TATA PROJECTS LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX AND 3 ORS

ORAL JUDGMENT: (PER A.S.OKA,J.) 1 We have heard these petitions at some length as certain   important   procedural   and   legal   issues   are CNR No : HCBM020218662017 Uploaded on - 21/08/2020 involved in these petitions which arise out of the provisions   of   the   Income   Tax   Act,1961   (for   short `the said Act'). The issues relate to implementation of the Centralised Processing of Return Scheme, 2011 published   under   the   notification   SO­16E   dated   4th January  2012  and   especially  the  processing   of  the returns   which   are   transmitted   by   the   Centralised Processing   Centre   (for   short   “the   Centre”)   to Assessing Officers having jurisdiction in accordance with   sub   clause   (iii)   of   clause   (8)   of   the Centralised   Processing   of   Return   Scheme,2011   (for short   “the   said   Scheme   of   2011”).     The   petitions also concern issue of interpretation of sub­section 1(D) of section 143 of the said Act as existing on the relevant date. 2 Writ Petition No.2051 of 2017 and WP(L) 2498 of 2017   have   been   filed   by   the   same   Company.     Writ Petition   No.2051   of   2017   concerns   the   assessment year 2015­16 and Writ Petition (L) No.2498 of 2017 concerns the assessment year 2016­17. In the case of assessment year 2015­16, return was filed by the petitioner­company   on   30th  November   2015   claiming refund.  A revised return was filed  on 9th January 2016 claiming higher refund. Both the returns were filed   electronically.     In   relation   to   the   said returns   filed   for   the   assessment   year   2015­16,   a notice   under   sub­section   2   of   section   143   of   the said   Act   was   issued   by   the   respondents   on   19th September 2016. It is stated in the petition that as   scrutiny   proceedings   of   the   cases   of   the assessment year 2014­15 are not yet concluded, the Uploaded on - 21/08/2020 scrutiny   proceedings   of   the   returns   of   the assessment   year   2015­16   have   been   kept   pending. According to the case of the petitioner, on 6th June 2016,  Income  Tax   e­filing  website  showed  that  the returns   were   transferred   by   the   Centre   to   the jurisdictional   Assessing   Officer   for   processing. Reliance is placed on screen shot of the concerned page   of   the   website.     The   petition     refers   to communications of the Officer of the petitioner to the offices of the first and second respondents for the purposes of pursuing return and the claim for refund.     Reliance   is   placed   on   several   letters addressed   by   the   petitioner   from   time   to   time. According to the case of the petitioner, on 19th May 2017,   the   first   respondent   (Assessing   Officer) signed intimation under clause (a) of sub­section 1 of   section   143   of   processing   the   refund   of Rs.28,75,27,080/­ along with interest payable under section 244A of the said Act.  The case made out by the   petitioner   in   the   Writ   Petition   is   that   the refund was not issued by the first respondent but it was  orally   informed     that  the  refund   will  not  be issued due to expiry of limitation contained in the second   proviso   to   clause   (a)   of   sub­section   1   of section 143 of the said Act. Writ Petition No.2051 of   2017   is   filed   seeking   a   writ   of   mandamus directing respondents to   process of return for the assessment year 2015­16 and to issue the  refund. 3 As stated earlier, Writ Petition (L) No.2498 of 2017   relates   to   the   returns   filed   for   the assessment   year   2016­17. In   this   case,   a   return Uploaded on - 21/08/2020 claiming refund was filed on 30th  November 2016 and the return was subsequently revised on 20th December 2016. According to the case of the petitioner, on 23rd  December   2016,   the   Centre   transferred   the returns   filed   by   the   petitioner   to   jurisdictional Assessing Officer for its processing.  Even in this petition, reliance is placed on the visits made by the Officers of the Petitioner to the Office of the Assessing Officer and the letters addressed by the petitioner to the Assessing Officer.   According to the case of the petitioner, on 12th July 2017, after manually processing the return, the first respondent came   to   the   conclusion   that   the   petitioner   is entitled

to refund

of Rs.10,88,85,962/­. Thereafter, a representation was made requesting the second respondent to issue the refund. As no action was   taken   by   the   respondents,   this   petition   was filed   seeking   a   writ   of   mandamus   enjoining   the respondents   to   issue   the   refund   of   the   amount already   determined   by   the   Assessing   Officer   after manually processing the return. 4 As   far   as   Writ   Petition   No.782   of   2017   is concerned, the relief sought in this writ petition under Article 226 of the Constitution of India is in relation   to   the   returns   filed   by   the   petitioner company for the assessment years 2014­15 to 2016­17. An order was passed on 25th October 2016 (Exhibit­A to the petition).   The said order is under section 119  of   the  said  Act  which  notes  that  the   returns containing   claims   for   refund   for   the   assessment years 2012­13, 2013­14, 2014­15 were not processed Uploaded on - 21/08/2020 within the time frame prescribed under sub­section 1 of section 143 of the said Act. It was pointed out that as a result of this delay the Tax Payers were deprived of legitimate refund.   