Gujarat H.C : Mere issuance of notice under section 143(2) claiming extended period for processing refund under section 143(1), would not be sufficient to withhold refund

High Court Of Gujarat

Corrtech International (P.) Ltd. vs. DCIT

Section 241A, 143

Assessment years 2015-16 and 2016-17

Akil Kureshi And Biren Vaishnav, Jj.

Special Civil Application No. 13987 Of 2017

September  18, 2017

JUDGMENT

Akil Kureshi, J. – The petitioner has prayed for a direction to the respondent- Deputy Commissioner of Income Tax to release the refund in favour of the petitioner for the assessment years 2015-16 and 2016-17. Brief facts are as under:

2. Petitioner is a private limited company and is engaged in the business of undertaking turnkey projects for laying and constructing pipelines and providing cathodic protection system on the pipelines and other engineering contracts, sales and other allied services. For the assessment year 2015-16, the petitioner filed the return of income on 29.09.2014 declaring a total loss of Rs. 36.03 crores (rounded off). During the financial year, the petitioner had deposited sizeable tax principally through suffering TDS at the hands of the payees. In the return, the assessee, therefore, claimed refund of Rs. 1.39 crores (rounded off). The Assessing Officer did not pass any order under section 143 (1) of the Income Tax Act, 1961 [‘the Act’ for short]. However, a notice under section 143(2) of the Act was issued on 12.04.2016. The assessment is pending before the Assessing Officer.

3. For the assessment year 2016-17, the petitioner filed the return of income on 15.10.2016 declaring a loss of Rs. 21.28 crores (rounded off) and claimed a refund of tax already paid of Rs. 1.58 crores (rounded off). The petitioner thereafter, filed a revised return on 13.04.2017 making minor changes which are not significant for our purpose. In response to such return, the department has, so far, neither passed order under section 143(1) of the Act nor issued notice under section 143(2) of the Act.

4. The case of the petitioner is that it is facing extreme financial hardship. On one hand, the petitioner suffers deduction of tax at source at the hands of the payees though due to the fact that the petitioner is making losses, there is no tax liability of the petitioner and on the other hand, the petitioner while making payments is required to deduct tax as per the statutory provisions and deposit the same with the Government. On account of the peculiar situation of the petitioner, the petitioner finds itself in liquidity crunch particularly for depositing such TDS with the Government. The petitioner, therefore, wrote a letter dated 04.01.2017 to the respondent and requested for refund of an amount of Rs. 2,50,96,487/- pointing out to the said authority the tax and refund liabilities of the petitioner for the last few assessment years as under:

“We give below the details of refund due and demand payable for various assessment years as per the records of the assessee.

As can be seen in the above table, the assessee company is eligible for refund even after adjusting the current demand. The net refund works out to be Rs. 2,50,96,487/-.”

5. The petitioner did not receive any response from the respondent, upon which, the petitioner made several further representations along the same line. Since no reply came from the respondent, the petitioner filed this petition with the above mentioned prayers.

6. Appearing for the petitioner, learned counsel Mr. Hemani took us through the statutory provisions applicable and submitted that in absence of any adjustment, under sub-section (1) of section 143 of the Act, it would not be open for the Assessing Officer to withhold the refund arising out of return filed by an assessee. He submitted that such powers have been vested with the authority only by virtue of section 241A of the Act inserted w.e.f. 01.04.2017. In other words, prior to the said provision, the department did not have any power to withhold the refund unless of course, the Assessing Officer, in terms of sub-section (1) of section 143 of the Act intimated to the assessee that such refund was not available. He further submitted that notice under sub-section (2) of section 143 would not authorize the Assessing Officer to withhold the refund till the last date for finalizing the assessment. Counsel relied on the following decisions:

1. In case of Group M Media India (P.) Ltd. v. Union of India [2016] 388 ITR 594/[2017] 77 taxmann.com 106 (Bom.);

2. In case of Tata Teleservices Ltd. v. Central Board of Direct Taxes [2016] 386 ITR 301/240 Taxman 182/69 taxmann.com 226 (Delhi)

7. On the other hand, learned counsel Mr. Bhatt for the department opposed the petition contending that for the assessment year 2015-16, the Assessing Officer has already issued notice under sub-section (2) of section 143. As per the then prevailing provision, it was thereafter not necessary for the Assessing Officer to proceed under sub-section (1) of section 143. Section 241A inserted by the Finance Act, 2017 must be seen in light of the corresponding changes made under sub-section (1D) of section 143. With respect to the assessment year 2016-17, counsel pointed out that the revised return was filed only on 13.04.2017 and the Assessing Officer, therefore, had sufficient time to process the return under section 143(1) of the Act. In any case, therefore, before such time limit was over, the assessee cannot claim refund on the basis of the return filed.

