section 143 of the Act for processing the return is over long back. Even though as discussed earlier, the Assessing Officer having issued notice unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petition is disposed of. 36. In the case of Rayala Corporation Pvt. Ltd. vs. Assistant Commissioner of Income Tax, [2014] 363 ITR 630 (Mad), the Madras High Court held as under : 46. In terms of sub-section (1D) inserted in Section 143 by Finance Act 2012, w.e.f., 01.07.2012, notwithstanding anything in sub-section (1) of Section 143 of the I.T. Act, processing of return shall not be necessary, where a notice is issued under Section 143(2) of the I.T. Act. It is only under Section 143(2) of the I.T. Act, the role of the Assessing Officer comes in. The intimation given under section 143(1)(a) of the I.T. Act is without prejudice to the provisions of section 143(2) of the I.T. Act and though the intimation is deemed to be a demand, it does not foreclose the right of the Assessing Officer to proceed under Section 143(2) of the I.T. Act. It is to be noted that the word Assessing Officer is conspicuously absent in Section 143(1) of the I.T. Act. The resultant position is made clear, when we read Section 143(3) of the I.T. Act. Thus the process of assessment in the real sense of the term commences only when notice is issued under Section 143(2) of the I.T. Act. Here to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the opinion that grant of refund may adversely affect the recovery of revenue, he may, for the reasons recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, withhold the refund up to the date on which the assessment is made. 59.5 Applicability: These amendments take effect from 1st April, 2017 and accordingly apply to returns furnished for assessment year 2017-18 and subsequent years. 38. Further, Report of the Income Tax Simplification Committee submitted by the Chairman, Justice R.V. Easwer (Retired), proposed for deletion of Section 143(1D): 8.1 PROPOSED DELETION OF SECTION 143(1D) AVOIDING UNDESIRABLE DELAY IN ISSUE OF REFUNDS It is desirable that any refund due to an assessee, under the Income Tax Return filed by him comes to be processed and issued to him within a stipulated time frame of maximum six months from the end of the month in which the tax return is filed. In fact, in the recent past, it has been the endeavour of the Income-tax Department to issue prompt and timely refunds within this time frame, which is keeping in line with its commitment made under the Citizen s Charter. However, the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never the assessee presses for refund. This exercise should be undertaken promptly, keeping in mind the time limit under the normal provision of Section 143 (1) expires. This court held in Tata Teleservices Ltd. (supra) and the Bombay High Court in case of Group M Media India (P) Ltd. (supra) that 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 Section 143 (3). The proper interpretation of the statute and the situation in such a case would be, the AO should take up an expeditious disposal of the question once the assessee requests for release of the refund. 42. Commissioner Of Income-Tax v Gujarat Electricity Board (2003) 260 ITR 84 (SC) is an authority for the proposition that once a regular assessment commences with issuance of notice, under Section 143 (2) the summary proceeding of an intimation is not feasible. The Supreme Court held as follows: 5. Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that Section 143 (1) (a) of the Act enacts a summary procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess the returns without completion of the pending scrutiny cases. Therefore, exercising powers under section 143(1) and under section 241A of the Act, the undersigned decline the processing of returns under section 143(1). The senior counsel for Vodafone had attacked the reliance on this order, stating that it was made later. However that is an aspect this court cannot go into. Facially, the order contains reasons. Therefore, unlike Tata Teleservices, a reasoned order was made; that decision was based on a circular, which fettered the AO s discretion. Therefore, the CBDT circular was set aside. 46. In the facts of the present case, for the AYs in consideration, for AY 2014-15, the petitioner has approached the AAR and for AYs 2015-16 and 2017-18, scrutiny assessments are pending before the AO. The AO has exercised discretion under Section 143(1D) not to process the returns considering the fact that substantial demand has been raised on completion of scrutiny assessment of earlier years. 47. The petitioner has undertaken two schemes of amalgamation involving merger of certain group companies in order to restructure its business operations and increase operational efficiencies ..... X X X X Extracts X X X X X X X X Extracts X X X X
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