Income Tax Refund cannot be withheld by Mere Issuance of Notice u/s 143(2)

Facts of the case:

• The assessee filed the return of Income for the assessment year 2015-16 on 20.11.2015 giving rise to a refund claim, after which he filed a revised return of income which also gave rise to a refund claim.
• The assessing officer instead of issuing intimation of processing the return u/s 143(1) and releasing the refund, issued a notice of scrutiny assessment u/s 143(2).
• The assessing officer failed to respond to the requests of the assessee for processing of return and releasing refund subject to limited adjustments, irrespective of the fact that a notice u/s 143(2) has been issued.

Contention of Assessee:

• The Assessee relied on various judicial precedents set by the court in the cases of Corrtech International (P.) Ltd. v. Dy. CIT; Tata Projects Ltd. v. Dy. CIT wherein the high court had held that the Assessing Officer was duty bound to process the return of income of the Petitioner and grant refund arising from such return, even though subsequently he had issued notice of scrutiny assessment.

Contention of the Assessing Officer:

• The Assessing Officer has referred to the provisions of section 143(1D) wherein it is stated that, “the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2)”
• The Assessing Officer also stated that the assessee was informed that refund cannot be issued in view of section 143(1D) of the Act, since notice under section 143(2) of the Act is already issued.
• The Assessing Officer further referred to the draft assessment order for the year under consideration, which if ultimately finalized would give rise to a tax demand from the Petitioner instead of department paying refund.

Held by High Court of Bombay:

• The High Court of Bombay after considering the precedents set in the cases of Corrtech International (P.) Ltd. v. Dy. CIT; Tata Projects Ltd. v. Dy. CIT held that the Assessing Officer cannot avoid processing the return under section 143(1) of the Act and granting refund to the Assessee if due as per such return. The Assessing Officer has not cited to assessee justifiable reasons as to why such refund cannot be released.

Conclusion:

The mere issuance of the notice u/s 143(2) cannot be the sole reason to avoid processing of return u/s 143(1) and granting the amount of legitimate refund of the assessee. The Assessing Officer has to respond to the request of the assessee as to why the refund shall not be released. The Assessing officers are also expected to take up an expeditious disposal of the processing of return under sub-section (1) of section 143 of the Act once the assessee requests for release of the refund and send an intimation to the assessee if he wishes to withhold the same.

Source: Tata Communications Ltd. v. Deputy Commissioner of Income-tax – 1(3)(2)