Vodafone Idea Ltd. (Earlier Known As Vodafone Mobile Services Limited) vs Assistant Commissioner of Income Tax Circle 26 (2) & Anr.

Income Tax Act, 1961: s.143(1) and s.143(2) – 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 s.143, processing of return in terms of sub-section (1) of s.143 of the Act, would stand deferred – Held: The processing of return in terms of sub-section (1A) of s.143 is to be done through centralized processing and the scope of processing under sub-section (1) of s.143 of the Act is purely summary in character – Once deeper scrutiny is undertaken and the matter is being considered from the perspective whether there is any avoidance of tax in any manner, issuance of notice under sub-section (2) itself is sufficient indication – Sub-section (1D) of s.143 of the Act does not contemplate either issuance of any such intimation or further application of mind that the processing must be kept in abeyance – It would not, therefore, be proper to read into said provision the requirement to send a separate intimation– Issuance of notice under sub-section (2) of s.143 is enough to trigger the required consequence – Any other intimation is neither contemplated by the statute nor would it achieve any purpose.

Income Tax Act, 1961: s.241-A – Applicability of – Returns filed in respect of assessment year commencing on or after the 1st April, 2017 – s.241-A of the Act requires a separate recording of satisfaction on part of the Assessing Officer that having regard to the fact that a notice has been issued under sub-section (2) of s.143, the grant of refund is likely to adversely affect the revenue; whereafter, with the previous approval of the Principal Commissioner or Commissioner and for reasons to be recorded in writing, the refund can be withheld – Since the statute now envisages exercise of power of withholding of refund in a particular manner, for assessment year commencing after 01.04.2017 the requirements of Section 241-A of the Act must be satisfied.

Income Tax Act, 1961: s.241-A – Withholding of refund – Whether insofar as AY 2017-18 is concerned, the order dated 14.03.2019 u/s.241-A satisfies the required statutory parameters or not – Held:In terms of second proviso to sub-section (1) of s.143 of the Act, the required intimation under said sub-section must be given before the expiry of one year from the end of the financial year in which the return is made – In respect of AY 2017-18, the return having been filed on 25.11.2017, period available in terms of said second proviso was upto 31.03.2019, without taking into account the fact that revised return was filed on 13.07.2018 – In this case, the exercise of power on 14.03.2019 was not only after issuance of notice under sub-section (2) of s.143 and after recording due satisfaction in terms of s.241-A of the Act, but was also well within the period contemplated by sub-section (1) of s.143 of the Act for causing due intimation.

Dismissing the appeal, the Court

HELD: 1.1 Clause (a) of sub-section (1) of Section 143 has six sub-clauses specifying the kinds of adjustments which are required to be made for computing the total income or loss. Such adjustments are in the nature of “arithmetical error in the return”; incorrect claim “apparent from any information in the return”; disallowance of loss if the return of the previous year with respect to which such loss is claimed was furnished “beyond the due date”; disallowance of expenditure indicated in the audit report if it has “not taken into account in computing the total income”; disallowance of deductions specified in sub-clause if the “return is furnished beyond the due date”; and addition of income as specified in sub-clause (vi) if it was not “included in computing the total income”. All these features deal with matters which are apparent from the return and the inconsistency is evident on the face of it. Upon causing such adjustments after due intimation or notice to the assessee, the element of tax, interest and fee is to be computed in terms of clause (b). Thereafter, in terms of clause (c), due credit to the amount of tax paid and any relief that is allowable is to be given and the net amount payable or to be refunded, is to be computed. The intimation to be generated under clause (d) is on the basis of such exercise and if any refund is due, the same has to be granted in terms of clause (e). Thus, at every stage in sub-section (1) the return submitted by the assessee forms the foundation, with respect to which, if any of the inconsistencies referred to in various sub-clauses of clause

(a) are found, appropriate adjustments are to be made. [Para 12][237-B-F]

1.2 On the other hand, the exercise of power under subsection (2) of Section 143 of the Act, leading to the passing of an order sub-section (3) thereof, 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. The issuance of notice and consequent proceedings are premised on any of the aforesaid three postulates. In other words, the return filed by the assessee itself calls for or requires a further probe and deeper consideration. The guiding principle is to ensure that the income is not under-stated or the loss is not over-stated, or the tax is not under paid in any manner. 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, by an order in writing, assessment of total income or loss is to be made. [Para 12][237-F-H; 238-A-B]

CIT v. Gujarat Electricity Board (2003) 260 ITR 84 – referred to.

