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Bombay High Court Directs Income Tax Department to Refund Rs 1,128 Crore to Vodafone Idea

In a significant legal development, the Bombay High Court has issued a directive instructing the income tax department to refund a substantial amount of Rs 1,128 crore to Vodafone Idea Ltd for the Assessment Year 2016-2017. The court, represented by a division bench comprising Justices K.R. Shriram and Neela Gokhale, not only mandated the refund but also expressed dissatisfaction with the assessing officer’s handling of the case, citing “laxity and lethargy” for the delayed final order.

Vodafone Idea (Vi) initiated the legal proceedings through a petition, asserting that the Central Processing Centre in Bangalore and the assistant commissioner of income-tax, Mumbai circle, failed to reimburse the amount rightfully owed to the company for the specified assessment year. Vi contended that it had overpaid the legitimate tax amount on its income and was seeking a refund, coupled with applicable interest.

The legal timeline of events reveals that the assessing officer issued a draft order for the assessment year in December 2019. In response, Vi filed objections before the Dispute Resolution Panel (DRP) in January 2020. The DRP subsequently issued certain directions in March 2021. Vi, emphasizing that the assessing officer was obligated to pass the final order within 30 days, argued that the delayed action entitled them to a refund with interest.

Frustratingly, it wasn’t until June 2023, after Vi filed the petition in the High Court, that the assessing officer finally passed the long-overdue final order in August. The court, in its judgment, criticized the officer’s conduct, characterizing it as “elementary” and expressing concern over the “apathy and negligent approach” in fulfilling duties outlined in the Income Tax Act of 1961.

The bench’s scathing remarks underscored the potential damage caused by such laxity, stating, “Laxity in this regard has a propensity to destroy and bring to nought any effective system put in place by the government for efficient and transparent administration of taxation laws and regulations. Such an adverse effect on the exchequer is revealed in the present case.” The court went further, recommending a detailed inquiry into the failure of the assessing officer to adhere to the provisions of the Income Tax Act.

However, the income tax department attempted to deflect blame by citing the “Faceless Assessment Regime,” claiming it had not received the DRP’s directions. The court, dismissing this argument, asserted that the DRP directions were readily available on the ITBA portal and rejected any excuses for the assessing officer’s two-year inactivity. The court remarked, “There was also no whisper of any explanation as to why the assessing officer remained inactive and silent for two long years in the case and swung into action only when he received information of the petition filed.”

This ruling marks a significant win for Vodafone Idea, as the court not only ordered the substantial refund but also highlighted the need for a thorough examination of administrative lapses within the income tax department. The judgment serves as a reminder of the importance of adherence to statutory timelines and the potential consequences of administrative negligence in taxation matters.

In conclusion, the Bombay High Court’s directive stands as a testament to the judicial commitment to ensuring fair and timely resolution in tax-related disputes, emphasizing the need for a robust and accountable system in the administration of tax laws.

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