8. We may first refer to the statutory provisions and thereafter consider the effect of such provisions on the petitioner’s request for refund for the said two assessment years.

9. Prior to the amendments by virtue of the Finance Act, 2017 relevant portion of section 143 of the Act read as under:

‘Assessment

143. [(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:—

(a) the total income or loss shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the return;

(ii) “an incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;

(iv) disallowance of expenditure indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed under sections 10AA, 80-IA, 80-IAB, 80-IB, 80-IC, 80-ID or section 80-IE, if the return is furnished beyond the due date specified under sub section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A pr Form, 16 which has not been included in computing the total income in the return:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made;

(b) the tax [and interest], if any, shall be computed on the basis of the total income computed under clause (a);

(c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax [and interest], if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self- assessment and any amount paid otherwise by way of tax or interest;

(d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and

(e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax [or interest] is payable by, or no refund is due to, him:

Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.

Explanation.—For the purposes of this sub-section,—

(a) “an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return,—

(i) of an item, which is inconsistent with another entry of the same or some other item in such return;

(ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or

(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;

(b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).

(1A) ** ** **

(1B) ** ** **

(1C) ** ** **

[(1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary before the expiry of the period specified in the second proviso to sub-section (1), where a notice has been issued to the assessee under sub-section (2).

Provided that such return shall be processed before the issuance of an order under sub-section (3)”.

[(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:

Provided that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.]

[(3) On the day specified in the notice issued under] sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and and after taking into account all relevant material which he has gathered, the Assessing Officer shall by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such such assessment:]’

10. By Finance Act 2017 w.e.f. 01.04.2017 sub-section (1D) to section 143 was replaced by the original and now reads as under:

“[(1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2):

Provided that the provisions of this sub-section shall not apply to any return furnished for the assessment year commencing on or after the 1st day of April, 2017.]”

11. Simultaneously, section 241A was inserted which reads as under:

“241A. Withholding of refund in certain cases.—For every assessment year commencing on or after the 1st day of April, 2017, where refund of any amount becomes due to the assessee under the provisions of sub-section (1) of section 143 and the Assessing Officer is of the opinion, having regard to the fact that a notice has been issued under sub-section (2) of section 143 in respect of such return, that the grant of the refund is likely to adversely affect the revenue, he may, for reasons to be recorded in writing and with the previous approval of the Principal Commissioner or Commissioner, as the case may be, withhold the refund up to the date on which the assessment is made.”

12. We may also notice that till 01.06.2001, section 241 of the Act enabled the Assessing Officer to withhold any refund under certain circumstances. Section 241, after the amendment of 01.04.1989 till it was withdrawn w.e.f. 01.06.2001 read as under:

“Power to withhold refund in certain cases.

241. Where refund of any amount becomes due to the assessee as a result of an order under this Act or under the provisions of sub-section (1) of section 143 after a return has been made under section 139 or in response to a notice under sub-section (1) of section 142 and the Assessing Officer is of the opinion, having regard to the fact that—

(i) a notice has been issued, or is likely to be issued, under sub-section (2) of section 143 in respect of the said return; or

(ii) the order is the subject-matter of an appeal or further proceeding; or

(iii) any other proceeding under this Act is pending, that the grant of the refund is likely to adversely affect the revenue, the Assessing Officer may, with the previous approval of the Chief Commissioner or Commissioner, withhold the refund till such time as the Chief Commissioner or Commissioner may determine.”

13. If we analyze section 143 of the Act as it existed prior to the amendment of the Finance Act 2017, the return filed by the assessee would be processed by the Assessing Officer as provided under sub-section (1) of Section 143 permitting him to make adjustments and compute the tax or refund intimating to the assessee the culmination of such exercise and granting the refund if due to him in terms of clause (e) of sub-section (1) of section 143. The first proviso to sub-section (1) also required the Assessing Officer to send an intimation to the assessee in case where the loss declared in the return by the assessee is adjusted but no tax or interest is payable by or no refund is due to him. As per the further proviso to sub-section (1), no intimation under sub-section (1) would be sent after the expiry of one year from the end of the relevant assessment year in which the return is filed.

