Assessment annulled, refund granted for tax paid under invalid order. Appeal dismissed, tax refundable.

The Court upheld the Tribunal's decision, affirming the assessee's entitlement to a refund of the entire tax paid pursuant to the invalid assessment order. The appeal was dismissed, reinforcing that when an assessment under Chapter XIV B is annulled, any tax paid becomes refundable, as the proceedings and the return filed thereunder are without jurisdiction.

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Issues Involved:
1. Validity of the assessment order under Section 158BC.
2. Entitlement to refund of tax paid pursuant to the invalid assessment.
3. Applicability of Section 240 of the Income Tax Act, 1961, particularly proviso (b).

Detailed Analysis:

1. Validity of the Assessment Order under Section 158BC:

A survey under Section 133A was conducted at the assessee's premises, leading to a notice under Section 158BD. The assessee filed a return disclosing income, but the assessment included additional amounts as unexplained cash credits. The Tribunal held the assessment invalid due to the notice being void and not curable under Section 292B. The Tribunal emphasized that no material found during the search related to the assessee, and a survey under Section 133A cannot be equated with a search under Section 132. Consequently, the assessment order was set aside, and the addition from the film "Indian" was not considered undisclosed income.

2. Entitlement to Refund of Tax Paid Pursuant to the Invalid Assessment:

Following the annulment of the assessment order, the assessee sought a refund of Rs. 14,50,000/- paid as tax. The Tribunal ruled that the assessment was invalid both on preliminary issues and merits, entitling the assessee to a refund under Section 240, which mandates refund of amounts due without the assessee having to claim it. The Tribunal clarified that proviso (a) to Section 240 was inapplicable as no fresh assessment was directed, and proviso (b) did not apply since the assessment was not annulled based on the returned income.

3. Applicability of Section 240 of the Income Tax Act, 1961, Particularly Proviso (b):

The Revenue argued that admitted tax liability in the return could not be refunded, citing the Supreme Court's judgment in Commissioner of Income Tax v. Shelly Products and Another. The assessee countered that the return was filed under duress, and with the assessment annulled for lack of jurisdiction, there was no tax liability. The Court noted that Section 4 charges tax on total income, while Section 139 mandates filing returns. Chapter XIV B, dealing with undisclosed income, provides a special assessment procedure, with Section 158BA(2) as the charging section. The Court distinguished returns filed under Section 158BC from those under Section 139, noting the former are not voluntary.

The Court referenced the Supreme Court's interpretation in Shelly Products, which allowed refund claims for excess tax paid due to arithmetical errors or inadvertent inclusions. The Court also discussed the declaratory nature of proviso (b) to Section 240, concluding it did not apply to assessments under Chapter XIV B. The Court cited the CBDT Circular clarifying that annulment of an assessment does not affect the tax due on the returned income, but this did not apply to returns filed under duress and without jurisdiction.

Conclusion:

The Court upheld the Tribunal's decision, affirming the assessee's entitlement to a refund of the entire tax paid pursuant to the invalid assessment order. The appeal was dismissed, reinforcing that when an assessment under Chapter XIV B is annulled, any tax paid becomes refundable, as the proceedings and the return filed thereunder are without jurisdiction.

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