By TIOL News Service

MUMBAI, JAN 05, 2018: THE issue is - Whether the Income Tax Act imposes any embargo on manual processing of returns, in case they cannot be processed on ITBA or any other software of I-T Department. NO IS THE VERDICT.

Facts of the case:

The Assessee i.e. Tata Projects Ltd., is an infrastructure company. Consequent to filing of their revised return along with a claim for refund for A.Y 2015-16, a notice u/s 143(2) was issued by the Department. However, since the scrutiny proceedings for A.Y 2014-15 were not yet concluded, therefore, the scrutiny proceedings of the returns for A.Y 2015-16 were also kept pending. In the meanwhile, Income Tax efiling website showed that the returns were transferred by the Centre to the jurisdictional AOs for processing, and the AO signed intimation u/s 143(1)(c) of processing the refund along with interest payable u/s 244A. The assessee's case was however that the refund was not issued and it only orally informed that refund could not be issued due to expiry of limitation contained in the second proviso to section 143(1)(a). As no action was taken by the Department on the representation made by the Assessee, the present petition was filed for directing the Department to issue refund of the amount already determined by the AOs after manual processing.

Another assessee i.e. Tata Teleservices had preferred a similar petition challenging the order passed by CBDT u/s 119, whereby it was informed that the returns containing claims for refund for A.Ys 2012-13, 2013-14, 2014-15 were not processed within the time frame prescribed u/s 143(1) as a result of which the assessees were deprived of legitimate refund. The Assessee also prayed for setting aside the such order to the extent to which it restricted 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 u/s 143(2). Additionally, the assessee prayed for writ of mandamus enjoining the Department to process the returns and sanction the refund for A.Y 2016-17.

High Court held that,

++ the first issue 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. 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 Section 143(1D) and especially with reference to the stand that in every case where a notice u/s 143(2) is issued, the return cannot be processed. Another issue canvassed is about the delay in processing the returns as a result of which the assessees have been denied legitimate refund. 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 A.Y 2016-17 which were sent by the Centre to AOs for assessment. It is seen that the returns filed for A.Y 2016-17 which were forwarded to the AOs for processing were not processed 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. Coming to the interpretation of Section 143(1D) which was on the statute book w.e.f July 01, 2012, it provided that notwithstanding anything contained in Sub-section (1), the processing of return shall not be necessary where a notice has been issued to the assessee u/s 143(2). The CBDT issued instructions stating that the provision of Sub-section (1D) was enacted to prevent the grant of refund after processing, as the scrutiny proceedings may result in demand for taxes on finalization of assessment subsequently. This instruction was a subject matter of challenge before the Delhi High Court in the case of Tata Teleservices v/s. Union of India - 2016-TIOL-960-HC-DEL-IT wheein it was held that such instruction shall not be relied upon to deny refunds to Assessees in whose cases notices might have been issued u/s 143(2). Thus, the legal position which emerges from the decision of Delhi High Court is that, it is the discretion of the AO whether to process the return or not, after a notice u/s 143(2) is issued and it cannot be said that in every case in which a notice u/s 143(2) has been issued, the AO has no power to process the return;

++ the averments made by assessees show that after the returns were transferred to the AO much before notices were issued u/s 143(2), the assessee made repeated representations to the AO to process the returns. Upon perusal of affidavit filed by Department, it is very clear that the AO is under an impression that he can wait till the last date for completing 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 u/s 143(2). It is stated that in the written note of the Dy CIT, 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 A.Y 2016-17. There are specific statements made that due to the technical errors, the return for said A.Y 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 assessee. From the snapshot of the relevant page of ITBA which is tendered across the bar by the income tax department, it is clear that this exercise was done Nov 20, 2017 which records that the return is submitted successfully. Accordingly a query is raised as to whether there is any policy of the department as regards priority to be given to the returns which are to be processed. The returns are required to be processed by AO under the scheme of 2011 either by reason of a notice having been issued u/s 143(2) or because the returns are pushed to AOs for processing for other reasons. 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. However, 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. Therefore, it will be necessary to advert to the notification No.S.O.17(E) dated 4th January, 2012, sub-clause (iib) of clause 8, 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, this court proposes to issue a direction to the Department to formulate a rational policy on this aspect and place it before the Court within the time specified by this Court;

++ coming to the issue whether AOs can manually process the returns which have been transferred by the Centre at Bangalore to them for various reasons. Section 143(1A) 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 determine the tax payable by, or the refund due to, the assessee as required u/s 143(1). Thus, the object of providing for centralized process of returns is to avoid delay in the processing of the returns. The said Scheme of 2011 and in particular clause 7 provides for setting up as many centralized processing Centres as it may deem necessary. 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 u/s 143(2). Another Notification no.17E dated 4th January, 2012 has been issued in exercise of powers conferred u/s 143(1B) for giving effect to the scheme framed u/s 143(1A). sub-section (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 will show that there is no modification made to the provisions of Section 143. Neither in the said Scheme of 2011 nor in the second notification, it is provided that in certain cases, such return can be retransmitted by AO to the Centre. Both the notifications clearly provide that whenever such returns are transmitted by the Commissioner from the Centre to AO, the same shall be processed by the AO in accordance with Section 143(1). There is no provision in both the notifications which lays down that after the returns are sent to the AO, if he finds that the returns cannot be processed on ITBA or any other software, the same cannot be processed manually. The situation arising due to non-availability of software has been dealt with by this Court in the case of Shapoorji Pallonji & Co. v/s. Deputy Commissioner of Income Tax 3(1) and another, wherein it was held that computerization is to assist the Income Tax Department to function smoothly and the same cannot act as an excuse/deterrent in addressing to the queries/requests of genuine tax payers;

++ therefore, as far as A.Y 2016-17 is concerned, the department was fully aware that returns which were sent to AOs will not be processed timely. Therefore, immediate directions ought to have been issued for permitting the manual processing of returns by the AOs. It is therefore held that whenever returns are transferred by the Centre to AOs for processing, if the returns cannot be processed immediately because of lack of availability of proper software, or because of technical difficulties in functioning of the software, the returns must be permitted to be processed manually. There will not be any illegality attached to it. If at all software is not provided to deal with the returns of a particular year, there is no embargo imposed by law which prevents AOs from processing the returns manually. This court appreciate the stand taken by the Revenue's counsel that for the sake of transparency and for ensuring that that the returns are processed expeditiously, manual processing should not be allowed. However, as can be seen from the facts on record, proper software was not available for considerably long time and therefore, large number of returns remained pending for processing. Other departmental instructions record that certain returns filed during F.Y 2014-15 are pending for process u/s 143(1) wherein the last date for processing is 31st March 2016. As regards Writ Petition (L) No.2498 of 2017, as refund has been issued, there is no question of issuing any specific direction. As regards return subject matter of Writ Petition No.2051 of 2017, there is a statement on oath that the scrutiny assessment for A.Y 2015-16 has to be completed by 31st December 2017 as per the provisions of section 153 and if any refund is found to be due, the same will be granted latest by 31st December 2017. The said assurances will have to be accepted as undertakings of the Department. But the processing of the return will have to be undertaken immediately. Hence, this writ petition is disposed by directing that the processing of the return shall be completed in accordance with section 143(1) as expeditiously as possible and if any refund is found to be due and payable to the assessee, the same shall be issued in accordance with law. Also, considering the erroneous interpretation put by the Department to section 143(1D), the Central Government or CBDT is directed to issue necessary clarification for the benefit of the Officers of the Income Tax Department.

(See 2018-TIOL-39-HC-MUM-IT)