By the said order, the   power   under   section   119   was   exercised   by   the Central   Board   of   Direct   Taxes   by   which   the   time frame   prescribed   in   second   proviso   to   sub   1   of section 143 was relaxed and returns were permitted to be processed by 31st March 2017. In paragraph 3 of the said order, it is stated thus: “3 However, the above relaxation shall not be applicable to those cases where the said return­of­income was not processed in view of provisions of sub­section (1D) of section 143 of the Act.   Further, this relaxation shall not be applicable to those cases where either demand is shown as payable in the return­of­ income   or   is   likely   to   so   arise   after processing the return­of­income.” 5 The   grievance   made   in   this   petition   is   about the   failure   of   the   respondents   to   process   the returns for the refund.   A prayer is made firstly for   setting   aside   the   impugned   order   dated   25th October   2016   to   the   extent   to   which   it   restricts relaxation for processing of returns by 31st  March 2017 where returns could not be processed in view of Section 143 (1D) as notices were issued under sub­ section (2) of section 143. The second prayer is for a writ of mandamus enjoining the respondents to process the returns and sanction the refund for the Uploaded on - 21/08/2020 assessment years 2014­15, 2015­16 and 2016­17. It is  not   in  dispute  that  with  the  passage  of  time, this   petition   survives   only   as   regards   the assessment year 2016­17. 6 Coming back to the first two petitions, at two stages, affidavits in reply have been filed.   The first   affidavit   is   dated   27th  October   2017   in implementation of the order dated 11th October 2017. Paragraph 1 of the said order reads thus: “1 Heard   the   learned   Additional   Solicitor General   of   India   appearing   for   the respondents.     We   have   perused   the   letter dated   29th  September   2016   addressed   by   the Assistant Commissioner of Income Tax­2(3)(1), Mumbai to the learned senior standing counsel of the Income Tax Department. The said letter discloses   shocking   state   of   affairs.     It records that as far as return filed by the petitioner for the assessment year 2016­2017 is concerned, an attempt was made on 12th June 2016   to   process   the   return   through   ITD systems.  The system denied processing of the return   on   the   ground   that   ITD   software   is under construction.  Another attempt was made on 27th  September 2016 to process the return electronically which could not be successful on the same ground.  The letter records that the ITD software for the year 2016­2017 is likely to be released by the end of October 2017. Thus, all concerned departments were Uploaded on - 21/08/2020 aware at least on 27th September 2016 that the said software was not available for the year 2016­2017. That is the status which continues till today.” 7 A  direction  was  issued  in  paragraph  3  of   the said order which reads thus: “3 We direct the appropriate Officer of the Income   Tax   Department   to   file   an   affidavit setting out as to why there is a gross delay in providing ITR software for the year 2016­ 2017. The   affidavit   will   also   state   what action   the   Government   of   India   proposes   to take   against   those   who   are   guilty   of dereliction   of   duty.   Today,   we   are   not passing any order directing that the manual process be adopted as the learned ASG stated that the software will be released by the end of this order and the processing of return of 2016­2017   will   be   completed   by   end   of November 2017. The affidavit shall be filed by 30th October 2017.” 8 An Affidavit in response to the said direction is   filed   by   K.   Ravi   Ramachandran,   Additional Commissioner   of  Income­tax  ­  2(3),  Mumbai.   On  the basis of the said order, clarifications were sought by him which have been reproduced in paragraph 6 of the said affidavit. It is contended that out of 4.35 crore e­filed Returns for the assessment year 2016­ 17, 1% income tax returns were transferred to the Uploaded on - 21/08/2020 Assessing Officer (AO) as the same were selected for Scrutiny and therefore, assessment was required to be done by the AOs.  It is stated that only a small percentage of the returns was pushed to  AO and it is stated that 79,936/­ returns were transferred by the Centre to the AOs for processing.  It is stated that   certain   category   of   returns   which   were transferred to AOs  by the Centre are not processed normally.  It is stated that a category of cases was transferred   to     AOs     was   of   cases   where   a   claim under sections 90 and 91 of the said Act was made by the taxpayer.  It is stated that from the assessment year   2015­16,   ambitious   project   was   undertaken   by the   Income   Tax   Department   called   as   Income   Tax Business Application (ITBA).   It is stated that in ITBA,     many   modules   of   software   were   launched. Various   details   of   the   softwares   have   been mentioned. Ultimately, it is stated in the affidavit that   a   software   to   process   the     returns   of   the assessment   year   2016­17   will   be   available   by   31st October  2017  and   that  if   any  subsequent  technical issue arises, that will be expeditiously addressed. An   assurance   was   given   that   returns   for   the   year 2016­17   will   be   processed   by   not   later   than   30th November 2017. 