Section 143(1D) can’t detract the Discretionary Power of AO to process the Returns even if a Notice u/s 143(2) is Issued: Bombay HC [Read Judgment]

Yet again, Section 143(1D) of the Income Tax Act came under the scrutiny of a Constitutional Court. This time, it was the High Court of Bombay, which held categorically while considering many writ petitions in Tata Projects Limited vs. Deputy Commissioner of Income Tax Range 2(3)(2) & Ors., that Section 143(1D) of the Income Tax Act, cannot take away the discretionary power of the Assessing Officer to process the returns even if a notice under section 143(2) of the Act is issued. Earlier, High Court of Delhi while quashing an instruction issued by the CBDT had held that the said instruction issued by the CBDT curtailed 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 (Income Tax Act).”

The main grievance of the Petitioners made in the Writ Petitions was about the failure of the respondents to process the returns for the refund. A prayer was 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 subsection(2) of section 143. The second prayer was for a writ of mandamus enjoining the respondents to process the returns and sanction the refund for the assessment years concerned.

Section 143(2) ensures that when the income furnished is not understated or any excessive loss is claimed or has not underpaid the tax, the AO may call the assesseee by serving a notice to remain present by himself or by representative and submit the evidences and documents to prove the genuinity of the income tax return. In this case the AO can send the notice only if the assesseee has filed the Income Tax Return.

However, according to Section 143(1D) of the Act as introduced by the Finance Act, 2012 processing of a return under Section 143(1)(a) was not necessary where a notice has been issued under Section 143(2) of the Act. This provision has been amended by the Finance Act, 2016 (with effect from the AY 2017-18) to provide that If scrutiny notice is issued under Section 143(2), processing of return shall not be necessary before the expiry of one year from the end of the financial year in which return is submitted. However, the return shall be processed under Section 143(1) before making an assessment under Section 143(3) of the Act.

The Bench comprising of Justice A.S.Oka and Justice A.K.Menon while agreeing to the decision of the High Court of Delhi in case of Tata Teleservices v/s. Union of India Writ Petition Civil No.12304 observed “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. 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 Others. 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.”

Considering the erroneous interpretation put by the respondents to subsection 1 (D) of Section 143 of the Income Tax Act, 1961 the Court further ordered the Central Government & the Central Board of Direct Taxes to issue necessary clarification for the benefit of the Officers of the Income Tax.