Key Takeaways: - Brief facts and issues - Contention of parties - Key observations - Final findings

1. WITHHOLDING OF REFUND- SC ANALYSIS
SUPREME COURT OF INDIA
VODAFONE IDEA LTD.
V.
ASSISTANT COMMISSIONER OF INCOME-TAX
[2020] 116 taxmann.com 393 (SC)

2. Research Credits
Hepsibah Carolyn J

3. Legends used
AO Assessing Officer
AY Assessment Year
CBDT Central Board of Direct Taxes
CLF Capitalisation of License Fee
FA Finance Act
FY Financial Year
HC High Court
ITR Income Tax Return
PCIT/CIT Principal Commissioner or
Commissioner of Income Tax
PY Previous Year
SC Supreme Court
TPA Transfer Pricing Adjustment
VMSL Vodafone Mobile Service Ltd

4. Presentation Schema
Facts of the Case Issues & Orders of the Case Contention of the Parties
Observations by SC Conclusion

5. FACTS OF THE CASE

6. General Facts
• The appellant-Vodafone Idea Ltd. (earlier known as VMSL) is engaged in providing telecom services.
• From the AY 2014-15 to AY 2016-17, appellant filed ITR claiming refund
• Notice u/s143(2) was issued by the Dept. against which revised return was filed for the AY 2014-15 &
2015-16.
• For the AY 2017-18, the appellant filed the ITR, claiming refund
• The appellant had also filed a Writ Petition to process and grant refunds for earlier AYs (i.e AYs 2014-15 to
2017-18), along with interest u/s 244A of the Act.
• The Respondent(Dept.) filed a reply that ITRs of the appellant had multiple issues like TPA, CLF, 3G
Spectrum Fees, Asset Restoration Cost Obligation which required thorough scrutiny.
• Respondent also stated that AY for which process request has been made u/s143(1) are already under
scrutiny.
• Respondent stated that considering, pending special audit, pending scrutiny, pending demands > 4500
Cr, the powers u/s 143(1D) & u/s 241A of IT Act, can be exercised to decline processing of returns u/s
143(1).

7. ISSUES & ORDERS OF THE CASE

8. Issue
Whether it is necessary to process refund u/s 143(1), when a notice has been issued u/s 143(2)
Whether a separate intimation has to be given where requirement to process return stands
overridden other than notice u/s 143(2)

9. HC’s Observation on Writ Petition
Hence the right to claim refund cannot accrue when an scrutiny assessment pursuant to 143(2) is
pending.
The High Court held that an intimation under section 143 (1) is not to be considered as an assessment

10. CONTENTIONS OF THE PARTIES

11. Contentions of the Revenue Department
i) There is no requirement to process
refunds u/s143(1) once a notice has been
issued u/s 143(2)
Refunds were withheld for valid reasons, so
as to protect the interest of revenue.
3) It is at the discretion of AO to whether
follow procedures u/s 143(1) or 143(3) or
both simultaneously.
• The powers u/s 143(1D) & u/s 241A of IT Act, can be exercised to decline processing of returns u/s 143(1).

12. Contentions of the Assessee-Appellant
2) For AY 2017-18, neither the return was processed nor a notice under section 143(2) was issued
1) The respondent neither did process the return from AY 2014-15 to AY 2016-17 within the time limit specified nor
exercised its discretion under section 143(1D).
Appellant placed reliance on the decisions of this court in Tata Teleservices Ltd v. CBDT & Bombay HC 386
ITR 30 in Group M Media India (P.) v. Union of India 2016 SCC OnLine Bom 13624, and submitted that,

13. OBSERVATIONS OF SC

14. 1. Legislative History
FA,2012 FA, 2016 FA 2017
‘that it shall not be necessary to
process ITR, if a notice has been
issued u/s143(2)’
Reason:- Difficult to collect taxes
upon scrutiny
‘that it shall not be necessary to
process ITR, before the expiry of
period specified, if a notice has
been issued u/s143(2). Provided
that it shall be processed before
issuance of order u/s 143(3)’
Reason:- to specify a period for
which processing is not necessary.
‘that Provisions of sec 143(1D) shall
not be applicable to any ITR
furnished for AY commencing
on/after 1-4-2017’
Reason:- to avoid delay in
processing of genuine cases.
SC analysed when & why was sec 143(1D) was inserted & modified

15. Insertion of Sec 241A
which stated that refund due can be withheld by
AO,
if such grants of refund would adversely affect the
revenue,
and the reasons for which has to be recorded
with prior approval of PCIT/CIT.
Reason:- To address concerns of recovery of
revenue in doubtful cases.
Insertion of sec 241A vide FA 2017,
After renouncing the
applicability of sec 143(1D)
for AY on/after 1-4-2017, a
new power u/s 241A was
brought on board to
withhold refund dues on
doubtful cases.