9 There   is   a   separate   affidavit   filed   by   the Assistant   Commissioner   of   Income   Tax   in   Writ Petition No. 2051 of 2017 concerning assessment year 2015­16. It is contended therein that the case of the petitioner was selected for scrutiny under CASS cycle, and thereafter, the return was pushed to AO Uploaded on - 21/08/2020 by the Centre at Bangalore.  Subsequently, a notice under sub­section 1 of section 143 was issued to the petitioner­assessee.    It   is  specifically   contended in paragraph 6 that as a notice under sub­section 2 of section 143 was issued on 19th September 2016, in view   of   sub­section   1   (D)   of   section   143,   the assessment  under  sub­section   1  of  section  143  was not done and the time provided in the second proviso of sub­section 1 of section 143 expired on 31st March 2017. It   is   further   stated   that   the   Principal Commissioner of Income Tax, Mumbai declined to grant permission  for   manual  processing  of  the  return  of the said year.  Further, it is stated that the time is   available   to   complete   assessment   till   31st December 2017 and therefore, if refund is due, the same will be granted latest by 31st December 2017. 10 As   far   as   Writ   Petition   no.782   of   2017   is concerned, there is no affidavit in reply filed by the respondents. 11 Before we advert to the submissions made across the   bar,   certain   more   factual   aspects   which   are relevant   will  have  to  have  noted.  As   far  as  Writ Petition   No.2051  of  2017  is  concerned  which  deals with   the   Assessment   Year   2015­16,   a   notice   under sub­section (2) of Section 143 was served only on 19th September, 2016. As regards Writ Petition (st) no.2498 of 2017,  a notice under sub­section (2) of Section   143   of   the   said   Act   was   issued   for   the Assessment Year 2016­17 on 16th August, 2017. Uploaded on - 21/08/2020 In all the three petitions, various issues are canvassed.  The first issue  canvassed especially in the Writ Petition   relating to the Assessment Year 2016­17 is regarding the failure of the department to provide proper software under ITBA for processing the returns which were forwarded by the Centre to AO for   processing.     Reliance   is   placed   on   various orders passed by this Court from time to time.  The crux of the submission is that there is no law which prevents   AO   from   processing   the   returns   manually when requisite software is not available.   Another issue   canvassed   is   on   the   interpretation   of   sub­ section   (1D)   of   Section   143   of   the   said   Act   and especially with reference to the stand taken in both the   affidavits   that   in   every   case   where   a   notice under sub­section (2) of Section 143 is issued, the return cannot be processed.  Another issue canvassed is about the delay in processing the returns as a

result   of   which   the   petitioners   have   been   denied legitimate refund.  There are submissions canvassed on   the   interpretation   of   various   sub­sections   of Section 143. There are also submissions canvassed on the said scheme of 2011. We must also note here that as far as Writ Petition (L)no.2498 of 2017 is concerned,   after   commencement   of   hearing   of     the petition, the returns for the Assessment Year 2016­ 17 have been processed and refund has been issued. We have heard the learned Senior Counsel appearing for  the  petitioner  in  Writ  Petition  (L)No.2498  of 2017   and  Writ  Petition   No.2051  of  2017. We  have heard   the   learned   counsel   representing   the petitioner  in  Writ  Petition  No.782  of  2017. We Uploaded on - 21/08/2020 have   also   heard   the   learned   Additional   Solicitor General   of   India     on   the   provisions   of   the   said Scheme and in general on the submissions canvassed across the bar. 13 One   of   the   main   reasons   for   giving   detailed hearing to the parties is the admitted failure of the   department   to   provide   proper   software   for processing of returns of the Assessment Year 2016­17 which were sent by the Centre to AOs for assessment. 14 To the affidavit of Shri K. Ravi Ramachandran, Additional Commissioner of Income Tax­2(3), Mumbai, there are various annexures which include a letter dated 26th October, 2017 issued by the Directorate of Income Tax (Systems) which accepts the fact that out of the returns filed for the Assessment Year 2016­ 17, the Centre at Bangalore forwarded 79,936 returns to   the   AOs   for   processing.   A   stand   has   been specifically taken that in view of the provisions of sub­section(1D) of Section 143, the   processing of the   returns   selected   under   scrutiny   shall   not   be necessary. The stand taken in the said letter issued by the Directorate is that the returns submitted for the   Assessment   Year   2016­17   will   have   to   be processed in ITBA.  It is stated that the module for processing   of   the   returns   was   launched   on   3rd October, 2017 and it is stated that the module will be ready for implementation by 31st  October, 2017. Thus,   the   returns   filed   for   the   Assessment   Year 2016­17   which   were   forwarded   to   the   AOs   for processing   were   not   processed   at   least   till   31st Uploaded on - 21/08/2020 October, 2017 only on the ground that the module  in ITBA was not ready.   