In Marginal Relief To Vodafone Idea, SC Allows Tax Refund Of Rs 773 Crores Against Claim Of Rs 4760 Crores [Read Judgment]

In a setback of sorts to Vodafone Idea, the Supreme Court on Wednesday directed the Income Tax authorities to refund only the amount of Rs.733 Crores for the Assessment Year 2014-15, amidst the telecom giant's claims that the Department had not processed income tax refunds of Rs 4,760 crore for the AYs 2014-15 to 2017-18. The Tax Department had withheld the refund to adjust it against the demands raised in the subsequent years. The requisite action under sub-section (2) of Section 143 of the Income Tax Act in respect of AY 2016-17 and 2017-18 having not even been initiated, the bench headed by Justice U. U. Lalit directed the refund to be made within 4 weeks. Submissions before the Apex Court It was the case of the appellant for AYs 2014-15 to 2016-17 (for which provisions of Section 143(1D) of the Act are relevant), the respondent-authorities have neither processed the return of income for the said years by the last date, viz. 31.03.2018 nor did the Respondent exercise the discretion provided under Section 143(1D) of the Act. Insofar as the Assessment Year 2017-18 is concerned, it was pointed out that the Respondents have admitted that their July 23, 2018 order under section 143(1D) was without jurisdiction because on that date, neither the return of income was processed, nor a notice under Section 143(2) issued, warranting exercise of powers under Section 241A of the Act. "On that ground alone, the Impugned Order insofar as Assessment Year 2017-18 is concerned should be set aside and the refund claimed for that year should be granted with interest", it was argued. Further, it was sought to be submitted that even the Orders dated 23.07.2018 and 14.03.2019 invoking jurisdiction under Section 241A of the Act for the AY 2017-18 have no sanctity of law since the sine qua non for invoking that Section, i.e. processing of return was completed on 09.04.2019- "even on merits, neither the Order dated 23.07.2018 nor the order dated 14.03.2019 disclose any grounds on which powers under Section 143(1D) or Section 241A of the Act could have been invoked" In their turn, the respondents submitted that if the AO issued a Notice u/s 143(2) within the time limit i.e. 6 months from the end of the financial year in which return was filed, then there is no longer a requirement to process the return under Section 143(1). Hence, the discretion under Section 143(1D) can be exercised at any point prior to the passing of the final assessment order. "The entire objective of not processing a return after issuance of a scrutiny notice is that in cases where there is a likelihood of substantial demands, there should not be a compulsion on the Revenue to issue refunds. There is no anomaly in the above legislative scheme which warrants dilution of the non-obstante clause and to read into Section 143(1D) a limitation which the legislature has not prescribed", it was urged. The Income Tax Department iterated that it is well settled that a non-obstante clause is a legislative device which is employed to give overriding effect to some or all contrary provisions and as such, the operation of a non-obstante clause cannot be limited in any manner and must be given its full effect. It also placed reliance on the 2018 judgment of the Delhi High Court out of which the appeals arose- "The High Court has categorically held that since Section 143(1D) begins with a non-obstante clause, it will overbear/override the second proviso to Section 143(1) which contains a limitation period of one year for precession of return" It was submitted that the AO had withheld refund in all these years for cogent and valid reasons, in the interest of the revenue, subject to final scrutiny assessment proceedings. Moreover, it was pressed that the scope of judicial review against such an order where the AO has exercised his discretion would be limited and any interference can only be done if such an exercise of power is either wholly capricious or without any valid reasons. Conclusions of the Court The bench, also comprising Justice Vineet Saran, observed that the exercise of power under sub-section (2) of Section 143 of the Act, is to be undertaken, where it is considered 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- "where the return filed by the assessee itself calls for or requires a further probe and deeper consideration". The decision narrates that by virtue of sub-section (3), upon issuance of notice, the assessee is entitled to produce evidence in support of his case. After hearing the assessee and considering the evidence so produced, assessment of total income or loss is to be made. "The veracity of the return is checked threadbare rather than considering mere apparent inconsistencies from the return...The power under (...) sub-sections (2) and (3) is to scrutinise the return and cause deeper probe to arrive at ...

In Marginal Relief To Vodafone Idea, SC Allows Tax Refund Of Rs 773 Crores Against Claim Of Rs 4760 Crores [Read Judgment]

Mehal Jain

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