TaxTMI 
TaxTMI 
2018 (12) TMI 1221
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....eafter referred as "Act"). A tabular depiction of the claims for refund for the aforementioned AYs is as under:- ASSESSMENT YEAR AMOUNT OF REFUND CLAIMED (in Cr.) 2014-15 Rs. 1,532.09 2015-16 Rs. 1,355.51 2016-17 Rs. 1,128.4 7 2017-18 Rs. 743.67 Total Rs. 4759.74 2. The writ petition claims a direction upon the respondent to expeditiously process the refund claim made by Vodafone, and issue refund in respect of Vodafone's income tax returns for the relevant period under consideration, together with eligible interest under Section 244A of the Act. 3. Briefly, Vodafone is engaged in providing telecommunication services. There were a total of seven group entities providing telecom services in different circles, as named below : (1) Vodafone Mobile Services Ltd. ("VMSL") (2) Vodafone Cellular Limited ("VCL") (3) Vodafone Digilink Limited ("HVDL") (4) Vodafone East Limited ("VEL") (5) Vodafone South Limited ("VSL") (6) Vodafone Spacetel Limited ("VSPL") (7) Vodafone West Limited ("VWL") 4. Two amalgamation involving merger of certain Vodafone group companies were undertaken to re-structure business operations and increase....
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....fone also submitted that system related issues cannot be held against Vodafone so as to deny its due and such considerable delay is against the mandate of the provisions of the Act and the law laid down by this court. Vodafone submits that the ITD System does have a functionality, enabling the revenue to manually grant credit of tax in case of a merger. Reliance in this regard is placed on the decision in the case of Times Internet v. Additional Commissioner of Income Tax WP (C) 3384 of 2017. The relevant para of the case is extracted hereunder for ready reference: "1. Pursuant to the order of this Court dated 6th July, 2017, a reply has been handed over today on behalf of the Respondents wherein it has been, inter alia, stated that 71% of the tax refund amount claimed by the Petitioner for the AYs 2013-14 and 2014-15 has been processed by the Department. It is sought to be explained by Mr. Rahul Chaudhary; the learned Senior Standing Counsel for the Revenue that new software has to be developed to process the refund claims and, pending the development of such software, manual credit for tax deducted at source, after verification, is being given. The Respondent seeks six more mo....
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....ts that discretion under section 143(1D) has been exercised. 10. On 27.09.2017, Vodafone again requested the Revenue that the returns of income be processed expeditiously and if it were in disagreement then a personal hearing followed by a reasoned order as to why the returns of income were not being processed be given. In the interim, through notice dated 21.09.2017, the Revenue sought to delay the issuance of the refunds arising from the processing of the returns by issuing a letter to Vodafone, inter alia, calling for details of the amalgamating entities as well asking Vodafone to give "consent" to adjustment of refunds due to Vodafone against demands, which have already been stayed by the various Courts and Tribunals. In response, Vodafone filed a detailed reply pointing that the details sought were already part of an application filed by the Revenue before this court and also giving a detailed rebuttal; it further requested for refunds. Vodafone also stated that it filed its returns for AY 2017-18 on 25.11.2017 claiming a refund of Rs. 743.67 crore. The refund sought was because of delay in issuing the "Nil" withholding certificate sought by Vodafone in August, 2016. While ....
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....detrimental to collection of demands that may arise, he may invoke the provision of Section 143(1D) of the Act. From the perusal of section 241A of the Act, it is evident that all tax returns are necessarily to be processed within the time period as prescribed under Section 143(1) of the Act. In the instant case, it is note-worthy that the time period prescribed under Section 143(1) of the Act has expired and there has been no correspondence from the revenue that discretion under Section 143(1D) was exercised. 14. Appearing for Vodafone, Mr. Harish Salve, Senior counsel, urged that the Revenue deliberately did not process Vodafone's tax returns for the relevant assessing years, resulting in deprivation of refund of about approximately Rs. 5,500 crores despite repeated reminders and requests on its behalf. The Senior counsel further urged that for the AYs 2012-13 and 2013-14, the limitation period expired on 15.09.2018 and for AYs 2014-15, 2015-16 and 2016-17, the limitation expires on 31.12.2018. Mr. Salve alleged that the intention of the revenue is obvious and it defeats the very object and purpose of the enactment. 15. Counsel argued that Act does not provide for automatic....
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....owing grounds, namely, (i) Certain additions are made pursuant to adjustment by the Transfer Pricing officer. (ii) With respect to the issue of capitalization of license fees, the Revenue submitted that Vodafone debits the Revenue share of license to the P&L account as a revenue expenditure whereas considering the enduring nature of the benefit derived by Vodafone out of the telecom license and the intangible nature of the license, the license fee is treated as a capital expenditure and amortization is allowed over the period of the license agreement. Resultantly, an addition of Rs. 11,10,99,763/- was made in AY 2011-12. As the company underwent amalgamation, the total sum of the license fee paid by the companies is to be amortized, resulting in higher additions. Besides this, as the special audit for the AYs 2012-13 and 2013-14 is underway, the accounting treatments of the license and their amortizations will also result in huge additions being made. (iii) With respect to the issue of 3G spectrum fees, Vodafone claimed depreciation on the spectrum it acquired. The revenue here contends that rather than depreciation being claimed on the intangible asset of 3G spectrum, the....
