1. The present Writ Petition No.2730/2018 is filed by 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:-
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, VSLand VCL) amalgamated with Vodafone under the first scheme of amalgamation w.e.f. 01.04.2011. Further, the second scheme of amalgamation, two other groups (VSPL and VWL) amalgamated with Vodafone w.e.f. 01.04.2012. The Revenue was duly intimated about the two schemes of amalgamation. As a consequence, all proceedings in the case of the amalgamating entities are to be carried on in the name of Vodafone.
5. The revised e-returns of income pertaining to AY 2014-15 and AY 2015- 16, were filed on 31.03.2016 and 25.11.2016 respectively, claiming refunds of `l,532.09 crores and `l,355.51 crores, respectively. Subsequently, in view of the Advance Pricing Agreement dated 18.11.2016 entered by Vodafone with the Central Board of Direct Taxes (hereafter referred as 'CBDT') under section 92CC of the Act, it filed modified tax return as per the mandate of section 92CD of the Act for AY 2014-15 on 22.02.2017. However, such returns have not been processed till date. The return of income pertaining to AY 2016-2017, claiming refund of ` l128.47 crores was filed on 30.11.2016. However, this too has not been processed till date.
6. In the meanwhile, the Revenue (in certain pending writ petitions) filed a Civil Miscellaneous Application in WP(C)Nos.12301, 12303 and 12307 of 2015 in the month of March 2017 before this court (later withdrawn), whereby it, inter alia, agreed to process the tax returns filed by Vodafone for AYs 2012- 13 to 2016-17 irrespective of the pending assessments. The Revenue, by such application sought this court’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 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, learned Senior Counsel for the Petitioner, points out that for no fault of the Petitioner, it is being made to unnecessarily wait for what is legitimately due to it and that the time, as sought by the Respondent, is unreasonable. Mr. Chaudhary explains that the Systems Directorate of the Department is doing its best to develop the software functionality and, as it is, a large portion of its work force is engaged only in the task of processing the Petitioner's refund Applications. It is also stated that as many as 10,746 entries in the 26AS Form had to be manually given tax credit so for and, considering the number of entries involved, the time sought is not unreasonable.
3. The Court notes that the balance refund which remains to be processed to the tune of Rs.15.86 crores along with interest. Considering that any further delay would only mean further loss to the exchequer on account of the interest which will become payable, it is in the interest of the Revenue to expedite the entire process. The Respondent should inform the Court within a period of three months the further progress made in the matter of processing the refund claims for the remaining AYs.‖
8. Vodafone also placed reliance on the decision of this court in Tata Teleservices Limited vs. CBDT, 386 ITR 30 and Bombay High Court in Group M Media India (P) vs. Union of India, 2016 SCC OnLine Bom 13624, which 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 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 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.l1.2017 claiming a refund of `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 (5) months. It is submitted that while the time limit prescribed under the provisions of section 143(1) has not yet lapsed for the year, it could not act as a bar on the processing of the return and the grant of consequential refund to Vodafone since such refund has arisen largely on account of delay on the revenue’s part.
11. Vodafone contends that revenue’s deliberate omission to process and grant refunds for the relevant period under consideration is contrary to Section 143(1) given that such processing of refunds not later than one year from the end of the relevant financial year is mandated. It is also argued that the revenue’s omission to process and grant refunds for AYs 2014-15 to 2017-18 is on the pretext of system related problems is contrary to the law laid down in Times Internet v. ACIT WP(C) 3384 of 2017. Further, it is urged that the Revenue had in WP(C)Nos.12301, 12303 and 12307/2015 agreed to process the tax returns, it cannot now decide not to process the same under the same set facts and circumstances. Alleging that the revenue acted casually, Vodafone submits that its omission is causing serious financial prejudice.
12. With respect to the AY 2017-18, Vodafone contended that a delay has arisen in processing of return of income on account of delay caused by the Respondents in issuing the NIL withholding order for the relevant AY and this delay on behalf of the respondents is contrary to the law as per Tata Teleservices Limited v. CBDT (supra). 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 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 `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 court in Court on its Motion v Commissioner of Income Tax (W.P. (C) No. 2659 of 2012) where it was held that Section 245 of the Act contemplates prior intimation to the assessee to enable a response before any adjustment is made towards the demand relating to any other assessment year. Thus, an opportunity of response/reply should be given and after considering the assessee’s stand and plea, a justified order for adjustment of refund could be made. Further, the court held that an assessee can be denied interest if delay is attributable to him in terms of Section 244A (2). However, when the delay is not attributable to the assessee but due to the fault of the Revenue, then interest should be paid under the section. The Bench held that the law requires intimation under Section 143(1) to be communicated to the assesee, if there is an adjustment made in the return resulting either in demand or reduction in refund. Uncommunicated orders/intimations cannot be enforced and are not valid.
