Refund can not be denied on the ground that it was claimed in a return filed u/s 148 – ITAT

Refund can not be denied on the ground that it was claimed in a return filed u/s 148 where no return had been filed u/s 139 – ITAT

In a recent judgment, ITAT has held that refund can not be denied on the ground that it was claimed in a return filed u/s 148 where no return had been filed u/s 139 of the Income Tax Act, 1961 (the Act).

ABCAUS Case Law Citation:
5207 (2026) (08) abacus.in ITAT

Important Case Laws relied upon by Parties:
Sudhakar S. Shanbhag
Sun Engineering Works Put. Ltd

In the instant case, the assessee had challenged the order passed by the CIT(A) in upholding the action of the Assessing Officer in denying the refund claimed by the Appellant in the return of income filed in response to notice under section 148 of the Act.

The appellant assessee company had not originally filed its return of income for the year under consideration. Based upon information available on the Insight Portal relating to certain high value transactions, proceedings under section 147 of the Act were initiated after passing an order u/s 148A(d), and notice u/s 148 was issued.

In compliance with the said notice, the assessee filed its return of income and claimed refund representing tax deducted at source.  The return disclosed Nil taxable income after adjustment of losses.

The assessment was completed u/s 147 read with section 144B accepting the returned income substantially and determining the total income at Nil. However, while framing the assessment, the Assessing Officer denied the refund solely on the ground that such refund could not be claimed in a return filed u/s 148 since no return had been filed u/s 139.

The CIT(A) upheld the action of the Assessing Officer by observing that proceedings u/ s 147 are intended for the benefit of the Revenue and not for conferring a fresh right upon the assessee to claim refund.

Thus, before the Tribunal the sole issue requiring adjudication was whether the assessee is entitled to refund representing excess TDS, where the reassessment proceedings culminated in acceptance of the returned income and assessment of Nil taxable income, or merely because the return claiming refund was filed in response to notice issued u/s 148 and not u/s 139 of the Act, refund was not payable?

The assessee submitted that once a valid return has been filed pursuant to notice u/s 148, the provisions of the Act require such return to be treated as a return furnished u/s 139 for the purposes of making the assessment. He submitted that consequently, if the assessment results in Nil taxable income, refund necessarily follows u/ s 237. It was argued that neither section 237 nor section 239 prohibits grant of refund in reassessment proceedings.

The Tribunal observed that the Assessing Officer had denied the refund solely on the reasoning that section 239 permits refund only where the return is filed u/s 139.

The ITAT rejected such interpretation and observed that Section 237 provides that where the Assessing Officer is satisfied that the amount of tax paid by an assessee exceeds the amount with which he is properly chargeable under the Act, the assessee shall be entitled to refund of such excess. The provision is substantive in nature and confers a statutory right to refund whenever excess tax has been collected.

The Tribunal further observed that once proceedings u/s 148 culminate in an assessment order accepting the returned income and determining Nil taxable income, the inevitable consequence is that taxes already deducted at source become refundable unless specifically barred by law. No such statutory prohibition has been pointed out by the Revenue.

The Tribunal observed that the Hon’ble Allahabad High Court considered an identical question where the assessee had claimed refund in a return filed pursuant to notice u/s 148.  The High Court held that once reassessment proceedings culminate in an assessment and the tax paid exceeds the tax chargeable, refund becomes mandatory u/s 237. The Court categorically held that an order dropping reassessment proceedings amounts to completion of assessment and refund cannot be denied merely because the claim arose in proceedings initiated u/s 148.

The Tribunal stated that if the Revenue’s contention are accepted, it would lead to an anomalous situation whereby taxes admittedly not chargeable under the Act would nevertheless be retained by the Government despite completion of assessment determining Nil taxable income. Such an interpretation would run contrary to section 237 and offend the constitutional mandate contained in Article 265 that no tax shall be collected except by authority of law.

Accordingly, the Assessing Officer was directed to grant the refund and allow consequential interest in accordance with law.

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