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2020 (5) TMI 27 - SC - Income TaxRefunds along with interest u/s 244A - initiation of proceedings pursuant to notice under sub-section (2) of Section 143 - exercise of power of withholding of refund - HELD THAT - We hold that in respect of Assessment Years ending on 31st March 2017 or before, if a notice was issued in conformity with the requirements stated in sub-section (2) of Section 143 of the Act, it shall not be necessary to process the refund under subsection (1) of Section 143 of the Act and that the requirement to process the return shall stand overridden. Whether any intimation is required to be given to the assessee that because of initiation of proceedings pursuant to notice under sub-section (2) of Section 143 of the Act processing of return in terms of sub-section (1) of Section 143 of the Act, would stand deferred? - The processing of return in terms of subsection (1A) of Section 143 of the Act is to be done through centralized processing and as stated earlier, the scope of processing under subsection (1) of Section 143 of the Act is purely summary in character. Once deeper scrutiny is undertaken and the matter is being considered from the perspective whether there is any avoidance of tax in any manner, issuance of notice under sub-section (2) itself is sufficient indication. Sub-section (1D) of Section 143 does not contemplate either issuance of any such intimation or further application of mind that the processing must be kept in abeyance. It would not, therefore, be proper to read into said provision the requirement to send a separate intimation. In our view, issuance of notice under sub-section (2) of Section 143 is enough to trigger the required consequence. Any other intimation is neither contemplated by the statute nor would it achieve any purpose. Submission that the intimation dated 23.07.2018 must be held to be invalid, inter alia on the ground that it was issued well after the period within which the return was required to be processed under sub-section (1) of Section 143 of the Act, must be rejected. Returns filed in respect of assessment year commencing on or after the 1st April, 2017, a different regime has been contemplated by the Parliament. Section 241-A of the Act 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. 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 01.04.2017 the requirements of Section 241-A of the Act must be satisfied. Whether insofar as AY 2017-18 is concerned, the order dated 14.03.2019 satisfies the required statutory parameters or not? - In the present case, the exercise of power on 14.03.2019 was not only after issuance of notice under sub-section (2) of Section 143 and after recording due satisfaction in terms of Section 241-A of the Act, but was also well within the period contemplated by sub-section (1) of Section 143 of the Act for causing due intimation. There is nothing in the exercise of power that led to the passing of the order dated 14.03.2019 which could be said to have violated any statutory requirements. Insofar as AY 2014-15 is concerned, final assessment order passed under Section 143(3) of the Act indicates that the appellant is entitled to refund of ₹ 733 Crores; while for AY 2015-16 there is a demand of ₹ 582 Crores. During the course of hearing, it was suggested on behalf of the respondents that demands in respect of earlier assessment years including the liability as a result of order dated 28.12.2019 as referred to in para 5.1 hereinabove being outstanding, the respondents would be entitled to invoke the requisite power under Section 245 of the Act to set off the amount of refund payable in respect of AY 2014-15 against tax remaining payable. Since the requisite action is not even initiated, we say nothing in that respect. In the premises, we direct that the amount of ₹ 733 Crores shall be refunded to the appellant within four weeks from today subject to any proceedings that the Revenue may deem appropriate to initiate in accordance with law. We also direct the respondents to conclude the proceedings initiated pursuant to notice under sub-section (2) of Section 143 of the Act in respect of AY 2016-17 and 2017-18 as early as possible.
Issues Involved:
1. Processing of Income Tax Returns and Refunds 2. Applicability and Interpretation of Section 143(1D) and Section 241A of the Income Tax Act, 1961 3. Validity of Notices and Orders Issued by the Assessing Officer 4. Timeliness and Jurisdiction of Assessing Officer’s Actions 5. Rights of the Assessee to Claim Refunds Detailed Analysis: 1. Processing of Income Tax Returns and Refunds The appellant, a telecommunication service provider, filed Income Tax Returns (ITRs) for various assessment years (AYs) claiming significant refunds. Due to alleged inaction by the respondents in processing these returns and issuing refunds, the appellant filed a writ petition seeking a Writ of Mandamus to direct the respondents to process and grant the refunds along with interest. 2. Applicability and Interpretation of Section 143(1D) and Section 241A of the Income Tax Act, 1961 The respondents argued that the ITRs raised multiple complex issues requiring thorough scrutiny, including Transfer Pricing Adjustment, Capitalization of License Fees, and the effects of amalgamation. Consequently, notices under Section 143(2) were issued for the AYs in question, invoking Section 143(1D) to withhold the processing of returns. The High Court upheld this approach, stating that Section 143(1D) begins with a non-obstante clause, meaning that once a notice under Section 143(2) is issued, processing under Section 143(1) is not necessary. For AY 2017-18, the respondents invoked Section 241A, allowing the withholding of refunds if the grant of such refunds could adversely affect revenue collection. The Supreme Court confirmed that the satisfaction recorded under Section 241A was facially in conformity with statutory requirements. 3. Validity of Notices and Orders Issued by the Assessing Officer The appellant contended that the notices and orders issued by the Assessing Officer were invalid as they were beyond the limitation period. The High Court and subsequently the Supreme Court found that the issuance of notices under Section 143(2) itself was sufficient to defer the processing of returns under Section 143(1). No separate intimation was required to indicate that the processing of returns was deferred due to the issuance of a scrutiny notice. 4. Timeliness and Jurisdiction of Assessing Officer’s Actions The appellant argued that the respondents failed to exercise their discretion within the prescribed time limits, rendering their actions null and void. The Supreme Court held that for AYs ending on or before March 31, 2017, the issuance of a notice under Section 143(2) overrides the necessity to process the return under Section 143(1). For AY 2017-18, the Court found that the order dated March 14, 2019, was within the permissible period and satisfied statutory requirements, thus being valid. 5. Rights of the Assessee to Claim Refunds The appellant relied on previous judgments stating that returns should be processed within a year and refunds granted unless detrimental to revenue collection. The Supreme Court observed that while the right to claim refunds is vested in the assessee, this right is subject to the issuance of scrutiny notices under Section 143(2). The Court directed that the refund of ?733 Crores for AY 2014-15 be processed within four weeks, subject to any lawful proceedings initiated by the Revenue. Conclusion: The Supreme Court dismissed the appeal, affirming that the issuance of a notice under Section 143(2) precludes the necessity of processing returns under Section 143(1) for AYs up to March 31, 2017. For AY 2017-18, the Court found the order withholding the refund to be legally valid. The Court directed the refund of ?733 Crores for AY 2014-15 within four weeks, subject to any lawful actions by the Revenue.
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