16. Counsel also cited Commissioner Of Income Tax and Others vs. Society for the Promotion of Education  382 ITR 6 (SC), where the short issue is with regard to the deemed registration of an application under Section 12AA of the Act. The SC upheld the order of the High Court which had taken the view that once an application is made under the said provision and in case the same is not responded to within six months, it would be taken that the application 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 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 `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 addition of `269.63 crores was made in the AY 2011-2012. Besides this, as the special audit for the AYs 2012-13 and 2013-14 is underway, the accounting treatments of the 3G spectrum fee and its amortizations will also result in substantial additions being made.
(iv) With respect to the issue of asset restoration cost obligation, Vodafone claims that it has to incur cost for restoration of leased and shared network sites. Vodafone claims depreciation on the amount so capitalized and reduces profit to that extent. As the asset restoration cost is in the nature of a provision and is not an ascertained liability, it was disallowed. After the amalgamation of the group companies, the quantum of the addition would increase and might get enhanced in light of the special audit which is underway. It is also submitted that an addition of `6633988 was made in the AY 2011-12 based on the issue.
(v) With respect to the issue of disallowance of roaming charges, the revenue submitted Vodafone failed to deduct TDS on this count, arguing that this was an automatic process not involving human intervention. In the AY 2011-12, an addition of` 142.3 crore was made. The Revenue urges that the fall out of amalgamation of Vodafone group companies is likely to result in a higher addition for the AYs 2012-13, 2013-14 and 2014-15, resulting in substantial demands.
(vi) The revenue urged that Vodafone 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 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 `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 the correct determination of an assessee’s income after thorough scrutiny. The revenue alleged that penalty would be levied on the addition which are made further resulting in huge demand which would have to be paid to the revenue along with applicable interest. This would result in incurring of a substantial tax liability for Vodafone, which given the financial condition of Vodafone as has been admitted by Vodafone itself. Therefore, in light of the above facts, the respondent has taken recourse to Section 281B of the Act. It is submitted by the revenue that the refunds arising out of the appeal effects in the entities VSL for AYs 2007-2008 amounting to `3,23,09,941/-, for AY 2008-1009 amounting to `355,52,00,613 and VWL for AY 2004-2005 amounting to `82,65,79.837 as well as those arising out of the rectification applications for the following assessment years are provisionally attached to protect the interest of the revenue. Therefore, a total attachment of `655.67 crores has been made in Vodafone’s case under Section 281B of the Act. The respondent contends that a total attachment of `655.67 crores has been made under Section 281B of the Act.
(xi) Further, refunds arising out of the following rectification are attached to protect the interest of the revenue. It is stated that for VSL, the attachment of amounts (on 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.
14. As per the said provisions, therefore, the Assessing Officer could process the return under sub-section (1) of section 143 before the expiry of one year from the end of the relevant assessment year in which the 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 provided, under the proviso to sub-section (1). Once however the time frame envisaged in the further proviso to sub-section (1) expires and is not extended by virtue of the operation of sub-section (1D) of section 143, there would be no 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 (2) of section 143 that the grant of refund is likely to adversely affect the Revenue, he would, however, do so by recording reasons in writing and with previous approval of the Principal Commissioner or Commissioner and withhold such refund till the date the assessment is made. We may recall that Section 241 which was omitted w.e.f. 01.06.2001 previously enabled the Assessing Officer to withhold the refund which becomes due and payable in terms of subsection (1) of section 143 under certain circumstances including in a situation where a notice has been issued or is likely to be issued under sub-section (2) of section 143 of the Act and the Assessing Officer is of the opinion that the grant of refund is likely to adversely affect the Revenue.
18. The provisions which were applicable in case of the petitioner-assessee post deletion of section 241 of the Act and prior to insertion of section 241A of the Act would authorize the Assessing Officer 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 under sub-section (2) of section 143 of the Act, he would get an extended time for proceeding under sub-section (1) as highlighted by the Delhi High Court in case of Tata Teleservices Ltd. (supra) and by the Bombay High Court in case of Group M. Media 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 statute and the situation in such a case would be, to expect the Assessing Officer to take up an expeditious disposal of the processing of return under subsection (1) of section 143 of the Act at least once the assessee requests for release of the refund, and send as an intimation to the assessee if he wishes to withhold the same.