The consequence of this delay is   that   the   returns   which   were   pushed   to   AOs remained pending and could not be processed.  It is in this context that the issue of non­availability of proper software assumes importance. 15 Section 143 of the said Act as it exists today, reads thus:­ 143. [(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (b) the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a); (c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax and interest, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest; (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and (e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee: Provided that an intimation shall also be sent to the assessee in a 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: Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made. Explanation.—For the purposes of this sub-section,— Uploaded on - 21/08/2020 (a) "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return,— (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; (b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a). (1A) For the purposes of processing of returns under sub- section (1), the Board may make a scheme16 for centralised processing of returns with a view to expeditiously determining the tax payable by, or the refund due to, the assessee as required under the said sub-section. (1B) Save as otherwise expressly provided, for the purpose of giving effect to the scheme16 made under sub-section (1A), the Central Government may, by notification16 in the Official Gazette, direct that any of the provisions of this Act relating to processing of returns shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in that notification; so, however, that no direction shall be issued after the 31st day of March, [2012]. (1C) Every notification issued under sub-section (1B), along with the scheme made under sub-section (1A), shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] [(1D) Notwithstanding anything contained in sub-section (1), the processing of a return shall not be necessary, where a notice has been issued to the assessee under sub-section (2).] [(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,— (i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve 20 on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim: [Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003;] (ii) notwithstanding anything contained in clause (i), if he considers it 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, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may rely in Uploaded on - 21/08/2020 support of the return: [Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.]] [(3) On the day specified in the notice,— (i) issued under clause (i) of sub-section (2), or as soon afterwards as may be, after hearing such evidence and after taking into account such particulars as the assessee may produce, the Assessing Officer shall, by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly, and 24adetermine the sum payable by the assessee on the basis of such assessment; (ii) issued under clause (ii) of sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment:] [Provided that in the case of a— (a) [research association] referred to in clause (21) of section 10; (b) news agency referred to in clause (22B) of section 10; (c) association or institution referred to in clause (23A) of section 10; (d) institution referred to in clause (23B) of section 10; (e) fund or institution referred to in sub-clause (iv) or trust or institution referred to in sub-clause (v) or any university or other educational institution referred to in sub-clause (vi) or any hospital or other medical institution referred to in sub-clause (via) of clause (23C) of section 10, which is required to furnish the return of income under sub-section (4C) of section 139, no order making an assessment of the total income or loss of such 26[research association], news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, shall be made by the Assessing Officer, without giving effect to the provisions of section 10, unless— (i) the Assessing Officer has intimated the Central Government or the prescribed authority the contravention of the provisions of clause (21) or clause (22B) or clause (23A) or clause (23B) or sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10, as the case may be, by such [research association], news agency, association or institution or fund or trust or university or other educational institution or any hospital or other medical institution, where in his view such contravention has taken place; and (ii) the approval granted to such [research association] or other association [or fund or trust] or institution or university or other educational institution or hospital or other medical institution has been withdrawn or notification issued in respect of such news agency or fund or trust or institution has been rescinded :] Uploaded on - 21/08/2020 [Provided further that where the Assessing Officer is satisfied that the activities of the university, college or other institution referred to in clause (ii) and clause (iii) of sub-section (1) of section 35 are not being carried out in accordance with all or any of the conditions subject to which such university, college or other institution was approved, he may, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned university, college or other institution, recommend to