1.3 The power under sub-section (1) of Section 143 of the Act is summary in nature designed to cause adjustments which are apparent from the return while that under sub-sections (2) and (3) is to scrutinize the return and cause deeper probe to arrive at the correct determination of the liability of the assessee. The exercise of power under Sub-sections (2) and (3) of Section

143 of the Act is thus premised on non-acceptance of what is evident from the return itself and to ensure that there is no avoidance of tax in any manner. The dimension of such power is far greater and deeper than mere adjustments to be made in respect of what is available from the return. 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. Logically, the outcome of the exercise initiated through notice under subsection (2) of Section 143, must determine whether any refund is due and payable. 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. Considering the nature of power exercisable under these two limbs of Section 143, the inescapable conclusion is 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. This conclusion is fortified and strengthened by clear stipulation to that effect in sub-section (1D) of Section 143. Irrespective of some change in the text of said provision which was sought to be introduced by Finance Act 2016 and not accepted by Finance Act, 2017, the legislative intent is clear from the expression, “… the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2)” and by use of non-obstante clause. Though the period for which it would not be necessary to process the return was sought to be specified by Finance Act, 2016, mere absence of such period in the provision as it stands today, makes no difference. The above quoted portion from the provision and use of non-obstante clause indicate with sufficient clarity the intent of the Parliament that in cases where notice under sub-section

(2) is issued and proceedings are initiated, the processing of a return under sub-section (1) shall not be necessary. [Paras 1315][238-E-H; 239-A-E] Mohd. Ibrahim v. The State Transport Appellate

Tribunal, Madras (1970) 2 SCC 233; Sohanlal and others v. Amir Chand and sons and others (1973) 2 SCC 608 : [1974] 1 SCR 453; Upper India Cable Co. and others v. Bal Kishan (1984) 3 SCC 462; Brij Kishore Sharma and others v. Ram Singh and sons and others (1996) 11 SCC 480 : [1996] 7 Suppl. SCR 152;

Rasammal Issetheerammal Fernandez etc. v. Joosa Mariyam Fernandez and others (2000) 7 SCC 189 : [2000] 2 Suppl. SCR 336 – referred to.

1.4 As against the general principle which mandates an action in a particular manner, when an exception is to be carved out, the relevant provisions stipulate “it shall not be necessary” to adhere to and follow the manner mandated by such general principle; and if the contingency contemplated by such exception arises, the general principle is to stand overridden.The intent to have the general principle emanating from sub-section (1) of Section 143 overridden, in case where the proceedings are initiated pursuant to notice under sub-section (2) of the Act, gets more pronounced and emphasized by use of non-obstante clause in sub-section (1D). In the premises, in respect of Assessment Years ending on 31st March 2017 or before, if a notice was issued in conformity with the requirements stated in sub-section (2) of Section 143 of the Act, it shall not be necessary to process the refund under sub-section (1) of Section 143 of the Act and that the requirement to process the return shall stand overridden. [Paras 16, 17, 18][240-B-D; 241-D]

Vaishali Abhimanyu Joshi v. Nanasaheb Gopal Joshi (2017) 14 SCC 373; Union of India v. G.M. Kokil (1984) Supp. SCC 196 : [1984] SCR 292 – referred to.

3.1 The issue 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. The processing of return in terms of sub-section (1A) of Section 143 of the Act is to be done through centralized processing and the scope of processing under subsection (1) of Section 143 of the Act is purely summary in character. Once deeper scrutiny is undertaken and the matter is being considered from the perspective whether there is any avoidance of tax in any manner, issuance of notice under subsection (2) itself is sufficient indication. Sub-section (1D) of Section 143 of the Act does not contemplate either issuance of any such intimation or further application of mind that the processing must be kept in abeyance. It would not, therefore, be proper to read into said provision the requirement to send a separate intimation. 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.Consequently, the submission that the intimation dated 23.07.2018 must be held to be invalid, inter alia on the ground that it was issued well after the period within which the return was required to be processed under sub-section (1) of Section 143 of the Act, must be rejected. [Paras 19, 20][241-EH; 242-A-B]

3.2 Insofar as returns filed in respect of assessment year commencing on or after the 1st April, 2017, a different regime has been contemplated by the Parliament. Section 241-A of the Act requires a separate recording of satisfaction on part of the Assessing Officer that having regard to the fact that a notice has been issued under sub-section (2) of Section 143, the grant of refund is likely to adversely affect the revenue; whereafter, with the previous approval of the Principal Commissioner or Commissioner and for reasons to be recorded in writing, the refund can be withheld. Since the statute now envisages exercise of power of withholding of refund in a particular manner, it goes without saying that for assessment year commencing after 01.04.2017 the requirements of Section 241-A of the Act must be satisfied. [Para 21][242-C-D]

4. In terms of second proviso to sub-section (1) of Section

143 of the Act, the required intimation under said sub-section must be given before the expiry of one year from the end of the financial year in which the return is made. In respect of AY 201718, the return having been filed on 25.11.2017, period available in terms of said second proviso was upto 31.03.2019, without taking into account the fact that revised return was filed on 13.07.2018. In the present case, the exercise of power on 14.03.2019 was not only after issuance of notice under sub-section

(2) of Section 143 and after recording due satisfaction in terms of Section 241-A of the Act, but was also well within the period contemplated by sub-section (1) of Section 143 of the Act for causing due intimation. [Para 22][242-F-G]

Gujarat Poly Avx Electronics Ltd. v. Dy. Commissioner of Income Tax (Asstt.) (1996) 222 ITR 140 Guj – referred to.