No Refund to be Withheld unless Reasons Recorded: Supreme Court

No Refund to be Withheld unless Reasons Recorded: Supreme Court

Facts of the case:

• The assessee had filed its Income Tax return for the relevant AY 2014-15 and claimed the refund amounting to Rs. 1,532 crores.
• The assessee also had un-released refund for AY 2016-17 amounting to Rs. 1,128 crore and for AY 2017-18 amounting to Rs. 743 crores. In total, Vodafone Ideasought around Rs 4,759 crores in tax refunds for the period between AY 2014-15 to AY 2017-18.
• HC rejected Vodafone’s petition in December 2018 in regard to the statutory provisions of section 143 and 241-A for release of refund, aggrieved by the decision of HC, assessee filed an appeal with the Supreme Court.

Contention of Assessee:

• The assessee argues that the respondent has neither processed the return of income for the said years nor a notice u/s 143(2) issued, warranting exercise of powers u/s 241A of the Act.
• The assessee stated that after the lapse of one-year period, by reason of second proviso to section 143(1), the right to claim is vested in the hands of assessee.

Contention of Department:

• The revenue denied allegations of deliberate omission to refund amounts aggregating to Rs.4759 crores along with applicable interest and stated that income tax returns were not processed u/s 143(1).
• Department contended that tax returns of Vodafone’s Indian entities were facing multiple issues like transfer pricing adjustment, capitalization of license fees, 3G spectrum fees, and asset restoration cost obligation, including the effect of amalgamation of group entities, which required thorough scrutiny and determination.
• It was further contended that for the relevant period under consideration, the AO has already issued notice under sub-section (2) of Section 143 within time, and when the notice has been issued u/s 143(2) the processing of ITRs is not necessary and also, as per section 241A of the Act if grant of refund is likely to affect the revenue, the department can withhold the refund.

Decision held by Supreme Court of India:

• Supreme court conclusively noted that the Income Tax department would be entitled to invoke “requisite power u/s 245 of the Act to set off the amount of refund payable in respect of AY 2014-15 against tax remaining payable.” Since the requisite action is not even initiated, the Supreme Court ordered the Income-Tax (IT) department to release refund amounting to Rs 733 crore, pending for the AY 2014-15.
• In respect of Assessment Years ending on 31.03.2017 or before, if a notice was issued inconformity with requirements stated in section 143(2), it shall not be necessary to process refund under section 143(1) and that requirement to process return shall stand overridden.
• Insofar, as returns filed in respect of assessment year commencing on or after 01.04.2017, a different regime has been contemplated by Parliament, wherein having regard to fact that a notice has been issued under Section 143(2), AO can withhold refund in cases likely to adversely affect revenue with previous approval of Principal Commissioner or Commissioner and for reasons to be recorded in writing.

Source: Vodafone Idea Ltd V. ACIT (CIVIL APPEAL NO. 2377 OF 2020 (@ SLP (C) NO.1169 OF 2019)