2017 (12) TMI 1525 - HC - Income Tax

Claim of refund - Centralised Processing of Return Scheme, 2011 - Claim of higher refund vide revised return alongwith interest u/s 244A - returns containing claims for refund for the assessment years 2012 13, 2013 14, 2014 15 were not processed within the time frame prescribed under sub section 1 of section 143 of the said Act. Held that - the net result of the processing done under sub section (1) of Section 143 and the order passed under sub section (3) of Section 143 is the same. The time within which the exercise of passing an order under sub section(3) of Section 143 should be done is provided in sub section(1) of Section 153 of the said Act. The stand of the department that once a notice under sub section (2) of Section 143 of the said Act is issued, there is no discretion left with the AO whether to process the return or not. Thus, the said stand taken by the department is completely contrary to sub section (1D) and the interpretation put to the said Section by the Delhi High Court as well as this Court, and therefore, the said stand deserves to be rejected. AOs cannot give priority to the processing of the returns to those assessees who approach them. We are surprised to note that there is no order of priority laid down by any authority which will bind the AOs when it comes to processing of the returns. For example, the returns of Assessment Year 2016 17 which were transferred to AO were not processed till 31st October, 2017 as proper ITBA software was not available. Now the income tax department must ensure that the returns which are kept pending due to its own default, are processed as per a rational policy which determines the order of priority. The phrase administrative requirements is very vague. In fact this clause indicates that there can be arbitrariness while deciding which returns should be given priority for the processing. Therefore, we propose to issue a direction to the respondents to formulate a rational policy on this aspect and place it before the Court within the time specified by this Court. Direction for manual processing of return - Held that - There is no provision in both the notifications which lays down that after the returns are sent to the Assessing Officer, if he finds that the returns cannot be processed on ITBA or any other software, the same cannot be processed manually. The only object served by the refusal of the Commissioner to grant permission to process return manually was that the processing of the return was unduly delayed. In fact, the Principal Commissioner ought to have taken steps to remedy the situation and with a view to ensure that the returns transmitted to AO are not kept pending, ought to have authorised manual processing of returns. The said scheme of 2011 was brought into force with the object of expediting the processing of returns. Due to the approach adopted by the Principal Commissioner, in fact there was a delay caused in processing of the returns. Whenever returns are transferred by the Centre to AOs for processing, if the returns cannot be processed immediately because of lack of availability of proper software, or because of technical difficulties in functioning of the software, the returns must be permitted to be processed manually. There will not be any illegality attached to it. If at all software is not provided to deal with the returns of a particular year, there is no embargo imposed by law which prevents AOs from processing the returns manually. If returns cannot be processed due to system failure and if the errors cannot be rectified and system cannot be made functional within a reasonable time, the Commissioner ought to permit the AOs to process the returns manually. Petition disposed with direction to the department / government.

Summary

Issues Involved:
1. Implementation of the Centralised Processing of Return Scheme, 2011.
2. Interpretation of sub-section 1(D) of section 143 of the Income Tax Act, 1961.
3. Delay in processing returns and issuing refunds.
4. Availability and functionality of ITBA software for processing returns.
5. Manual processing of returns when software is unavailable.

Issue-Wise Detailed Analysis:

1. Implementation of the Centralised Processing of Return Scheme, 2011:
The petitions addressed the procedural and legal issues arising from the Centralised Processing of Return Scheme, 2011, particularly the processing of returns transmitted by the Centre to Assessing Officers (AOs). The court noted that the Centre must process valid returns electronically and send intimations to taxpayers. However, if returns cannot be processed at the Centre, they should be transmitted to the AOs for processing.

2. Interpretation of sub-section 1(D) of section 143 of the Income Tax Act, 1961:
Sub-section 1(D) states that processing a return is not necessary where a notice under sub-section (2) of section 143 has been issued. The court referenced the Delhi High Court's decision in Tata Teleservices v/s. Union of India, which held that the AO has the discretion to process the return even after issuing a notice under sub-section (2). The court rejected the department's stand that returns cannot be processed once a notice under sub-section (2) is issued, emphasizing that such interpretation is contrary to the law.

3. Delay in Processing Returns and Issuing Refunds:
The court criticized the department's delay in processing returns and issuing refunds, noting that this caused taxpayers to be deprived of legitimate refunds. The court highlighted the need for a rational policy to prioritize processing returns, ensuring no arbitrariness and adherence to Article 14 of the Constitution of India. The court directed the Central Government or CBDT to issue necessary clarifications and ensure timely processing.

4. Availability and Functionality of ITBA Software for Processing Returns:
The court noted the department's failure to provide proper software for processing returns for the assessment year 2016-17, leading to delays. The court emphasized that the department must ensure the availability and functionality of the software to avoid such issues. The court directed the department to process returns manually when software is unavailable or malfunctioning.

5. Manual Processing of Returns When Software is Unavailable:
The court held that there is no legal prohibition on manually processing returns when software is unavailable or malfunctioning. The court directed the department to permit manual processing in such cases to ensure timely processing and issuance of refunds. The court referenced previous decisions supporting manual processing when technical difficulties arise.

Conclusion:
The court disposed of the petitions with several directions, including:
1. Processing the return of the petitioner in Writ Petition No.782 of 2017 within two weeks.
2. Issuing refunds within three weeks if found due.
3. Accepting the department's undertaking to complete scrutiny assessment and issue refunds by 31st December 2017 for Writ Petition No.2051 of 2017.
4. Issuing necessary clarifications on sub-section 1(D) of section 143.
5. Permitting manual processing of returns when software is unavailable or malfunctioning.
6. Formulating a rational policy for processing returns in an orderly manner.
7. Reporting compliance by 31st January 2018.