22. Under the circumstances, the respondent-Assessing Officer is directed to complete the process of the assessee's return under sub-section (1) of section 143 of the Act latest by 31.10.2017. If any refund arises out of said exercise, grant the same to the petitioner as per the statutory provisions. Insofar as the assessment of the year 2016-17 is concerned, the time for processing the return under subsection (1) of section 143 read with proviso is not yet over. We do not propose to issue any direction in this respect for curtailing the statutory time limit envisaged therein.
23. With these directions, the petition is disposed of.‖
36. In the case of Rayala Corporation Pvt. Ltd. vs. Assistant Commissioner of Income Tax,  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 too notice has to be served on the Assessee within the period of one year from the end of the month, in which the return is furnished. Thus, if no notice is served within the stipulated period of twelve months, the assessment proceedings under section 143 of the I.T. 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.
59.2 The said sub-section was amended vide Finance Act, 2016 and it was provided that with effect from assessment year 2017-18, processing under section 143(1) of the Income-tax Act is to be done before passing of assessment order.
59.3 In order to address the grievance of delay in issuance of refund in genuine cases, a proviso has been inserted in section 143(1D) of the Income-tax Act specifying that the provisions of the said sub-section shall cease to apply in respect of returns furnished for assessment year 2017-18 and onwards.
59.4 However, to address the concern of recovery of revenue in doubtful cases, a new section 241A has been inserted in the Income-tax Act to provide that, for the returns furnished for assessment year commencing on or after 1st April, 2017, where refund of any amount becomes due to the assessee under section 143(1) of the Income-tax Act and the Assessing Officer is of 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 as introduced under Section 143(1D), with effect from 1-7-2012, providing that the processing of a return shall not be necessary, where a notice has been issued to the assessee under Section 143(2), has proved to be a bottle-neck in the commitment of the Department to issue timely tax refunds. It needs 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 of return shall not be necessary before the expiry of one year from the end of the financial year in which return is submitted.
40. The assessee’s argument in these proceedings is that once the one year period in proviso to Section 143 (1) ends, the return – and whatever calculations are contained in it, with respect to tax liability as well as the consequential refunds, become final, subject to only one event: issuance of notice under Section 143 (2).
41. To this court, it appears that the net effect of Tata Teleservices (supra) is that the revenue cannot be inactive, in cases where the assessee claims refund, and the one year period is over (under proviso to Section 143 (1)) ends. The AO has to apply his mind to consider whether the facts and circumstances of the case, warrant some or all of the refund of the assessee’s amounts, or if all of it needs to be withheld, whenever 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 procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under Section 154. Apart therefrom, the provisions Section 143 (1) (a) (i) indicate that the intimation 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, 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 nonobstante clause that overbears that provision. Tata Teleservices (supra) and the Bombay High Court ruling in Group M Media India (supra) state that the fact that a regular assessment is resorted to, does not ipso facto mean that in every case, the AO has to refuse refunds or there is an automatic bar to refunds. The AO has to apply his mind and make an order keeping in perspective the facts of the case.
45. In this case, the revenue has relied on an order dated 28-7-2018, which inter alia, stated that “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 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. In light of the above fact, assessments for the AY 2012-13 and 2013-14 are under special audit and any demand that would arise from the processing of the said assessment years are to be allowed to be adjusted against the refund claims. The petitioner’s position is that it is not in a good financial condition.
48. There is some merit in the revenue’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 the returns and the potential or likely liability, the refund can be given. It does not mean that when an assessment -pursuant to notice under Section 143 (2) is pending, such right to claim refund can accrue. This court also recollects the decision of the Supreme Court in Deputy Commissioner of Income Tax v Zuari Estate Development & Investment Co Ltd 2015 (15) SCC 248 which held that an intimation under Section 143 (1) is not to be considered as an assessment.
50. For the above reasons this court is of the opinion that there is no merit in the petitioner’s argument. The writ petition fails and is accordingly dismissed. No costs.
Cases Referred to
1. Times Internet v. Additional Commissioner of Income Tax WP (C) 3384 of 2017
2. Tata Teleservices Limited vs. CBDT, 386 ITR 30
3. Group M Media India (P) vs. Union of India, 2016 SCC
4. Motion v Commissioner of Income Tax (W.P. (C) No. 2659 of 2012)
5. Commissioner Of Income Tax and Others vs. Society for the Promotion of Education  382 ITR 6 (SC)
6. Uttar Bihar Gramin Bank vs. The Principal Commissioner of Income Tax, Muzaffarpur & Ors. (2018) 303 CTR (Pat) 303
7. Corrtech International Pvt. Ltd. vs. Deputy Commissioner of Income Tax  401 ITR 355(Guj)
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