By TIOL News Service

AHMEDABAD, SEPT 28, 2017: THE issue before the Bench is - Whether mere issue of notice u/s 143(2) for extended period of processing u/s 143(1) empowers the AO to sit tight over refund claims. NO is the verdict.

Facts of the case

The Assessee-company was engaged in the business of undertaking turnkey projects for pipeline construction, HDD, and cathodic protection services. The Assessee filed its return declaring a total loss of Rs. 36.03 crores and a claimed refund of Rs. 1.39 crores for the AY 2015-16. The Assessee had deposited sizeable tax principally through suffering TDS during the FY. The AO did not pass any order u/s 143(1), but, a notice u/s 143(2) was issued. The assessment proceeding was pending before the AO. For the AY 2016-17, the Assessee filed its return declaring a loss of Rs. 21.28 crores and claimed a refund of tax already paid of Rs. 1.58 crores. Thereafter, a revised return was filed by the Assessee, in reponse to which, neither oder u/s 143(1) was passed nor any notice was issued u/s 143(2). Consequently, the Assessee wrote a letter to the DCIT and requested for refund and pointed out the tax and refund liabilities of the Assessee for the last few AYs. The Assessee did not receive any response from the DCIT, upon which, the Assessee made several further representations along the same line. Finally, the assessee opted for the writ route.

Having heard the parties, the High Court held that,

++ the case of the Assessee is that it is facing extreme financial hardship. On one hand, the Assessee suffers deduction of tax at source at the hands of the payees though due to the fact that the Assessee is making losses, there is no tax liability of the Assessee and on the other hand, the Assessee while making payments is required to deduct tax as per the statutory provisions and deposit the same with the Government. On account of the peculiar situation of the Assessee, the Assessee finds itself in liquidity crunch particularly for depositing such TDS with the Government;

++ if we analyze section 143 as it existed prior to the amendment of the Finance Act 2017, the return filed by the Assessee would be processed by the AO as provided u/s 143(1) permitting him to make adjustments and compute the tax or refund intimating to the Assessee the culmination of such exercise and granting the refund if due to him in terms section 143(1)(e). The first proviso to sub-section (1) also required the AO to send an intimation to the Assessee in case where the loss declared in the return by the Assessee is adjusted but no tax or interest is payable by or no refund is due to him. As per the further proviso to sub-section (1), no intimation under sub-section (1) would be sent after the expiry of one year from the end of the relevant AY in which the return is filed;

++ section 143(1D) which starts with a non-obstante clause provided that notwithstanding anything contained in sub-section (1), the processing of the return shall not be necessary before the expiry of the period specified in the second proviso where a notice has been issued to the Assessee u/s 143(2). Proviso to this sub-section (1D) provided that such return shall be processed before the issuance of an order under sub-section (3);

Whether mere issue of notice u/s 143(2) for extended period of processing u/s 143(1) empowers the AO to sit tight over refund claims - NO: HC

++ the provisions which were applicable in case of the Assessee post deletion of section 241 and prior to insertion of section 241A would authorize the AO to withhold the refund arising out of a return filed by the Assessee if an intimation was sent u/s 143(1) after completing the processing of the return as envisaged therein. If notice u/s 143(2) was issued, such time limit for processing would get extended till the passing of the order of assessment. However, the Revenue cannot contend that even though no intimation under sub-section (1) of section 143 was issued within the time envisaged and no notice under sub-section (2) of section 143 was issued, the Assessing Officer can sit tight over the refund claimed by the assessee arising out of the return filed. Mere issuance of notice under section 143(2) of the Act claiming extended period for processing refund under section 143(1), would not be sufficient to withhold refund;

++ sofar as the assessment of the year 2015-16 is concerned, the return was filed on 29.09.2015 for which, the time limit under the normal provision of section 143(1) for processing the return is over long back. Even though, the AO having issued notice u/s 143(2), he would get an extended time for proceeding under sub-section (1) as highlighted by the Delhi High Court in case of Tata Teleservices Ltd. and by the Bombay High Court in case of Group M Media India Pvt. Ltd. Mumbai, it would be wholly inequitable for the AO to merely sit over the Assessee's request for refund citing the availability of time upto the last date of framing the assessment u/s 143(3);

++ once the time limit envisaged in the proviso to section 143(1) is over without the AO processing the return under sub-section (1) and even though notice u/s 143(2) may have been issued, the AO, by all reasonable interpretation of the statutory provisions would be expected to respond to the Assessee's request for either granting refund or indicating that in terms of the adjustments impermissible u/s 143(1), such refund or part thereof was not available to the Assessee;

(See 2017-TIOL-2047-HC-AHM-IT)