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.... On penalty levied by the DoT, the Revenue alleged that there have been penalties levied by the Department of Telecom on Vodafone for non-verification of customers etc. The penalty is levied as per the Indian Telegraph Act, 1885. Hence, the penalty is not an allowable expenditure under Section 37 of the Act. The disallowance of this expenditure would lead to substantial additions for all the, amalgamating companies and would thereby result in creation of a substantial demand for Vodafone. (ix) With respect to Issue of Disallowance on account of network site rentals, the respondent submits that Vodafone pays network site rentals to the company M/s Indus towers Ltd., to which it has gifted the passive infrastructure assets, which has been held unreasonable by the department. The assesee in the AY 2011-12 had failed to furnish the ledgers duly certified by M/s Indus Towers Ltd, indicating the payments made. Thus, the amounts were not crystallized and an addition of Rs. 52.2 crore was made. Considering that Vodafone has merged into itself other subsidiary companies, the addition on account of network site rentals will be substantially higher. (x) It is urged that abundant caution....
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....s Rs. 33,93,397 and subsequently, the income determined by the AO was Rs. 546,64,25,250/-. 20. Mr. Zoheb Hossain, the Revenue's counsel urged that Tata Teleservices (supra), is distinguishable. The petitioner there had not undergone retrospective mergers and had incurred substantial losses where no net demand could have been created. Whereas, in the facts of the present case, the returned loss in the AY 2011-12 was assessed as a profit in excess of Rs. 500 crore by the assessing officer. Tata Teleservices did not face outstanding demands amounting to Rs. 5,500 crores that were yet to be recovered. The assessments there were not under any special audit which were likely to result in substantial demands. However, this case involves three assessment years, where, revised returns were filed but that are subject to special audit. The shareholding pattern of Tata Teleservices is such that the money could not be repatriated abroad leaving the interest of revenue indefinitely compromised, which is not the case with Vodafone with the actual owner being a foreign company. Therefore, the decision in the Tata Teleservices case (supra), cannot be applied to the facts of the present case as s....
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....ithout completion of the pending scrutiny cases. Therefore, exercising powers under section 143(1) and under section 241A of the Act, the undersigned decline the processing of returns under section 143(1). The above decision has been taken after taking into cognizance the order of Honourable High Court of Delhi in TATA TELESERVICES LIMITED versus CENTRAL BOARD OF DIRECT TAXES & ANR dated 11-05-2016 in para 24 of the judgment: "The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143(1D) of the Act." 23. Mr. Hossain placed reliance on the decision of this court in the case of Indus Towers Limited Vs. Union of India & Ors (W.P.10293/2017), where the writ petition was withdrawn with liberty to approach the Commissioner by way of revision petition under Section 264 of the Act against the impugned order passed by the assessing officer refusing to issue refund. 24. It was pointed out that no doubt Tata Teleservices (supra) quashed the instructions issued by the CBDT. However, it still gave the revenue the ability to exercise the discretion provided for in Section 143(1D). The relevant....
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....due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or 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:] 94[Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;] (b) the tax 95[, interest and fee], 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 95[, interest and fee], if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance....
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.... returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no direction shall be issued after the 31st day of March, 2012. (1C) Every notification issued under sub-section (1B), along with the scheme made under sub-section (1A), shall, as soon as may be after the notification is issued, be laid before each House of Parliament. [(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.]" [(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 authority99, 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 underpaid the tax in any manner, shall serve on ....
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....ociation, news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place; and (ii) the approval granted to such research association or other association or fund or trust or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded : Provided further that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (iii) of subsection (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a....
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.... of this Act shall apply accordingly. 27. Section 241A was inserted by the Finance Act,2017, w.e.f. 01.04.2017 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." 28. It is noteworthy 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 o....
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....e is served, after following the procedure laid, the Assessing Officer is required to pass an order in writing making an assessment of the total income or loss and determine the sum payable by the assessee or refund of any amount due to him on the basis of the assessment. It is also relevant to notice that whether it is the processing of a return under Section 143 (1) or an order under Section 143 (3) is subject to the same time limit, i.e. Section 153 (1). 30. To understand the relevance of the insertion of Section 143(1D) by the Finance Act, 2012, with effect from 1st July, 2012, the relevant portion of the Finance Act, 2012 is extracted hereunder for ready reference: "Amendment of Section 143. 61. In section 143 of the Income-Tax Act,- (a) after sub-section (1C), the following sub-section shall be inserted with effect from the 1st day of July, 2012, namely:- "(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 subsection (2)." 31. The provision begins with a non-obstante clause, i.e. that notwithstanding anything contained in Section 143 (1), the proc....
