High Court directs Tax Refund of Rs. 1,128 crore to Vodafone Idea; Summons IT Department

The Bombay High Court, expressing its displeasure with the assessing officer’s “complete apathy and negligent approach” in carrying out his duties, has directed the Income Tax authorities to return approximately Rs. 1,128 crores to Vodafone Idea, along with interest, for the assessment year 2016-17.

While issuing the directive, the bench of Justices KR Shriram and Neela Gokhale strongly suggested a detailed investigation into the failure of the Faceless Assessing Officer (FAO) to operate in compliance with the provisions of the Income Tax Act.

The court highlighted the importance of stern action against those who were responsible for the laxity, which resulted in a large loss to the exchequer and, as a result, the residents of the country.

The dispute arose from Vodafone’s Return of Income (ROI) for the Assessment Year 2016-2017, which disclosed a loss under the Act’s usual provisions and Section 115JB, with a demand for a refund of prepaid taxes totaling Rs. 1,128.47 crores.

Vodafone claimed that the FAO failed to issue the final order within the prescribed 30 days, as directed by the Dispute Resolution Panel (DRP), and requested that the original ROI be accepted with a refund of excess tax paid with interest.

The DRP directives were released on March 25, 2021, however, the assessment order was issued on August 31, 2023. The Income Tax Department blamed the delay on the Faceless Assessment Regime, stating that the FAO did not receive the DRP’s instructions. Vodafone submitted facts to dispute this assertion.

The court highlighted that failure of duty by personnel tasked with working within the tight confines of the law has far-reaching ramifications for the exchequer and the nation’s economic stability. It claimed that such laxity might demolish any effective system established by the government for the efficient and transparent implementation of taxation rules and regulations, resulting in negative impacts on the exchequer.