the Central Government to withdraw the approval and that Government may by order, withdraw the approval and forward a copy of the order to the concerned university, college or other institution and the Assessing Officer:] [Provided also that notwithstanding anything contained in the first and the second provisos, no effect shall be given by the Assessing Officer to the provisions of clause (23C) of section 10 in the case of a trust or institution for a previous year, if the provisions of the first proviso to clause (15) of section 2 become applicable in the case of such person in such previous year, whether or not the approval granted to such trust or institution or notification issued in respect of such trust or institution has been withdrawn or rescinded.] [(4) Where a regular assessment under sub-section (3) of this section or section 144 is made,— (a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment ; (b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.” Sub­section (1D) which was on the statute book on the relevant date reads thus:­ “[(1D) Notwithstanding anything contained in sub­section (1), the processing of a return shall not be  necessary, where a notice has been issued to the assessee under sub­section (2).]” 16 When returns are filed either under Section 139 or   pursuant   to   a   notice   under   sub­section   (1)   of Section   142,     sub­section   (1)   of   Section   143 mandates that the returns shall be processed in the manner   laid   down   in   clauses   (a)   to   (e)   thereof. Uploaded on - 21/08/2020 Thus,   the   processing   of   a   return   involves determination   of   total   income   or   loss,     tax   and interest, if any, payable and sum payable by, or the amount of refund due to the assessee.  Clause (d) of sub­section (1) lays down that an intimation shall be prepared or generated and sent to the assessee specifying the sum determined   payable by, or the amount   of   refund   due   to   the   assessee   under clause(c).   Clause (e) of sub­section (1) further provides that the amount of refund due in pursuance of   the   determination   under   clause   (c)   shall   be granted to  the assessee.   If the  proviso to sub­ section(1) of section 143 is read, it mandates that the intimation as provided in clause (d) has to be issued before the expiry of one year from the end of the   financial   year   in   which   the   return   is   made. Before we go to sub­section (1D) as it stood at the relevant   time,   we   must   make   a   reference   to   sub­ sections (2) and (3).  Sub­section (2) contemplates issuance of a notice in the contingency covered by the said provision.   Sub­section (3) provides that once such a notice is served, after following the procedure laid down therein, the Assessing Officer is required to pass an order in writing making an assessment of the total income or loss and determine the sum payable by  the assessee or refund of  any amount due to him on the basis of the assessment. Thus, the net result of the processing done under sub­section (1) of Section 143 and the order passed under sub­section (3)   of Section 143 is the same. The   time   within   which   the   exercise   of   passing   an order under sub­section(3) of Section 143 should be Uploaded on - 21/08/2020 done   is provided in sub­section(1) of Section 153 of the said Act.

Now   we   come   to   the   interpretation   of   sub­ section(1D)   which   was   on   the   statute   book   with effect   from   1st  July,   2012. It   provided   that notwithstanding   anything   contained   in   sub­section (1),   the     processing     of   return   shall   not   be necessary   where   a   notice   has   been   issued   to   the assessee under sub­section(2) of section 143. The Central   Board   of   Direct   Taxes   issued   instructions dated   13th  January,   2015   which     state   that   the provision of sub­section (1D) was enacted to prevent the grant of refund after processing as the scrutiny proceedings   may     result   in   demand   for   taxes     on finalization of the assessment subsequently.  Thus, in short, the instructions provided that in no case, the   return   can   be   processed   where   a   notice   under sub­section   (2)   of   Section   143   was   issued.     This instruction   was   a   subject   matter   of     challenge before the Delhi High Court.   A Division Bench of Delhi High Court in the case of Tata Teleservices v/s. Union of India1  decided the issue.  Paragraphs 23 and 24  of the said decision are relevant which read thus:­ “23. The real effect of the instruction is to curtail the discretion of the AO by 'preventing' him from processing the return, where notice has been issued to the Assessee under Section 143(2) of the Act.  If it the legislative intent was that the return would not be processed at all once a 1   Writ Petition­Civil No.12304 of 2015 decided on 11th May, 2016 Uploaded on - 21/08/2020 notice is issued under Section 143(2) of the Act, then the legislature ought to have used express language and not the expression “shall not be necessary”.    By the device of issuing an instruction in purported exercise of its power   under   Section   119   of   the   Act,   the   CBDT   cannot proceed to interpret or instruct the income tax department to 'prevent' the issue of refund.  In the event that a notice is issued to the Assessee under Section 143(2) of the Act, it will be a matter the discretion of the concerned AO whether he should process the return.

