Prepaid Tax Refund Cannot Be Denied Merely for Non-Filing of Original Return: Delhi HC

CIT Vs Dipankar Mohan Ghosh (Delhi High Court)

Summary: The Delhi High Court dealt with an Income Tax Department appeal and a connected writ petition arising from prolonged litigation concerning the sale of a house property by late Dipankar Mohan Ghosh. The dispute had travelled through proceedings before the Authority for Advance Ruling (AAR), reassessment under Section 147, rectification proceedings for refund, revisionary proceedings under Section 263, penalty proceedings under Section 271(1)(c), three appeals before the ITAT and several proceedings before the High Court. The Department challenged the ITAT order dated 28.06.2023 setting aside the Commissioner’s Section 263 order, while the assessee’s widow challenged the penalty order dated 28.04.2023 and corresponding demand notice. An assessment order dated 28.10.2022, subsequently rectified on 15.03.2024, assessed income from sale of property at Rs.59,05,55,783/-. A major grievance was denial of credit for prepaid taxes comprising advance tax and TDS because the assessee had not filed the original return under Section 139 and had filed a return only pursuant to notice under Section 148.

The Revenue relied upon Commissioner of Income-tax v. Sun Engineering Works (P.) Limited, (1992) 198 ITR 297. The assessee explained that the return had not been filed because the decision of the AAR on the taxability of the transaction was awaited. To bring the protracted litigation to an end, counsel for the assessee agreed that the Department’s appeal could be allowed and the matter remanded to the AO, subject to credit of TDS and payment of the remaining amount with applicable interest. The High Court found that the assessee had bona-fidely approached the AAR and was justified in awaiting its determination. It observed that there was no intention to avoid tax and a huge amount had already been deducted at source. The Court held that the Union of India could not deny credit for TDS/prepaid taxes of Rs.16,58,02,551/-. The AO himself accepted adjustment of prepaid taxes against the outstanding demand of Rs.12,15,85,401/-, but denied refund of the balance Rs.5,15,63,080/-. The Court found no statutory provision or plausible justification for allowing adjustment of prepaid taxes while denying refund of the excess. It directed that the return filed pursuant to Section 148 be treated akin to a regular return of income. The Court distinguished Sun Engineering, holding that it concerned substantive computation items adjudicated and concluded in a prior assessment and did not concern credit for prepaid taxes. In view of the assessee’s concession, the Department’s appeal was allowed and the matter remanded without answering the substantial questions of law.