Recent achievements of CBDT relating to issue of Refunds

The Central Board Direct Taxes achieved significant success in delivery of taxpayer services in Financial Year 2015-16, a record setting year in delivery of taxpayer services. The Centralized Processing Centre (CPC) at Bengaluru processed more than 4.14 Crore Income Tax returns, an increase of over 35% over the previous year. The CPC also issued over 1.61 Cr refunds above Rs 100 to taxpayers, an increase of more than 47% over the previous year.
 
The CPC issued refunds to the tune of Rs 37,870 Crore in an automated manner of which 67% were issued within 30 days. This demonstrates CBDT’s commitment to faster and more efficient taxpayer service while saving costs on account of interest outgo. During the current financial year the Income Tax Department has issued refunds over Rs. 1,17,000 crores. This figure is likely to further increase as banks reconcile the accounts.
 

Gist of latest important caselaws

Below are the recent important tax caselaws related to Income tax, Service tax in brief. The citation is made available for your benefit :

 INCOME TAX

SECTION 2(42A)

CAPITAL GAINS – SHORT-TERM CAPITAL ASSETS/GAINS

Period of holding as de facto owner should be considered for computing holding period of capital asset u/s 2(42A) - Commissioner of Income-tax v. A. Suresh Rao (2014) 41 taxmann.com 475 (Karnataka)     SECTION 10(23C) EDUCATIONAL INSTITUTIONS Where assessee, running a college for Arabic language affiliated to Madras University, claimed exemption under section 10(23C)(iiiad), said claim could not be rejected merely on ground that its students had to pray daily along with religious leader and they had specific dress code accordingly to Islamic specifications - Deputy Director of Income-tax (Exemptions)-III v. Madarasa E-Bakhiyath-Us- Salihath Arabic College (2014) 41 taxmann.com 8 (Chennai - Trib.)       SECTION 28(v) BUSINESS INCOME - NON-COMPETE FEE Position prior to 1-4-2003 : Since amendment in Finance Act, 2002 was not clarificatory but amendatory in nature, non-competition fee received under a negative covenant is taxable only with effect from 1-4-2003, and not retrospectively - Commissioner of Income-tax v. Prakash Ladhani (2014) 41 taxmann.com 22 (Karnataka) SECTION 32 DEPRECIATION - ALLOWANCE/RATE OF Foreign exchange rate difference : Assessee was entitled to depreciation in respect of an amount representing addition to cost of plant and machinery on account of foreign exchange rate difference - Additional Commissioner of Income-tax v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 40 taxmann.com 481 (Gujarat)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Owning more than one residential house : Where an assessee on date of transfer of original asset, owns more than one residential house, he is not eligible for deduction under section 54F, even if other residential house is owned by assessee wholly or partially - Income-tax Officerv.Apsara Bhavana Sai (2013) 40 taxmann.com 528 (Hyderabad - Trib.)       SECTION 237 REFUNDS TDS : In pursuance of order passed by Supreme Court that shares allotted to employees under Employees Stock Option Scheme did not amount to perquisite and, thus, there was no liability to deduct tax at source in respect of same, amount so deducted in case of assessee-employee on aforesaid ground was to be refunded along with interest - K. Parthasarathy v. Commissioner of Income-tax (2014) 41 taxmann.com 16 (Madras)       SERVICE TAX SECTION 65(75) ON-LINE INFORMATION AND DATABASE ACCESS OR RETRIEVAL SERVICES Where assessee had only hired out infrastructure of broadband for use of customer and had not provided any data or information to customer, said activity did not amount to 'online information and data base access and/or retrievable services' - Gujarat State Petroleum Corpn. Ltd. v. Commissioner of Central Excise (2014) 41 taxmann.com 291 (Ahmedabad - CESTAT)

S. 132B(4)(b)/ 240/ 244A: Assessee is entitled to interest on cash appropriated during search even if refund is directed in appeal proceedings

Chironjilal Sharma HUF vs. UOI (Supreme Court)

