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Do not deny refund in scrutiny cases, let AO decide: Delhi HC

Holding that tax orders are not meant to "add to difficulties" of taxpayers, the Delhi High Court has ruled that the IT department should not "deny" refund to an assessee whose case is being processed under scrutiny and the Assessing Officer will have "discretion" to take a final call on the issue.

Do not deny refund in scrutiny cases, let AO decide: Delhi HC
File photo of the Delhi High Court

New Delhi

A bench of Justices S Muralidhar and Vibhu Bakhru, on May 11, ordered that a January, 2015 instruction issued by the policy-making body of the tax department--the Central Board of Direct Taxes-- in this regard is "unsustainable in law and it is hereby quashed." 

The court observed 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)." 

Section 143 (2) pertains to the procedure of scrutiny where the IT department calls for additional documents and details before finally processing an IT Return.

The scrutiny procedure is one of the prominent areas of grievance for the taxpayers as it entails furnishing numerous documents and multiple visits to the AO and a number of them make complaints of harassment on this issue to the CBDT and the IT department every year.

However, the department, as per latest figures, has stated that the taxman brings about only 1 per cent of the total cases under the stringent procedure of scrutiny.

"It is directed that the said instruction (of CBDT of January, 2015) shall not hereafter be relied upon to deny refunds to the Assessees in whose cases notices might have been issued under Section 143(2) of the Act. The question whether such return should be processed will have to be decided by the AO concerned exercising his discretion in terms of Section 143 (1D) of the Act (assessment after scrutiny)," the court ruled.

The court said the taxpayers' interests was paramount and the powers of the CBDT are "hedged in by certain limitations." 

"The idea of vesting the CBDT with the above power (issuing instructions) is to ensure that there is an ease of administration of the Act and that ambiguities in the practise and procedure may get clarified. At the same time it has to be ensured that such instructions or orders do not add to the difficulties of the tax payers.

"Circulars, orders and instructions issued by the CBDT under Section 119 of the Act, to the extent they are beneficial to the assessees are binding on the department. If they are prejudicial to the tax payer, then they cannot prevail over the statute, which does not envisage such harsher measure," it said.

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