Bombay High Court Orders Refund for Vodafone Idea in Time-Barred Tax Dispute

Bombay High Court Orders Refund for Vodafone Idea in Time-Barred Tax Dispute

The Bombay High Court has ruled that the assessment order issued by the Faceless Assessing Officer (FAO) on August 31, 2023, is invalid due to its tardiness, as it came two years after the Dispute Resolution Panel (DRP) issued its directives.

The presiding justices, K. R. Shriram and Neela Gokhale, strongly urged that a thorough investigation be launched into the FAO's failure to adhere to the Income Tax Act's provisions, the lack of diligence exhibited by the concerned officials and the system itself in connection with the current assessment.

Actions should be taken against those accountable for the negligence and lethargy shown, which have caused significant losses to the exchequer and, consequently, to the nation's citizens.

The proceedings stem from a Return of Income (ROI) filed by the petitioner, Vodafone Idea, for the Assessment Year 2016-2017. The ROI indicated a loss and included a claim for a refund of prepaid taxes amounting to ₹1128.47 crore, encompassing tax deducted at source and advance tax.

The assessment was chosen for scrutiny, and a notice under Section 143(2) of the Income Tax Act was issued. As the petitioner's transactions involved international and specified domestic dealings with its associated enterprises, a referral was made under Section 92CA(1) to the Transfer Pricing Officer (TPO) to determine the arm's length price for the relevant assessment year.

Concurrently, the TPO issued an order proposing an adjustment to the value of the petitioner's international transaction. Subsequently, the AO issued a draft order proposing various additions and disallowances. On January 27, 2020, the petitioner raised objections before the Dispute Resolution Panel (DRP). The DRP issued a notice, and the petitioner responded by submitting relevant documents and evidence substantiating the objections raised. Finally, on March 25, 2021, the DRP issued directions under Section 144C(5). These directions were uploaded on the Income Tax Business Application (ITBA) portal on the same date and were served on the petitioner via email dated April 6, 2021.

The petitioner's primary grievance was that the AO failed to issue a final order in accordance with the DRP's directions within the 30-day limitation period prescribed by Section 144C(13). Consequently, the petitioner requested that the ROI as originally filed be accepted and that the excess tax paid be refunded with interest.

Despite the DRP issuing directions on March 25, 2021, the AO failed to issue an order within the legally prescribed timeframe. In the absence of an order complying with the DRP's directions within the statutory period outlined in Section 144C(13), the department is deemed to have accepted the income declared by the petitioner. Consequently, the petitioner is entitled to a refund of any excess tax paid beyond the legitimate tax liability.

The department countered by stating that the DRP's directions issued on March 25, 2021, were not received in the Case History Noting (CHN) of the FAO until August 23, 2023. As the assessment in line with the DRP's directions was finalised on August 31, 2023, it was within the one-month timeframe mandated by Section 144C(13). The department argued that the limitation period commenced on the date the FAO received the order, not the date it was uploaded on the ITBA portal. The FAO was only obligated to complete the assessment, or pass the final order, upon receiving the DRP's directions. Consequently, the department requested dismissal of the petition.

The Court ruled that the petitioner is entitled to receive the refund, including interest, in accordance with the applicable law. This process must be completed within 30 days of the issuance of this order. However, this decision does not preclude the revenue authorities from reopening the assessment, provided due process is followed and the law is complied with.