16. Observation of Other Provisions
• Power u/s 143(1) is ‘A Summary in Nature’ designed to cause adjustments
• Power u/s 143(2) & (3) is to scrutinize the return & cause deeper probe
143(1) – Only to check whether any
apparent inconsistencies are evident
on the return & connected material
which may result in any adjustment.
143(2)&(3) – Scrutinizes the matter
based on evidences produced by
assessee to ensure that there is no
understating of income/overstating of
loss/ under-payment of the tax in any
manner.
As per the observations by SC on provisions laid u/s 143

17. Delay in Processing Returns
 Processing of return u/s143(1) must await
further exercise of power of scrutiny assessment
u/s 143(2) & (3).
 Power of Section 143(2) if issued as per law,
there cannot be any insistence that processing
u/s 143(1) has to be completed and refund has
to be made before the scrutiny.
 If return itself is under probe & scrutiny, such return cannot be the foundation to claim
refund until such scrutiny is complete.
Hence SC concluded that,
As per law, the factors to be considered before issuance of Notice u/s 143(2):
A. Grounds for Issuance of the Notice
B. Amount of Liability/refunds, scrutiny will result in
C. Credit worthiness of the Assessee
D. All factors addressing recovery of revenue in doubtful cases

18. 2. Overriding Effect
Section 143(1D) uses a non-obstante clause.
This indicates the intent of the Parliament on not to process returns
when 143(2) notice have been issued.
In respect of AY ending before 31.03.2017, if notice is issued under section 143(2), it shall not be
required to process the return under section 143(1) and the requirement to process the return shall
stand overridden.

19. 3.Intimation for Delayed Processing
1) Sec 143(1D) does not contemplate either
issuance of any such intimation or further
application of mind that the processing must be
kept in abeyance.
2) Issuance of notice u/s 143(2) itself is sufficient
indication.
3) There would not be any requirement to send a
separate intimation, as notice u/s 143(2) would
trigger the required consequence.

20. 4. Power to Withhold Refund
Insertion of Sec 241A
• The provisions u/s 143(1D) was made
applicable only till AY ending 31-3-2017/
before.
• For AY on /after 1-4-2017 the requirements
of sec 241A has to satisfy to exercise the
power to withhold refunds due.
• It requires a separate recording satisfaction
by AO –
• Reasons in writing for such withholding.
• View that grant of refund is to adversely
affect the Revenue.
• Has obtained previous approval of
PCIT/CIT
• Has formed such opinion having regard
to facts that notice u/s 143(2).
ITR furnished for AY on/after 1-4-2017, a different regime has been contemplated,
U/s 143(1) Intimation must be given before expiry of 1 year
from end of FY in which ITR was furnished.
In the present case, period available to exercise power u/s
241A was up to 31-3-2019, w.r.t AY 2017-18 for which ITR was
furnished on 25-11-2017.
Power was exercised on 14-3-2019 without violating
statutory requirements, not only after issuance of scrutiny
notice & after recording satisfaction, but also well within
period prescribed for causing due intimation.

21. 5. Final Assessment
Final Assessment order
u/s 143(3) for AY 2014-15
indicates
A refund of Rs 733 Cr
Final Assessment order
passed for AY 2015-16
indicates
A demand of Rs. 582Cr.
During the course of hearing, it was suggested by
Respondent that,
 Demands w.r.t earlier AYs incl. liability as a result
of order dated 28-12-2019, would make the
respondents to use the power u/s 245 to set off
amount of refund payable i.r.f AY 2014-15
against tax remaining payable.
SC opined that, court can say nothing in that respect, since
the requisite action is not even initiated.
SC also directed that,
1)Amount of Rs.733 Cr should be refunded to appellant
within 4 weeks from that day of hearing.
2)Respondents to conclude the proceedings initiated u/s
143(2) i.r.f AY 2016-17 & 2017-18.

22. CONCLUSION

23. Conclusion
In respect of AYs ending on 31-3-2017 or before, if a notice is issued u/s 143(2), it shall not be necessary to process
refund u/s143(1)
No separate intimation is required to be given to assessee that processing of return in terms of section 143 (1)
would stand deferred; issuance of notice u/s 143(2) itself is sufficient indication.
Section 143(1D) does not contemplate either issuance of any such intimation or further application of mind that
processing must be kept in abeyance.
Returns filed in respect of AY commencing on or after 1-4-2017, A new regime to withheld refunds is contemplated
under section 241(A) subject to fulfillment of conditions.

24. Thank You!
Scan the QR Code to Join our
Research Group on WhatsApp
Scan the QR Code to explore more
Research from our Website
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2021 DVS Advisors LLP