2017 (10) TMI 100 - HC - Income Tax

Release the refund - AO withhold the refund arising out of return filed by an assessee til the completion of assessment - whether notice under sub-section (2) of section 143 authorize AO to withhold the refund till the last date for finalizing the assessment? - Held that - The return was filed on 29.09.2015 for which, the time limit under the normal provision of subsection (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 in case of Tata Teleservices Ltd. (2016 (5) TMI 724 - DELHI HIGH COURT) and Group M Media India Pvt. Ltd. Mumbai (2017 (1) TMI 1149 - BOMBAY HIGH COURT ), it would be wholly inequitable for the Assessing Officer to merely sit over the petitioner s request for refund citing the availability of time upto the last date of framing the assessment under sub-section (3) of section 143. We simply cannot accept the interpretation of the counsel for the Revenue that once a notice under sub-section (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 sub-section (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. AO 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 sub-section (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.

Issues Involved:
1. Refund of tax for assessment years 2015-16 and 2016-17.
2. Applicability of Section 143(1) and Section 143(2) of the Income Tax Act.
3. Impact of Section 241A of the Income Tax Act.
4. Financial hardship faced by the petitioner.
5. Legal precedents and interpretations relevant to the case.

Detailed Analysis:

1. Refund of tax for assessment years 2015-16 and 2016-17:
The petitioner, a private limited company engaged in engineering contracts, filed returns declaring losses and claimed refunds for the assessment years 2015-16 and 2016-17. For 2015-16, the return showed a loss of ?36.03 crores and claimed a refund of ?1.39 crores. The Assessing Officer issued a notice under Section 143(2) but did not process the return under Section 143(1). For 2016-17, the return declared a loss of ?21.28 crores and claimed a refund of ?1.58 crores. The return was revised later, but no action was taken under Sections 143(1) or 143(2).

2. Applicability of Section 143(1) and Section 143(2) of the Income Tax Act:
The petitioner argued that in the absence of any adjustment under Section 143(1), the Assessing Officer could not withhold the refund. The petitioner’s counsel cited the powers vested under Section 241A, effective from 01.04.2017, and previous legal precedents to support the claim. The respondent argued that for 2015-16, the notice under Section 143(2) negated the need for processing under Section 143(1), and for 2016-17, the time limit for processing the return was not over.

3. Impact of Section 241A of the Income Tax Act:
Section 241A, inserted by the Finance Act, 2017, allows the Assessing Officer to withhold refunds if a notice under Section 143(2) has been issued and the refund is likely to adversely affect the revenue. This is subject to written reasons and prior approval from higher authorities. Prior to this, Section 241 (omitted w.e.f. 01.06.2001) had similar provisions. The judgment highlighted that mere issuance of a notice under Section 143(2) is insufficient to withhold refunds without following due process under Section 241A.

4. Financial hardship faced by the petitioner:
The petitioner claimed severe financial hardship due to the withholding of refunds, which affected liquidity and the ability to deposit TDS with the government. The petitioner made several representations to the respondent, requesting the release of refunds, but received no response.

5. Legal precedents and interpretations relevant to the case:
The judgment referred to the Delhi High Court’s decision in Tata Teleservices Ltd. and the Bombay High Court’s decision in Group M Media India Pvt Ltd., which emphasized that the Assessing Officer has discretion under Section 143(1D) to process returns even after issuing notices under Section 143(2). The courts criticized the revenue’s approach of withholding refunds without timely processing returns and highlighted the need for expeditious handling of such cases.

Conclusion:
The court directed the respondent to complete the processing of the petitioner’s return for the assessment year 2015-16 under Section 143(1) by 31.10.2017 and grant any due refund as per statutory provisions. No direction was issued for 2016-17 as the statutory time limit for processing the return was not yet over. The petition was disposed of with these directions.

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