Bombay High Court: A petition was filed questioning the failure of respondent 1 and 2 to refund the amount paid by the petitioner for Assessment Year (‘AY’) 2016-2017, which the petitioner claims to have paid in excess of the legitimate tax due on the returned income of Petitioner and seeks a refund of the said amount along with applicable interest. A division bench of K R Shriram and Neela Gokhale, JJ., held that the assessment order dated 31-08-2023 passed by FAO two years after the DRP directions, is time barred and cannot be sustained and the petitioner is entitled to receive the refund together with interest, in accordance with law.
The present proceedings emerge from a Return of Income (‘ROI’) filed by the petitioner for Assessment Year (“AY”) 2016-2017. The ROI disclosed a loss of Rs. 47,50,07,95,276/- under the normal provisions of IT Act and loss of Rs. 292,80,62,889/- under Section 115-JB of the Act. There was a claim of refund of prepaid taxes of Rs. 1128.47 crores, comprising of Tax Deducted at Source and Advance Tax. The assessment was selected for scrutiny and notice under Section 143(2) of the Act was issued. Since the transaction of the petitioner involved international and specified domestic transactions with its associated enterprises, a reference was made under Section 92CA(1) of the Act to the Transfer Pricing Officer (“TPO”) for the determination of Arms Length Price for the relevant AY. As per a direction of the Supreme Court dated 29-04-2020 passed in a civil appeal directing the Revenue to conclude the assessment proceedings for AY 2016-2017 at the earliest.
In the meantime, the TPO passed an order proposing an adjustment to the value of the international transaction of the petitioner. The Assessing Officer (‘AO’) passed a draft order dated 29-12-2019 under Section 144C(1) of the Act for the relevant AY and proposed various additions/disallowances. The petitioner filed objections before the Dispute Resolution Panel and a notice was issued by the DRP and the petitioner responded by filing relevant documents/evidence in support of objections raised by it. Finally, the DRP issued directions that were uploaded on the Income Tax Business Application (“ITBA”) portal on the same date and the said directions were served on the petitioner vide e-mail dated 06-04-2021. The grievance of the petitioner essentially is that the AO failed to pass the final order in terms of the directions of DRP within 30-days, the period of limitation prescribed by Section 144C(13) of IT Act and consequently prayed that the ROI as filed originally must be accepted and excess tax paid be refunded with interest.
The Court noted that the entire assessment proceedings are governed by the Faceless Assessment Mechanism under the scheme known as the e-Assessment Scheme (“eAS”), 2019 as notified by the Ministry of Finance (Department of Revenue) on 12-09-2019. The salient features of the scheme include defining the scope of the scheme, the jurisdiction of the e-Assessment Centre, procedure for assessment, and penalty proceedings for non-compliance amongst other features. The Central Government amended the FAS of 2019, and the first amendment came into effect on 17-02-2021. Paragraph 5(1) of the original scheme was substituted by the amendment. An analysis of eAS and the amendment indicates that various notices, summons and orders are received and issued by the National e-Assessment Centre (“NeAC”) set up to conduct e-assessment proceedings in a centralized manner. Thus, any notice, summons, order is deemed to have been received by the FAO once it is available to the NeAC.
The Court further noted that once the E-assessment Centre is in receipt of the DRP directions, the period of limitation runs from that day. There is no requirement of a deep dive in an analysis of the phrase ‘upon receipt of directions’ as it appears in Section 144C(13) of the Act. The fundamental principle of interpretation is to assign words their natural, original and precise meaning, provided that the words are clear and consider the purpose of the Statute. It is settled law that a provision should be interpreted in its literal sense and given its natural effect. This is the elementary golden rule of interpretation of Statutes. Since there is no ambiguity pertaining to the phrase ‘upon receipt of the directions issued under Sub-section 5 of 144C of the Act, the AO shall ’there is no requirement of delving in a further in-depth analysis of the clear provision.
The Court remarked that “The deafening silence in the affidavit of Mr. Janbandhu, to the affirmed statements of Mr. Satish Sharma and Ms. Anne Varghese as quoted above itself speak volumes. Though Mr. Janbandhu admits being aware of the affidavits of Mr. Satish Sharma and Ms. Anne Varghese, there is neither any rebuttal nor an explanation to the statements of Mr. Satish Sharma and Ms. Anne Varghese regarding availability of DRP directions on the ITBA portal. That the DRP directions were automatically visible to the FAO in ITBA system, JAO was not mandated to forward the directions to FAO whose identity was not known to any authority etc.”
The Court observed that the FAO himself has not filed any affidavit to affirm the date on which he purportedly ‘received’ the directions of DRP. There is no whisper of any explanation as to why the FAO, who was seized with the pending assessment of Petitioner, remained inactive and silent for two long years and swung into action only when information about filing of this writ petition was uploaded on the CHN. If the provisions of Section 144C as mandated by the Statute are not strictly adhered to the entire object of providing for an alternate redressal mechanism in the form of DRP stand defeated. By failing to pass any order in terms of the provision, the AO cannot be permitted to defeat the entire exercise and render the same futile. When a Statute prescribes the power to do a certain thing in a certain way, then the thing must be done in that way and other methods of performance are forbidden.
The Court concluded that once the statute has prescribed a limitation period for passing the final order, it is expected that the internal procedure of the department should mould itself to give meaning to and act in aid of the provision. Any procedural defect (there is none in this case) in the internal mechanism of the working of E-assessment Scheme, cannot operate against the interest of assessee. Hence, the FAO cannot be believed that the DRP direction was received by him only on 23rd August 2023 despite being uploaded on the ITBA portal on 25th March 2021. The failure on the part of the department to follow the procedure under Section 144C of the Act is not merely a procedural irregularity but is an illegality and vitiates the entire proceeding.
[Vodafone Idea Limited v Central Processing Centre, 2023 SCC OnLine Bom 2464, decided on 08-11-2023]
Advocates who appeared in this case :
Mr. J. D. Mistri, Senior Advocate a/w Mr. Madhur Agrawal i/b Mr. Jitendra Singh for Petitioner.
Mr. Devang Vyas, learned Additional Solicitor General a/w Mr. Devvrat Singh, Ms. Sangeeta Yadav & Mr. Jagdish Choudhary for Respondents-Revenue.