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....her he should process the return. 24. Consequently, the Court is of the view that the impugned Instruction No.1 of 2015 dated 13th January, 2015 issued by the CBDT is unsustainable in law and it is hereby quashed. It is directed that the said instruction shall not hereafter be relied upon to deny refunds to the Assessees in whose cases notices might have been issued under Section 143(2) of the Act. The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143(1D) of the Act." 33. This view of the court was relied upon by a Division Bench of the Bombay High court in Group M. Media India Pvt. Ltd. (supra). The relevant paras of the judgment are extracted hereunder for ready reference: "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 ....
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....or order for doing justice. Therefore, Article 226(1) of the Constitution empowers the Court to issue directions, orders or writs, including writs in the nature of habeas corpus, mandamus, certiorari or any of them. Therefore, in view of the conduct of the Assessing Officer, we are compelled to direct the Assessing Officer to consider and process the petitioner's representation dated 12th August, 2016 and dispose of the same as expeditiously as possible within a period of 8 weeks from today." 34. In Uttar Bihar Gramin Bank vs. The Principal Commissioner of Income Tax, Muzaffarpur & Ors. (2018) 303 CTR (Pat) 303, the Patna High Court disposed of the writ petition giving the liberty to the petitioner to approach the authority as the matter was pending for scrutiny assessment. 35. In Corrtech International Pvt. Ltd. vs. Deputy Commissioner of Income Tax [2018] 401 ITR 355(Guj), the Gujarat High Court explained the application of Section 143(1D) in co-relation to Section 241A in similar cases. The relevant paras are extracted hereunder for ready reference: "13. If we analyze section 143 of the Act as it existed prior to the amendment of the Finance Act 2017, the return filed b....
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.... 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 subsectio....
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....d, 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 Pvt. Ltd. Mumbai (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 up to 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 indicatin....
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....n 143(1) of the I.T. Act. The resultant position is made clear, when we read Section 143(3) of the I.T. Act. Thus the process of assessment in the real sense of the term commences only when notice is issued under Section 143(2) of the I.T. Act. Here too notice has to be served on the Assessee within the period of one year from the end of the month, in which the return is furnished. Thus, if no notice is served within the stipulated period of twelve months, the assessment proceedings under section 143 of the I.T. Act come to an end. Thus, though technically there is no assessment framed in such a case, yet the proceedings as far as section 143 of the I.T. Act is concerned, the same stand terminated. Though the procedure of centralised processing under subsection 1A of Section 143(1) of the I.T. Act finds place under the heading "Assessment" under section 143 of the I.T. Act, there appears to be a clear distinction and dichotomy in procedure. Between April 1, 1998, and May 31, 1999, sending of an intimation under section 143(1)(a) of the I.T. Act, was mandatory." 37. Explanatory Notes to the provisions of the Finance Act, 2017 issued by the CBDT, by Circular No.2/2018 dated 15.02.....
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.... the recent past, it has been the endeavour of the Income-tax Department to issue prompt and timely refunds within this time frame, which is keeping in line with its commitment made under the Citizen's Charter. However, the provision as introduced under Section 143(1D), with effect from 1-7-2012, providing that the processing of a return shall not be necessary, where a notice has been issued to the assessee under Section 143(2), has proved to be a bottle-neck in the commitment of the Department to issue timely tax refunds. It needs to be appreciated that the time limit for finalization of assessment in a case, where notice for scrutiny has been issued under Section 143(2), could extend upto 32 months or even 40 months (in a case of International Transfer Pricing) from the date of filing tax return. In such cases, it is grossly unfair to the assessee that the refund due to him under his tax return and payable within six months is withheld on the pretext that no processing of the tax return has taken place. 8.2 It is, therefore, recommended that Section 143(1D) should be deleted with effect from 1-7-2016." 39. A reading of the above judgements and the relevant provisions, clearly ....
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....sible. The Supreme Court held as follows: "5. Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that Section 143 (1) (a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under Section 154. Apart therefrom, the provisions Section 143 (1) (a) (i) indicate that the intimation sent under Section 143 (1) (a) shall be without prejudice to the provisions of Sub-section (2). The Legislature, therefore, intended that, where the summary procedure under Subsection (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available; a regular assessment proceeding having been commenced under Section 143 (2), there is no need for a summary proceeding under Section 143 (1) (a)." 43. Earlier, the Calcutta High Court, in Modern Fibotex India Ltd. & Anr. vs Deputy Commissioner....
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.... of earlier years. 47. The petitioner has undertaken two schemes of amalgamation involving merger of certain group companies in order to restructure its business operations and increase operational efficiencies. In light of the above fact, assessments for the AY 2012-13 and 2013-14 are under special audit and any demand that would arise from the processing of the said assessment years are to be allowed to be adjusted against the refund claims. The petitioner's position is that it is not in a good financial condition. 48. There is some merit in the revenue's argument that substantial outstanding demand are pending against the petitioner. Further, the likelihood of substantial demands upon the assessee after the scrutiny for the AYs is completed, cannot be ruled out. The Revenue should have the right to adjust the demands against the refunds that may arise but have not yet been determined due to ongoing scrutiny proceedings. 49. As far as the argument that the expiry of the one year period, per second proviso to Section 143 (1) resulting in finality of the intimation of acceptance, this court is of opinion that the deeming provision in question, i.e. Section 143 (1) (d) only....