The Supreme Court on Wednesday upheld the Income Tax Department’s action against Vodafone withholding ₹4,760 crore of refund, pending scrutiny of assessments. However, the court directed the government to refund ₹733 crore for assessment year 2014-15 (fiscal year 2013-14) for which assessment had been completed and refund generated.

The appeal in the SC related to the Delhi High Court’s order in a matter wherein Vodafone prayed for expeditious processing and granting of refund for AY 2014-15 to AY17-18. The total amount involved was ₹4,760 crore. During deliberations before the High Court, the I-T Department had objected to the writ petition stating that processing of refunds and pending scrutiny proceedings were on account of legitimate ongoing proceedings.

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What the I-T law says

The I-T Department also relied on a provision in the Income Tax law, which gives tax authorities the power to withhold refund, pending scrutiny of assessment proceedings. It objected to issuance of refunds due to outstanding tax demands for earlier years. Upholding the reasons stated by the I-T Department for withholding the refund, the High Court had dismissed the writ petition filed by the taxpayer. Aggrieved, the company moved the apex court last year.

Rakesh Nangia, Chairman at Nangia Andersen Consulting, said the Supreme Court, dealing with the fact pattern in detail, upheld the High Court’s decision and withholding of refunds by the I-T Department. For one of the years, when assessment was completed after the High Court’s decision and refund was determined, the apex court directed issue of the refund, subject to some conditions.

According to the apex court, insofar as AY14-15 is concerned, the final order passed under Section 143(3) of the Act indicates that the appellant is entitled to a refund of ₹733 crore, while for AY15-16, there is a demand of ₹582 crore. During the course of the hearing, the I-T Department suggested that, based on its order dated December 28, 2019 (passed in connection with Idea Cellular with which Vodafone now stands merged), it would be entitled to invoke the requisite power under law to set off the amount of refund payable in respect of AY14-15 against the remaining tax payable.

Payable within 4 weeks

However, the apex court said since the requisite action had not been initiated, it would not comment in that respect. “In the premises, we direct that the amount of ₹733 crore shall be refunded to the appellant within four weeks from today, subject to any proceedings that the revenue may deem appropriate to initiate in accordance with law,” it said. Further, it directed the I-T Department to conclude the proceedings initiated pursuant to notice under law in respect of AY16-17 and AY17-18, at the earliest.

Nangia said this judgment reinforces the principle that one cannot approach the Supreme Court/High Court and seek relief against the procedures prescribed in the statute. “Extraordinary remedy of writ has to be sought in extraordinary situation, where authorities have either violated the statutory provisions or exceeded their jurisdiction,” he added.

 

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