D.B. Engineering Pvt. Ltd. Vs ACIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal and directed the Assessing Officer to grant a refund of Rs.5,31,680/- together with consequential statutory interest, holding that excess tax could not be retained merely because the refund claim was made in a return filed pursuant to notice under section 148 rather than section 139.
The assessee, D.B. Engineering P. Ltd., had not originally filed its return of income for Assessment Year 2019-20. Proceedings under section 147 were initiated after information relating to certain high-value transactions was available on the Insight Portal. An order under section 148A(d) was passed and notice under section 148 was issued on 27.03.2023. In response, the assessee filed its return on 21.04.2023 declaring a business loss of Rs.1,38,29,756/- and claiming refund of Rs.5,31,680/- representing tax deducted at source. After adjustment of losses, the returned taxable income was Nil.
The assessment was completed under section 147 read with section 144B, substantially accepting the returned income and determining total income at Nil. However, the Assessing Officer denied the refund on the ground that it could not be claimed in a return filed under section 148 because the assessee had not filed an original return under section 139. The CIT(A) upheld this position, observing that reassessment proceedings under section 147 were intended for the benefit of the Revenue and not for conferring a fresh right upon the assessee to claim a refund. The CIT(A) principally relied upon the Bombay High Court decision in K. Sudhakar S. Shanbhag, following the Supreme Court decision in Sun Engineering Works Pvt. Ltd.
Before the Tribunal, the assessee contended that once a valid return had been filed pursuant to notice under section 148, the return was to be treated for assessment purposes in accordance with the statutory scheme. It argued that where the resulting assessment determined Nil taxable income, the excess tax necessarily became refundable under section 237. The assessee further submitted that neither section 237 nor section 239 prohibited a refund arising in reassessment proceedings. Reliance was placed on CIT v. Vali Brothers, 282 ITR 149 (All.), Kalindee Rail Nirman (Engineers) Ltd. v. CIT, 394 ITR 684 (Raj.), and Ajit Kumar v. ACIT, ITA No. 449/Bang/25. The assessee also argued that Sun Engineering Works Pvt. Ltd., 198 ITR 297 (SC), concerned the scope of reassessment and did not deal with the issue of refund arising from an assessment determining Nil income.
The Tribunal found that the controversy was purely legal and that the material facts were undisputed. The assessment had accepted the returned income and determined taxable income at Nil, leaving no tax liability against the assessee. The only dispute was the entitlement to refund.
The Tribunal rejected the Assessing Officer’s interpretation of section 239. Referring to section 237, it observed that where the tax paid by an assessee exceeds the amount with which the assessee is properly chargeable, the assessee is entitled to refund of the excess. The Tribunal characterised section 237 as substantive in nature, conferring a statutory right to refund whenever excess tax had been collected. TaxGuru’s material similarly describes section 237 as dealing with refund of excess tax paid.
The Tribunal further held that once reassessment proceedings under section 148 culminated in an assessment accepting the returned income and determining Nil taxable income, taxes already deducted at source became refundable unless specifically barred by law. According to the Tribunal, the Revenue had not pointed out any such statutory prohibition.
The Tribunal relied upon CIT v. Vali Brothers, where, according to the order, the Allahabad High Court considered an identical question concerning a refund claimed in a return filed pursuant to notice under section 148 and held that once reassessment proceedings culminated in assessment and tax paid exceeded tax chargeable, refund became mandatory under section 237. It also referred to Kalindee Rail Nirman (Engineers) Ltd., in which the Rajasthan High Court recognised that the statutory obligation to refund excess tax could not be defeated on hyper-technical considerations once the correct tax liability had been determined. The Tribunal additionally noted the Bangalore Bench decision in Ajit Kumar v. ACIT, which similarly held that refund could not be denied merely because the original return had not been filed under section 139.
The Tribunal distinguished the Revenue’s reliance on Sun Engineering Works Pvt. Ltd. The principle relied upon by the Revenue concerned the limits of reassessment proceedings and the inability of an assessee to use reassessment as an appeal or revision to reopen concluded matters. The present case, however, did not involve a fresh deduction or relief outside the reassessment proceedings. The assessee was seeking a statutory refund flowing directly from the assessment itself after determination of Nil taxable income. The Tribunal therefore regarded the refund as consequential relief rather than an independent claim beyond the scope of reassessment.
The Tribunal also observed that accepting the Revenue’s contention would result in taxes admittedly not chargeable under the Act being retained by the Government despite an assessment determining Nil taxable income. It held that 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 Tribunal held that the assessee was legally entitled to the refund of Rs.5,31,680/- together with consequential statutory interest admissible under the Act. The Assessing Officer was directed to grant the refund and allow consequential interest in accordance with law. The assessee’s grounds were allowed and the appeal was allowed.
Cases Discussed
- CIT v. Vali Brothers, 282 ITR 149 (All.) — considered on the entitlement to refund where a return filed pursuant to notice under section 148 resulted in an assessment determining that tax paid exceeded the tax chargeable.
- Kalindee Rail Nirman (Engineers) Ltd. v. CIT, 394 ITR 684 (Raj.) — referred to for the principle that the statutory obligation to refund excess tax cannot be defeated by hyper-technical considerations once the correct tax liability has been determined.
- Ajit Kumar v. ACIT, ITA No. 449/Bang/25 — considered for the proposition that refund claimed in a return filed pursuant to notice under section 148 cannot be denied merely because no original return was filed under section 139.
- K. Sudhakar S. Shanbhag — considered in relation to the Revenue’s position concerning the scope and purpose of reassessment proceedings.
