Bombay High Court Quashes FAO Order Passed After Two Years Of DRP Direction Against Vodafone Idea

The Bombay High Court has held that the assessment order dated August 31, 2023, passed by the Faceless Assessing Officer (FAO) two years after the Dispute Resolution Panel (DRP) directions, is time-barred and cannot be sustained.

The bench of Justice K. R. Shriram and Justice Neela Gokhale has strongly recommended that a detailed inquiry be initiated on the failure on the part of the Faceless Assessing Officer concerned to act in accordance with the provisions of the Income Tax Act and the lack of diligence on the part of officials concerned and the system itself insofar as it relates to the present assessment. Strict action should be taken against persons responsible for the laxity and lethargy displayed, which have caused a huge loss to the exchequer and, in turn, to the citizens of this country.

The proceedings emerge from a Return of Income (ROI) filed by the petitioner, Vodafone Idea for Assessment Year 2016–2017. The ROI disclosed a loss. It was a claim for a refund of prepaid taxes of Rs. 1128.47 crore, comprising tax deducted at source and advance tax.

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

In the meantime, the TPO passed an order proposing an adjustment to the value of the international transaction for the petitioner. The AO passed a draft order and proposed various additions and disallowances. The petitioner filed objections before the Dispute Resolution Panel (DRP) on January 27, 2020. A notice was issued by the DRP, and the petitioner responded by filing relevant documents and evidence in support of the objections raised by it. Finally, the DRP issued directions dated March 25, 2021, under Section 144C(5). The directions for DRP were uploaded on the Income Tax Business Application (ITBA) portal on the same date, and the said directions were served to the petitioner via email dated April 6, 2021. The grievance of the petitioner is essential 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), and consequently prays that the ROI as originally filed has to be accepted and excess tax paid be refunded with interest.

The petitioner contended that despite the DRP issuing directions on March 25, 2021, no order was passed by the AO within the period prescribed by law. When no order is passed pursuant to the directions of DRP within the statutory period as prescribed under Section 144C(13), the income declared by the petitioner is deemed to be accepted by the department. The petitioner is entitled to a refund of the amount paid by the petitioner in excess of the legitimate tax due.

The department contended that the directions of DRP dated March 25, 2021, were received in the Case History Noting (CHN) of FAO only on August 23, 2023, and as the assessment in conformity with the directions of DRP was completed on August 31, 2023, it was within the one month prescribed under Section 144C(13), as the limitation period ran from the date of receipt by him of the order and not the date when the same were uploaded on the ITBA portal. It was only on receipt of the directions from DRP that the FAO was duty-bound to complete the assessment, i.e., pass the final order. Mr. Singh thus prayed for dismissal of the petition.

The court held that the petitioner is entitled to receive the refund together with interest, in accordance with the law. The procedure is to be completed within 30 days of this order being unloaded. This would, however, not preclude revenue, should the need arise, from reopening the assessment by following due process and in accordance with the law.

Counsel For Petitioner: J. D. Mistri

Counsel For Respondent: Devang Vyas

Case Title: Vodafone Idea Limited Versus CPC

Case No.: Writ Petition (L) No. 15398 Of 2023

Click Here To Read The Order