(emphasis added) 18 Thus, the legal position which emerges from the decision of the Delhi High Court is that, it is the discretion of the AO whether to process the return or   not,   after   a   notice   under   sub­section(2)   of Section 143 of the said Act is issued and it cannot be said that in every case in which a notice under sub­section (2) of Section 143 has been  issued, the AO has no power to process the return.  This view of Uploaded on - 21/08/2020 the Delhi High Court has been quoted with approval by a Division Bench of this Court in the case of Group M. Media India Pvt. Ltd. v/s. Union of India and Others2. The Division Bench in paragraph 8 held that AO would independently apply his mind and take a   decision in terms of Section 143 of sub­section (1D) of the Act whether or not to grant a refund in the facts and circumstances of each case.  As noted earlier, the stand of the department as is reflected from the affidavits on record and the communication dated 26th October, 2017 issued by the Directorate of Income   Tax   (Systems)   is   that   once   a   notice   under sub­section (2) of Section 143 of the said Act is issued,   there   is   no   discretion   left   with   the   AO whether to process the return or not. Thus, the said stand taken by the department is completely contrary to  sub­section   (1D)  and  the  interpretation   put  to the said Section by the Delhi High Court as well as this Court, and therefore, the said stand deserves to be rejected. 19 While   we   are   on   the   decision   in   the   case   of M/s.   Group   M.    Media   India   Pvt.  Ltd.  (supra),  we must also refer to the other aspects dealt with and decided by the Division Bench.  Paragraphs 9 and 10 of   the   said   decision   are   relevant   for   our consideration which reads thus:­ “9. The only contention on behalf of the Revenue to oppose the petition is that as the Assessing Officer has time available to process the refund till 31st March, 2017, no mandamus 2     Writ Petition No.2067 of 2016 decided on 15th October, 2016 Uploaded on - 21/08/2020 can be issued till 31st March, 2015. We repeatedly asked of Mr. Mohanty, the learned Counsel for the Revenue, if there was any reason why the return could not be processed before 31st  March,  2017. No  reasons   are forthcoming from  the Revenue as to why the Assessing Officer will not able to dispose of the application for refund or process the return under Section 143(1) of the Act before 31st March, 2017. This conduct/stand of the Assessing Officer, to say the least, is most disturbing in the context of the fact that the petitioners have been seeking refund since April, 2016. First, he does not deem it proper to inform the petitioner in writing why he cannot deal with the application and after the petitioner moves the Court, the stand taken is that no direction can be given to him till 31st March, 2017 which is the last date to process the return under Section 143(1) of the Act. This attitude on the part of the Assessing Officer is preposterous.

(emphasis added) 20 In the facts of the case, the averments made in the first two petitions (of Tata Projects Ltd) and annexures   to   the   petitions   show   that   after   the returns   were   transferred   to   the   AO   much   before notices were issued under sub­section (2) of Section 143, the petitioner made repeated representations to the AO to process the returns and  number of visits were   made   by   the   officers   of   the   petitioners. Perhaps, the AO was  under an impression that he can wait till the last date provided for processing of the   returns.     If   we   peruse   the   affidavit   of   Mr. Madhukar AVES, Assistant Commissioner of Income Tax­ 2(3)(1), Mumbai, filed in Writ Petition No.2051 of 2017 and in particular paragraph 9, it is very clear that he is under an impression that as the last date for   completing   scrutiny   assessment   for   the Assessment Year 2015­16 is 31st  December, 2017,   he Uploaded on - 21/08/2020 can wait till 31st December, 2017 for completing the scrutiny   assessment. This   approach   which   is reflected   from   the   said   affidavit,   has   to   be deprecated. Secondly, he has completely ignored that the   return   has   to   be   processed   as   there   was   no discretion exercised after service of notice under sub­section (2) of section 143. 21 In   Writ   Petition   (L)No.2498   of   2017,   the assurance given in the affidavit is that the return would be processed and refund will be released by the  end  of  November  2017. Accordingly,   refund  has also been issued.  In writ petition no.782 of 2017, when the petition was argued day before yesterday, the stand taken by the learned counsel appearing for the Income Tax Department, on the basis of written instructions was that due to technical difficulties in   ITBA   system,   processing   cannot   be   done.   It   is stated   that   in   the   written   note   of   the   Deputy Commissioner   of   Income   Tax­8(3)(1),   Mumbai,   that numerous complaints have been lodged with the ITBA help desk highlighting the issue so as to enable the said office to process the returns of income for the Assessment   Year   2016­17. There   are   specific statements  made  that   due  to  the  technical  errors, the   return   of   Assessment   Year   2016­17   of   the petitioner cannot be processed.  