Refund issued u/s 143(1) of Income tax act can be withhold by AO under various circumstances – SC judgement

written by Income tax Expert | May 3, 2020

In judgement in case of Vodafone Idea Ltd. v. Assistant Commissioner of Income-tax 116 taxmann.com 393 Dt 29.04.2020, it was held by Hon’ble Supreme court that In respect of assessment years ending on 31-3-2017 or before, if a notice was issued in conformity with requirements stated in section 143(2), it would not be necessary to process refund under section 143(1); insofar as returns filed in respect of assessment years commencing on or after 1-4-2017, a different regime has been contemplated by Parliament and section 241-A requires a separate recording of satisfaction on part of Assessing Officer that grant of refund is likely to adversely affect revenue, whereafter, with previous approval of Principal Commissioner or Commissioner and for reasons to be recorded in writing, refund can be withheld.

Observation of Supreme Court:

We must now deal with the issue 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 of the Act 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.

Consequently, the 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.

However, insofar as 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; where after, 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.

We will, therefore, have to see whether insofar as AY 2017-18 is concerned, the order dated 14.03.2019 satisfies the required statutory parameters or not.

In terms of second proviso to sub-section (1) of Section 143 of the Act, the required intimation under said sub-section must be given before the expiry of one year from the end of the financial year in which the return is made. In respect of AY 2017-18, the return having been filed on 25.11.2017, period available in terms of said second proviso was upto 31.03.2019, without taking into account the fact that revised return was filed on 13.07.2018.

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.

Whether the satisfaction recorded in terms of said Section 241-A of the Act was otherwise correct or not and whether case for withholding of refund was made out or not, are not the issues that arise for our consideration.

For the present purposes, whether exercise of power is facially in conformity with the statutory provisions is the issue and we are satisfied that 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 Rs.733 Crores; while for AY 2015-16 there is a demand of Rs.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 herein above 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 Rs.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.

To read full order CLICK HERE.

 

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