Sub-section (1D) of section 143 which starts with a non- obstante clause provided that notwithstanding anything contained in sub-section (1), the processing of the return shall not be necessary before the expiry of the period specified in the second proviso where a notice has been issued to the assessee under sub-section (2) of section 143. Proviso to this sub-section (1D) provided that such return shall be processed before the issuance of an order under sub-section (3).

14. As per the said provisions, therefore, the Assessing Officer could process the return under sub-section (1) of section 143 before the expiry of one year from the end of the relevant assessment year in which the return was filed after which, no such adjustment would be permissible. Under sub-section (1D), however, if notice under sub-section (2) of section 143 was issued to the assessee, it would not be necessary for the Assessing Officer to process the return under sub-section (1) within the time limit provided under the further proviso. However, if he desired to process the return under sub-section (1) the same would have to be done before issuance of an order under sub-section (3) of section 143.

15. A combined reading of the said provisions and in particular, sub-section (1D) of section 143 would demonstrate that once a notice under sub-section (2) of section 143 is issued, it would be discretionary for the Assessing Officer to process the return under section 143(1). The time limit envisaged in the further proviso to sub-section (1) would not apply but that the same can be done only before issuance of the order of assessment under sub-section (3).

16. Under such provision, therefore, it would be open for the Assessing Officer to process the return under section 143(1) and, if the culmination of such exercise is to deny a refund to the assessee, send such an intimation, as provided, under the proviso to sub section (1). Once however the time frame envisaged in the further proviso to sub-section (1) expires and is not extended by virtue of the operation of sub-section (1D) of section 143, there would be no scope thereafter for the Assessing Officer to withhold the refund arising out of the return filed by the assessee.

17. This position would become clear if we compare the provisions of section 143(1D) as amended by the Finance Act, 2017 read with newly inserted Section 241A. Under the new sub-section (1D) the legislature provides that notwithstanding anything contained in sub-section (1) the processing of return would not be necessary where a notice has been issued to an assessee under sub section (2). This would make it clear that once notice under section 143(2) has been issued, the Assessing Officer shall not process the return under section 143(1). The original proviso to sub-section (1D) has been substituted by a new proviso under which it is clarified that the proviso under said sub-section shall not apply to any return furnished for the assessment year commencing on or after 01.04.2017. Section 241A which was inserted simultaneously, now enables the Assessing Officer to withhold the refund in favour of the assessee which becomes due in terms of sub-section (1) of section 143 if he is of the opinion that having regard to the fact that a notice has been issued under sub-section (2) of section 143 that the grant of refund is likely to adversely affect the Revenue, he would, however, do so by recording reasons in writing and with previous approval of the Principal Commissioner or Commissioner and withhold such refund till the date the assessment is made. We may recall that Section 241 which was omitted w.e.f. 01.06.2001 previously enabled the Assessing Officer to withhold the refund which becomes due and payable in terms of sub-section (1) of section 143 under certain circumstances including in a situation where a notice has been issued or is likely to be issued under sub-section (2) of section 143 of the Act and the Assessing Officer is of the opinion that the grant of refund is likely to adversely affect the Revenue.

18. The provisions which were applicable in case of the petitioner-assessee post deletion of section 241 of the Act and prior to insertion of section 241A of the Act would authorize the Assessing Officer to withhold the refund arising out of a return filed by the assessee if an intimation was sent under sub-section (1) of section 143 after completing the processing of the return as envisaged therein. If notice under sub-section (2) of section 143 was issued, such time limit for processing would get extended till the passing of the order of assessment. However, the Revenue cannot contend that even though no intimation under sub-section (1) of section 143 was issued within the time envisaged and no notice under sub-section (2) of section 143 was issued, the Assessing Officer can sit tight over the refund claimed by the assessee arising out of the return filed. Mere issuance of notice under section 143(2) of the Act claiming extended period for processing refund under section 143(1), would not be sufficient to withhold refund.

19. In case of Tata Teleservices Ltd. (supra), the Delhi High Court considered the effect of a circular issued by the CBDT dated 13.01.2015 under section 119 of the Act. Under such circular, CBDT clarified that the processing of a return cannot be undertaken after notice has been issued under sub-section (2) of section 143 of the Act. It was, however, felt desirable that the scrutiny assessment in such cases are completed expeditiously. The Delhi High Court was of the opinion that sub-section (1D) of section 143 gave a discretion to the Assessing Officer to process a return under section 143(1) even after issuing notice under section 143(2) of the Act and the CBDT could not have taken away such discretion which would be a direction against the interest of the assessee and not binding to the assessee. The Delhi High Court referred to and relied upon the decisions of Supreme Court in case of UCO Bank v. CIT [1999] 237 ITR 889/104 Taxman 547 and in case of CCE v. Ratan Melting & Wire Industries [2008] 13 SCC 1.

