Anomalies surrounding ‘Issuance of Refunds’ under the Income Tax Act

 

  Anomalies surrounding ‘Issuance of Refunds’ under the Income Tax Act

 

I      Provisions enumerated under the Income Tax Act

 

i)     If any person satisfies the Assessing officer that the amount of tax paid or payable by him or on his behalf exceeds the amount for which he is chargeable under the Income Tax Act (herein referred to as the ‘ITA’), he shall be entitled to a ‘refund’ of the excess.

 

ii)    Every claim for refund under Chapter XIX of the ITA shall be made by furnishing a return of income in accordance with the provisions of section 139.Section 244A specifies the rate of interest which is one-half percent and the time period for which the interest shall be calculated in different cases.

 

iii)   Considering the modus operandi of the authorities, genuine tax payers face hardships in the grant of refund and moreover the threat of revenue collection perceived by the Department makes them hold refunds in legitimate cases as well.

II  The Anomaly

iv)  A plain reading of Section 143(1D) states that the processing of return shall not be necessary, where a notice has been issued to the assessee under 143(2). However, the said provision was removed for assessment years beginning 1^st April 2017.

 

v)    In the aforementioned cases, Assessing officer has the discretion to process the return even after issuance of notice under section 143(2) but the department always takes a back step in such cases and genuine tax payers who have borrowed money at higher interest rates suffer liquidity issues if the amount involved is substantial.

 

vi)  The Hon’ble High Court of Delhi in case of Maple Logistics (P.) Ltd. v. Principal Chief Commissioner of Income Tax [2019] 112 taxmann.com 199 (Delhi) held that mere issuance of notice under section 143(2) of the ITA, would not be a sufficient ground to withhold refund under section 241A. Further, in case of Group M Media India (P.) Ltd. v Union of India [2017] 77 taxmann.com 106/[2016] 388 ITR 594, the Bombay High Court observed that the Assessing Officer is required to independently apply his mind and take a decision in terms of section 143(1D) whether or not to grant a refund in the facts and circumstances of the case. Additionally, the reasons which are to be recorded in writing have to be approved by the Principal Commissioner or Commissioner, as the case may be and this should be done objectively i.e. Not holding of refund may adversely affect the revenue shall be proven. The authorities, however, don’t follow the procedure laid down by the Courts and hold refunds without any jurisdiction.

vii) Several other judgements including those of Corrtech International (P.) Ltd. v. Deputy Commissioner of Income-Tax [2017] 86 taxmann.com 156 (Gujarat), Tata Teleservices Ltd. v. Central Board of Direct Taxes  [2016] 386 ITR 301/240 Taxman 182/69 taxmann.com 226 (Delhi), procedure has been laid out for holding of refund as per section 241A of the ITA.

 

(1) A recent Supreme Court Judgement in the month of July 2020 in case of a cash strapped telecom operator ordering a refund of approximately INR 833 crores came to its rescue since it is already burdened with crores of statutory dues. The Apex Court held that the said refunds can’t be withheld against undetermined future tax demands. It’s still a long battle for the telco considering pending tax refunds of around INR 4000 crores.

 

III  Peroration

viii)        Section 241A read with section 143(1D) of the ITA amicably lays down the manner for exercise of Assessing Officer’s discretion in refund cases. Perusal of the said sections envisages the following:

 

1.    A plain reading of the provisions of section 143(1) envisages that once the notice under section 143(2) is issued, Assessing Officer, suo moto, could process the return since there is no time limit for processing of return mentioned in the section once notice is issued under 143(2). However, the said return could be processed before issuance of order under section 143(3).

 

2.    Section 241A quite clearly provides for the conditions to withhold refund in cases where the Assessing Officer is of the opinion having regard to the issuance of notice under section 143(2), that the grant of refund may adversely affect the revenue, he may, for reasons to be recorded in writing and with the prior approval of the Principal Commissioner or Commissioner withhold the refund upto the date on which assessment is made.

 

3.    But this aforesaid discretion to withhold refunds is made beyond jurisdiction in most of the cases which the taxpayers shall be mindful of and shall request the jurisdictional officer ‘reasons in writing’ for withholding the refund.

 

4.    Non receipt of sufficient or inadequate reasons in writing can be argued considerably at higher forums and is likely to be ruled in favor of the assessee.

 

IV  Introduction of Faceless Regime may turn the tide

 

ix)  Recent amendment of Faceless Assessments Regime w.e.f. 13^th August 2020 (Faceless Appeals to be introduced w.e.f. 25^th September 2020) along with the “Taxpayers’ Charter” may push the authorities to relook into similar matters with a holistic approach which would be taxpayer friendly and would honor the honest.

 

x)    The authorities could be held accountable for their actions and have to provide complete and accurate information to the taxpayers in a timely manner. This will lead to transpiring of accurate and time bound information with the necessary approvals since complaint mechanism is also in place which would provide prompt disposal in matters like absence of approval and reasons in writing under various provisions of the ITA.

 

xi)  The bifurcation of technical and review teams would also create a comprehensive framework for judicial precedents and the ITA to be aligned with the procedures of the taxman at large.