It appears that on the same day in the evening, after the submissions were   heard,   an   attempt   was   made   to   process   the return of the petitioner.  From the snapshot of the relevant page of ITBA which is tendered across the bar by the income tax department, it is clear that Uploaded on - 21/08/2020 this exercise was done on 20th November, 2017 at 6.25 p.m.   which   records   that   the   return   is   submitted successfully.   Perhaps, only after the submissions were heard that some efforts was made to process the return. 22 We   made   a   query   to   the   learned   ASG   whether there   is   any   policy   of   the   department   as   regards priority to be given to the returns which are to be processed   AOs.     The   returns   are   required   to   be processed   by   AO   under     the   said   scheme   of   2011 either   by   reason   of   a   notice   having   been   issued under sub­section (2) of Section 143 or because the returns are pushed to AOs for processing for other reasons.   It   cannot   be   that   the   Assessing   Officer gives   priority   for   processing   of   the   returns   of those assessees who file petitions in this Court and make a grievance.  There has to be a rational policy for processing the returns which are sent to the AO and which are required to be dealt with either under sub­section(1)   or   sub­section(3)   of   Section   143. There cannot be a pick and choose policy and the AOs will have to be guided by a rational policy which will   stand   the   test   of   Article   14   of   the Constitution of India.   As a Writ Court, we cannot appreciate  the   practice  of   giving  priority   to  the processing of the returns of those assessees   who approach to this Court with a grievance.   We have already   quoted   paragraph   10   of   judgment   of   this Court in the case of M/s. Group M. Media India Pvt. Ltd. (supra) and very pertinent observations made by the Division Bench in the last part of paragraph 10. Uploaded on - 21/08/2020 As   indicated   by   the   said   observations,   the   AOs cannot   give   priority   to   the   processing   of   the returns to those assessees who approach them.   We are   surprised   to   note   that   there   is   no   order   of priority laid down by any authority which will bind the AOs when it comes to processing of the returns. For example, the returns of Assessment Year 2016­17 which were transferred to AO were not processed till 31st  October, 2017 as proper ITBA software was not available.     Now   the   income   tax   department   must ensure that the returns which are kept pending due to its own default, are processed as per a rational policy which determines the order of priority.   We are on this aspect, it will be necessary to advert to the notification No.S.O.17(E) dated 4th  January, 2012, sub­clause (iib) of clause 8 is relevant which confers   power   on   the   Commissioner   to     decide   the order   of   priority   for   processing   of   returns   of income   based   on   administrative   requirements.   The phrase “administrative requirements” is very vague. In  fact  this   clause  indicates  that   there    can  be arbitrariness while deciding which returns should be given  priority   for  the   processing.    Therefore,  we propose to issue a direction to the respondents to formulate a rational policy on this aspect and place it   before   the   Court   within   the   time   specified   by this Court. 23 Now   we   come   to   the   issue   whether   AOs   can manually   process   the   returns   which   have   been transferred by the Centre at Bangalore to them for various reasons. Uploaded on - 21/08/2020 Sub­section (1A) of Section 143 lays down that for   the   purpose   of   processing   returns   under   sub­ section   (1),   the   Board   may   make   a   scheme   for centralized processing of returns with   a view to expeditiously determining the tax payable by, or the refund due to, the assessee as required sub­section (1) of Section 143. Thus, the object of providing for centralized process of returns is to avoid delay in the processing of the returns. 25 The     said   Scheme   of   2011   and   in   particular clause 7 provides for setting up as many centralized processing   Centres   as   it   may   deem   necessary. Accordingly,   the   Centre   has   been   established   at Bangalore.     Clause   8   of   the   said   Scheme   2011   is relevant which reads thus:­ “8. Processing of Returns. (i) The Centre shall process a valid return of income in the following manner, namely: – (a) the sum payable to, or the amount of refund due to, the person shall be determined after credit of such Tax Collected   at   Source   (TCS),   Tax   Deducted   at   Source (TDS)   and   tax   payment   claims     which   can   be automatically validated with reference to data uploaded through TDS and TCS statements by the deductors  or the collectors, as the case may be, and tax payment challans   reported   through   authorised   banks   in accordance with the procedures adopted by the Centre in this regard; Uploaded on - 21/08/2020 (b) an intimation shall be generated electronically and sent   to   the   person   by   e­mail   specifying   the   sum determined   to   be   payable   by,   or   the   amount   of   the refund due to, the person; and (c)   any   intimation   to   the   person   to   pay   any   sum determined to be payable shall be deemed to be a notice of demand as per the provisions of section 156 of the Act and all other provisions of the Act shall be applicable accordingly. (ii) The Commissioner may, – (a)   adopt   appropriate   procedure   for   processing   of returns; or (b) decide the order of priority for processing of returns of income based on administrative requirements. (iii) Wherever a return cannot be processed in the Centre for any reasons, the Commissioner shall arrange to transmit such return to the Assessing Officer having jurisdiction to processing.” 