20. Bombay High Court in case of Group M Media (P.) Ltd. (supra) considered a situation where the Assessing Officer, after issuing a notice under sub-section (2) of section 143 of the Act, did not entertain the assessee’s application for refund of the tax arising out of the return filed. The case of the Revenue was that, the Assessing Officer had time till the last date of framing of the assessment to process the return under section 143(1) of the Act. The Bombay High Court referring to the decision of Delhi High Court in case of Tata Teleservices Ltd. (supra) deprecated the approach of the Revenue making following observations:

“8. … … … It must also be pointed out that the Revenue is not disputing the decision of the Delhi High Court in Tata Teleservices Ltd. either on facts or in law. Therefore, in view of the decision of this Court in Godavaridevi Saraf, the officers implementing the Act are bound by the decision of the Delhi High Court and Instruction No.1 of 2015 dated 13th January, 2015 has ceased to exist. Therefore no reference to the above Instruction can be made by the Assessing Officer while disposing of the petitioner’s application in processing its return under Section 143(1) of the Act and consequent refund, if any. under Section 143(1D) of the Act. Needless to state that the Assessing Officer would independently apply his mind and take a decision in terms of Section 143 (1D) of the Act whether or not to grant a refund in the facts and circumstances of the petitioner’s case for A.Y. 2015-16.

[9] The only contention on behalf of the Revenue to oppose the petition is that as the Assessing Officer has time available to process the refund till 31st March. 2017 no mandamus can be issued till 31st March, 2015. We repeatedly asked of Mr Mohanty, the learned Counsel for the Revenue, if there was any reason why the return could not be processed before 31st March. 2017. No reasons are forthcoming from the Revenue as to why the Assessing Officer will not able to dispose of the application for refund or process the return under Section 143(1) of the Act before 31st March. 2017. This conduct / stand of the Assessing Officer, to say the least is most disturbing in the context of the fact that the petitioners have been seeking refund since April, 2016. First, he does not deem it proper to inform the petitioner in writing why he cannot deal with the application and after the petitioner moves the Court, the stand taken is that no direction can be given to him till 31st March. 2017 which is the last date to process the return under Section 143(1) of the Act. This attitude on the part of the Assessing Officer is preposterous.

[10] The action of the officer on the ground urged seems to be in complete variance with the higher echelons of administration of the tax administration being an assessee friendly regime. In fact, the CBDT has itself issued Instruction NO. 7/2012 dated 1st August. 2002 wherein they have specifically directed the officers of the Revenue to process all returns in which refunds are payable expeditiously. Similarly, as late as in 2014 in the Citizen’s Charter issued by the Income Tax Department in its vision statement states that the Department aspires to issue refunds along with interest under Section 143(1) of the Act within 6 months from date of electronically, filing the returns. In this case, the return was filed on 29th November, 2015, yet there is no reason why the Assessing Officer has not processed the refund and taken a decision to grant or not grant a refund under Section 143(1D) of the Act. This attitude on the part of the Assessing Officer leaves us with a feeling (not based on any evidence) that the Officers of the Revenue seem to believe that it is not enough for the assessee to please the deity (Income Tax Act) but the assessee must also please the priest (Income Tax Officer) before getting what is due to him under the Act. The officers of the State must ensure that their conduct does not give rise to the above feeling even remotely.”

21. Coming back to the facts on hand, sofar as the assessment of the year 2015-16 is concerned, the return was filed on 29.09.2015 for which, the time limit under the normal provision of sub- section (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 by the Delhi High Court in case of Tata Teleservices Ltd. (supra) and by the Bombay High Court in case of Group M Media India (P.) Ltd. (supra), 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. At least once the time limit envisaged in the proviso to sub-section (1) of section 143 is over without the Assessing Officer processing the return under sub-section (1) and even though notice under sub- section (2) of section 143 may have been issued, the Assessing Officer, by all reasonable interpretation of the statutory provisions would be expected to respond to the assessee’s request for either granting refund or indicating that in terms of the adjustments impermissible under sub-section (1) of section 143, such refund or part thereof was not available to the assessee. 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.

22. Under the circumstances, the respondent-Assessing Officer 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.

23. With these directions, the petition is disposed of.

[Citation : 401 ITR 355 ]