Pursuant to a search conducted u/s 132, cash of Rs. 2.35 lakhs was recovered. The AO passed an order u/s 132(5) in which he calculated the tax liability and appropriated the seized cash. An assessment order was also passed to the same effect. The AO’s order was finally set-aside by the Tribunal and it became final. Consequently, the assessee was refunded the amount of Rs. 2.35 lakhs with interest from 4.3.1994 (date of last of the regular assessments by the AO) until the date of refund. The assessee claimed that he is entitled to interest u/s 132B(4)(b) of the Act for the period from the expiry of period of six months from the date of order u/s 132(5) to the date of regular assessment order. In other words, as the order u/s 132(5) was passed on 31.5.1990, six months expired on 30.11.1990 and the last of the regular assessments was done on 4.3.1994, the assessee claimed interest u/s 132B(4)(b) from 1.12.1990 to 4.3.1994. HELD by the Supreme Court:

The department’s argument that the refund of excess amount is governed by s. 240 and that s. 132B(4)(b) has no application is not acceptable. S. 132B(4)(b) deals with pre-assessment period and there is no conflict between this provision and s. 240 or for that matter s. 244(A). The former deals with pre-assessment period in the matters of search and seizure and the later deals with post assessment period as per the order in appeal. The department’s view is not right on the plain reading of s. 132B(4)(b) and the assessee is entitled to simple interest at the rate of 15% per annum u/s 132B(4)(b) from 1.12.1990 to 4.3.1994. The interest shall be paid within two months from today.

CBDT Instruction On Procedure For Adjustment Of Refund Against Demand

Pursuant to the judgement of the Delhi High Court in Court on Its Own Motion vs. UOI 352 ITR 273, the CBDT has issued Instruction No. 12/2013 (F. NO. 312/55/2013-OT) dated 09.09.2013 stating that no refund should be adjusted without following the procedure prescribed in s. 245 of the Act of intimating the assessee of the proposed adjustment and considering his objections thereto.

“Instruction No. 12/2013 (F. NO. 312/55/2013-OT) dated 09.09.2013
Hon’ble Delhi High Court vide its judgment in case Court On Its Own Motion v. UOI in W.P.(C) 2659/2012, dated 14.3.2013 has issued seven Mandamus for action by the Income Tax Department. One Mandamus is on compliance of section 245 of the Income-tax Act, 1961.
2. The Hon’ble High Court in this context had issued interim directions vide its order dated 31-8-2012 as under:

“13. We issue interim direction to the respondents that they shall in future follow the procedure prescribed under section 245 before making any adjustment of refund payable by the CPC at Bengaluru. The assessees must be given an opportunity to file response or reply and the reply will be considered and examined by the Assessing Officer before any direction for adjustment is made. The process of issue of prior intimation and service thereof on the assessee will be as per the law. The assessees will be entitled to file their response before the Assessing Officer mentioned in the prior intimation. The Assessing Officer will thereafter examine the reply and communicate his finding, to the CPC, Bengaluru, who will then process the refund and adjust the demand, if any payable. CBDT can fix a time limit for communication of findings by the . Assessing Officer. The final adjustment will also be communicated to the assessees.”

3. In compliance with the above directions of the Hon’ble Court, CPC Instruction No. 1 dated 27.11.2012 was issued explaining the step by step procedure for adjustment of refunds to be followed by Assessing Officers and CPC, followed by the DIT(Systems)-III letter dated 30.1.2013.
4. Vide its final order in the Writ Petition dated 14.3.2013, the Hon’ble High Court in para 24 has confirmed its interim order and issued Second Mandamus as under:

“24. The said interim order is confirmed. We notice that the respondents have taken remedial steps to ensure compliance of section 245 of the Act as they now give an option to the assessee to approach the Assessing Officer. This is the second mandamus which we have issued. As noticed above, the interim order passed in the writ petition dated 31st August, 2012 has been implemented.”

5. In view of the above directions of the Hon’ble High Court, I am directed to convey that the provisions of section 245 of the IT Act be strictly adhered to before making any adjustment of refund. In respect of adjustment of refund payable by the CPC at Bengaluru, the procedure detailed in Para 2 above may be complied with. The Assessing Officer, in this regard, should respond to CPC within 45 days from the date of communication of issuance of notice u/s 245 by the CPC to the Assessing Officer.
6. I am further directed to state that the above be brought to notice of all officers working under your jurisdiction for necessary and strict compliance.”