26 Sub­clause(i) of clause 8 lays down the manner in which the centre shall process a valid return of income.   Clause   8   is   consistent   with     sub­section (1A) of Section 143. Sub­clause (ii) is very vague. It   provides   that   the   Commissioner   may   adopt appropriate procedure for processing of returns or decide   the   order   of   priority   for   processing   of returns   of   income   based   on   administrative requirements. It is obvious that the said discretion conferred on the  Commissioner has to be exercised, consistent  with  the  object  of sub­section (1A)  of Section 143 of ensuring speedy processing of returns Uploaded on - 21/08/2020 which   are   filed   at   the   Centre.     The   said   power cannot   be   exercised   to   delay   the   processing   of returns   or   to   create   a   situation   where   without following any order of priority AOs, pick and choose the returns and process the same out of turn.  The only provision under the said Scheme of 2011 which enables the Centre to transmit the returns to AOs is in sub­clause(iii) of clause 8 which provides that wherever   the   return   cannot   be   processed   in   the Centre   for   any   reason,   the   Commissioner   shall arrange   to   transmit   such   return   to   the   AO   having jurisdiction for processing.  One such reason can be issuance   of     a   notice   under     sub­section   (2)   of Section 143. Such a return may be covered by the regime of sub­section (3) of Section 143, but AO has a discretion to process the return in question after service of notice under Section (2) of Section 143. 27 Notification   no.17E   dated   4th  January,   2012 (for short the “the second notification”)  has been issued  in exercise  of powers  conferred  under  sub­ section (1B) of Section 143 for giving effect to the scheme framed under sub­section (1A) of Section 143. Sub­section   (1B)   confers   powers   on   the   Central Government to direct that any of the provisions of the   said   Act   relating   to   processing   of   returns, shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification published in the Official Gazette. A careful perusal of the second notification and in particular clause 3 thereof will show that there is no  modification  made  to  the  provisions  of Section Uploaded on - 21/08/2020

Taxes

to issue

necessary clarification for the benefit of the Officers of the Income Tax Department; (V) As   we   have   held   earlier,   there   is   no embargo   on   manual   processing   of   the   returns which are transmitted by the Central Processing Centre to Assessing Officers   for processing, when software for processing of the returns is either   not   available   or   is   not   functioning properly. Necessary directions shall be issued by the Government of India or the Central Board of   Direct   Taxes   to   the   Income   Tax   Department permitting manual processing of the returns in such cases; (VI) The directions as above shall be issued as expeditiously   as   possible   and   in   any   event within a period of one month from the date on which this Judgment is uploaded; Uploaded on - 21/08/2020 (VII) We   hold   that   the   power   conferred   on   the Commissioners under sub clause (ii) of clause 8 of   the   Centralised   Process   Scheme   of   2011   or under   sub   clause   (iv)   of   clause   3   of   the Notification   dated   4th  January   2012     bearing S.O. 17(E), shall be used by the Commissioners to   ensure   that   the   returns   which   are transmitted   to   the   Income   Tax   Officers   for processing are taken up in orderly manner; (VIII) We direct the Government of India or the Central Board of Direct Taxes to take a policy decision for ensuring that the such returns are taken up for processing in a rational order of priority.   After   taking   appropriate   policy decision, necessary directions shall be issued by the Government of India or the Central Board of   Direct   Taxes   to   the   Department   within   a period   of   two   months   from   the   date   on   which this order is uploaded; (IX) The directions should be formulated in such a manner that there is no arbitrariness while taking   up   processing   of   returns   by   Assessing Officers; (X) The   petitions   are   disposed   of   with   above directions; (XI) Rule   is   made   partly   absolute   on   above terms; (XII) For   reporting   compliance,   the   petitions shall   be   listed   under   the   caption   of `Directions' on 31st January 2018. (A.K.MENON,J.) (A.S.OKA,J.) Uploaded on - 21/08/2020 Powered by TCPDF (www.tcpdf.org)