SC orders Income Tax to release refund of Rs. 733 crores to Vodafone within four weeks

The SC on April 29, 2020 {VODAFONE IDEA LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX & ANR.} held that if a notice was issued in conformity with the requirements stated in sub-section (2) of Section 143 of the Income Tax Act, 1961 ('in short' 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.

The SC Bench, comprising of Justice U U Lalit & Justice Vineet Saran, observed that the processing of return under sub-section (1) of Section 143 must await the further exercise of power of scrutiny assessment under sub-sections (2) and (3) of Section 143. If the power under sub-section (2) of Section 143 of the Act is initiated in a manner known to law, there cannot be any insistence that the processing under sub-section (1) of Section 143 be completed and refund be made before the scrutiny pursuant to notice under sub-section (2) of Section 143 is over.

It was observed by the SC on the issuance of notice: as to 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. It was held by the Court that 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. 

Further, the Court held that the nature of exercise of power under sub-section (1) as against that under sub-sections (2) and (3) of Section 143 is thus completely different. It was held that in the former case, the matter is processed, only to check whether any apparent inconsistencies are evident on the face of the return and connected material which may call for any adjustment while in the latter case, the matter is scrutinized after taking into account such evidence as the assessee may produce. The Court, however, held that the exercise in the latter case is to ensure that there is no understating of income or overstating of loss or underpayment of the tax in any manner. The Court further held that the veracity of the return is checked threadbare in the latter case rather than considering mere apparent inconsistencies from the return. 

The Court held that once such scrutiny is undertaken and proceedings are initiated by issuance of a notice under sub-section (2) of Section 143, it would be anomalous and incongruent that while such proceedings so initiated are pending, the return be processed under sub-section (1) of Section 143, which may in a given case, entail payment of refund. It was held that logically, the outcome of the exercise initiated through notice under sub-section (2) of Section 143, must determine whether any refund is due and payable. It was held that if the return itself is under probe and scrutiny, such return cannot be the foundation to sustain a claim for refund till such scrutiny is not complete.

ISSUE

The issue in present case before the SC was the plea of the Vodafone i.e. there was complete inaction on part of the respondents in processing the ITRs filed by the appellant and in issuing appropriate refund to the appellant, for which, Writ Petition was filed by the appellant in the High Court, praying for principal relief, that is, directing the Respondents to process the ITRs and grant refunds for the AYs 2014-15 to 2017-18. The said Writ Petition was dismissed by the HC, resulting in present appeal before the SC by Vodafone. It was, however, not in dispute that at the time of dismissal of Writ petition by the High Court proceedings under Sec 143(2) were pending against all Assessment Years i.e. AYs 2014-15 to 2017-18.

During the pendency of SLP before the SC, final Assessment Orders under Section 143 (3) of the Act were passed on 31.10.2019 for AY 2014-15 and 2015-2016, whereunder the appellant was held entitled to refund of Rs. 733 Crores (approximately) in respect of AY 2014-15, whereas for AY 2015-2016 the claim for refund was rejected and demand in the sum of Rs. 582 Crores (approximately) was raised. It was argued on behalf of the revenue before the SC that demands in respect of earlier assessment years including the liability as a result of order dated 28.12.2019 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.

However, in view of subsequent developments, it was held by the SC that 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. It was held that since the requisite action is not even initiated by the revenue, the Court say nothing in that respect. The Court directed that the amount of Rs. 733 Crores shall be refunded to the Vodafone within four weeks from today subject to any proceedings that the Revenue may deem appropriate to initiate in accordance with law.

The Court further directed that 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 against the Vodafone as early as possible. The appeal of Vodafone was accordingly disposed of by the SC.