- CIT v. Sun Engineering Works Pvt. Ltd., 198 ITR 297 (SC) — distinguished because the present case concerned consequential statutory refund arising from an assessment determining Nil taxable income, rather than a fresh claim for relief relating to concluded matters.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT DELHI
1. This appeal by the assessee is directed against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short ‘ld. CIT (A)] dated 30.01.2026 for the Assessment Year 2019-20 raising the following grounds of appeal :-
“1.1 That on the facts and circumstances of the case, the Ld. CIT(A) has erred in upholding the action of the Assessing Officer in denying the refund of Rs.5,31,680/- claimed by the Appellant in the return of income filed in response to notice under section 148 of the Act.
1.2 That the Ld. CIT(A) has failed to appreciate that once the assessment has been completed accepting the returned income and determining total income at Nil, the excess tax paid by way of TDS/ advance tax necessarily results in a refund under section 237 of the Act, and withholding of such refund of contrary to purpose and scheme of the Act.
1.3 That Ld. CIT(A) has failed to appreciate that section 239 does not bar a claim of refund in a return filed under section 148, and the denial of refund on hyper-technical interpretation defeats the object of sections 237 and 240 of the Act.
1.4 That the denial of refund is contrary to the principles laid own by various High Courts and the Hon’ble Supreme Court and would result in unjust enrichment and in teeth of Article 265.
2. That the orders passed by lower authorities are not sustainable on facts and same are bad in law.”
2. Brief facts of the case are, the assessee company had not originally filed its return of income for the year under consideration i.e. AY 2019-20. Based upon information available on the Insight Portal relating to certain high value transactions, proceedings under section 147 of the Income-tax Act, 1961 (for short ‘the Act’) were initiated after passing an order u/s 148A(d), and notice u/s 148 dated 27.03.2023 was issued.
3. In compliance with the said notice, the assessee filed its return of income on 21.04.2023 declaring a business loss of Rs.1,38,29,756/- and claimed refund of Rs.5,31,680/- 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.
4. The ld. 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. The ld. CIT(A) relied principally upon the judgment of the Hon’ble Bombay High Court in K. Sudhakar S. Shanbhag following the decision of the Hon’ble Supreme Court in Sun Engineering Works Put. Ltd.
5. Aggrieved, the assessee is in appeal before us. The sole issue requiring adjudication is whether the assessee is entitled to refund of Rs.5,31,680/- representing excess TDS, where the reassessment proceedings culminated in acceptance of the returned income and assessment of Nil taxable income, merely because the return claiming refund was filed in response to notice issued u/s 148 and not u/s 139 of the Act?
6. At the time of hearing, the ld. AR of 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 ld. AR placed reliance upon the decision in the case of CIT v. Vali Brothers 282 ITR 149 (All.), Kalindee Rail Nirman (Engineers) Ltd. v. CIT394ITR 684 (Raj.) and Ajit Kumar v. ACIT in ITA No. 449/Bang/25 (ITAT Bangalore) holding that refund cannot be denied merely because the return was filed pursuant to notice u/s 148. He submitted that the judgment in the case of Sun Engineering Works Pvt. Ltd. 198 ITR 297 (SC) is not relevant as the same is not in context of issue of refund pursuant to order u/s 147 of the Act.
7. On the other hand, ld. DR of the Revenue relied upon the orders of the lower authorities.
8. Considered the rival submissions and the material placed on record. The controversy before us is purely legal and the facts are undisputed. As noted above, the assessee filed its return of income in compliance with notice issued u/s 148 declaring loss and claiming refund of Rs.5,31,680/- on account of taxes deducted at source. The copy of ITR acknowledgement is placed at paper book page 1. The assessment has ultimately been completed accepting the returned income and determining the taxable income at Nil. Thus, there remains no tax liability against the assessee. The only dispute is regarding entitlement to refund.
9. The Assessing Officer has denied the refund solely on the reasoning that section 239 permits refund only where the return is filed u/s 139. We are unable to subscribe to such interpretation. 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.
10. Further, 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.
11. The Hon’ble Allahabad High Court in CIT v. Vali Brothers (supra) 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.
12. Similarly, the Hon’ble Rajasthan High Court in Kalindee Rail Nirman (Engineers) Ltd. (supra) has recognized that the statutory obligation to refund excess tax cannot be defeated on hyper-technical considerations once the assessment determines the correct tax liability.
13. We also find that the Bangalore Bench of the Tribunal in Ajit Kumar v. ACIT (supra) has recently held that refund claimed in a return filed pursuant to notice u/s 148 cannot be denied merely because no original return had been filed u/s 139, once reassessment proceedings culminate in determination of the correct taxable income.
14. The reliance placed by the Revenue upon the decision in Sun Engineering Works Pvt. Ltd. 198 ITR 297 (SC) is, in our considered opinion, misplaced. The principle laid down therein is that reassessment proceedings us/ 147 are for capturing escaped income and the assessee is not entitled to reagitate issues concluded in the original assessment. However, the present case does not involve any fresh deduction or relief dehors the reassessment proceedings. The assessee merely seeks statutory refund arising directly from the assessment itself after determination of Nil taxable income. Such refund is only a consequential relief flowing from the assessment order and not an independent claim beyond the scope of reassessment.
15. We are of the view that acceptance of the Revenue’s contention 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.
16. The authorities below have adopted an unduly restrictive interpretation which defeats the object of the refund provisions. Once the assessment itself determines that no tax is payable, the Department cannot unjustly retain taxes already collected merely because the return happened to be filed in response to notice u/s 148.
17. Accordingly, we hold that the assessee is legally entitled to refund of Rs.5,31,680/- together with consequential statutory interest admissible under the Act. The Assessing Officer is directed to grant the refund and allow consequential interest in accordance with law. Accordingly, the grounds raised by the assessee are allowed.
18. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 11th day of August, 2026.
