FACTS
The appellant filed IT Returns claiming refund. Notice under section 143(2) was issued to the appellant. The Appellant also file revised return. The Appellant filed Writ Petition before High Court, submitting that there was complete inaction on part of the IT Department in processing the ITRs filed by the appellant and in issuing appropriate refund.
Before HC, the Revenue, in reply, filed an affidavit stating that the ITRs of the appellant raised multiple issues which required thorough scrutiny and tax determination. During the pendency of Writ Petition before HC, a letter was issued by AO, stating that pending special audit, pending scrutiny, pending demands of amount of more than 4500 crore, it would be prejudicial to the interest of Revenue to process the returns without completion of the pending scrutiny cases. Therefore, exercising the powers under section 143(1D) and section 241A, the processing of returns under section 143(1) was to be declined.
VMSL merged with Idea Cellular Ltd. and the resultant company was named Vodafone Idea Ltd.
The High Court dismissed said Writ Petition – Vodafone Mobile Services Ltd. v. Asstt. CIT [2018] 100 taxmann.com 310/[2019] 260 Taxman 417 (Delhi).
Draft Assessment Orders as per the provisions of section 144C were passed for AY 2014-15 and AY 2015-16 respectively. An intimation was sent to the Appellant by the AO regarding withholding of refund for AY 2017-18 on the ground of pending demand for earlier assessment years.
Objections raised by the appellant against the Draft Assessment Orders issued on 27-12-2018 and 31-12-2018 were disposed by DRP of on 20-9-2019. Thereafter, Final Assessment Orders under section 143 (3) were passed on 31-10-2019 for AYs 2014-15 and 2015-2016, whereunder the Appellant was held entitled to refund of approx. Rs. 733 Crores in respect of AY 2014-15. Further, for AY 2015-2016, the claim for refund was rejected and demand in the sum of Rs. 582 crores was raised. In an appeal preferred by the Appellant, said demand for AY 2015-16 was stayed by the Tribunal.
SUPREME COURT HELD AS FOLLOWS
The SC observed that the instant issue is principally concerned with the effect and applicability of section 143(1D), which was inserted vide Finance Act, 2012.
Finance Act, 2016 contemplated substitution of sub-section (1D) and insertion of a proviso with effect from 1-4-2017. The aforementioned substitution of sub-section (1D), however, never came into effect, as by the Finance Act, 2017 said sub-section in the earlier form was retained and the text of the proviso was also modified. Finance Act, 2017 also inserted section 241A.
The SC observed that once scrutiny proceedings are initiated by issuance of a notice under section 143(2), it would be anomalous and incongruent that, while such proceedings so initiated are pending, the return be processed under section 143(1), which may in a given case, entail payment or refund. The SC held that considering the nature of power exercisable under section 143(2) and 143(3), the inescapable conclusion is that the processing of return under section 143(1) must await the further exercise of power of scrutiny assessment under sub-sections (2) and (3) of section 143.
The SC held that in respect of AYs ending on 31-3-2017 or before, if a notice was issued in conformity with the requirements stated in section 143(2), it shall not be necessary to process the refund under section 143(1) and that the requirement to process the return shall stand overridden. The SC further held that no intimation is required to be given to the assessee that because of initiation of proceedings pursuant to notice under section 143(2), processing of return in terms of section 143(1), would stand deferred.
However, with respect to returns filed in respect of AYs commencing on or after the 1-4-2017, the SC observed that a different regime has been contemplated by the Parliament. Section 241-A requires a separate recording of satisfaction on part of the Assessing Officer that having regard to the fact that a notice has been issued under sub-section (2) of section 143, the grant of refund is likely to adversely affect the revenue; whereafter, with the previous approval of the Principal Commissioner or Commissioner and for reasons to be recorded in writing, the refund can be withheld.
The SC held that since the statute now envisages exercise of power of withholding of refund in a particular manner, it goes without saying that for assessment year commencing after 1-4-2017, the requirements of section 241-A must be satisfied. The SC observed that in the instant case, AO exercised the power on 14-3-2019 after recording due satisfaction in terms of section 241-A. No statutory requirements violated.
Insofar as AY 2014-15 is concerned, the SC observed that final assessment order passed under section 143(3) indicates that the appellant is entitled to refund of Rs. 733 crores; while for Assessment Year 2015-16 there is a demand of Rs. 582 crores. During the course of hearing, it was suggested on behalf of the Department that demands in respect of earlier assessment years including the liability as a result of order dated 28-12-2019 being outstanding, the Department would be entitled to invoke the requisite power under section 245 to set off the amount of refund payable in respect of AY 2014-15 against tax remaining payable. The SC declined to adjudicate on set-off under section 245 since the requisite action is not even initiated. The SC directed to refund the amount of Rs. 733 crores to the Appellant subject to any proceedings that the Revenue may deem appropriate to initiate in accordance with law.