2024 (12) TMI 1627 - AT - Income Tax

Assessee entitled to refund under s.237 despite no s.139(1) return; s.139(3) allows delayed return loss carryforward

The Yanam Cooperative Stores Limited Versus Pr. CIT, Visakhapatnam Andhra Pradesh

ITAT held the assessee was entitled to a refund of excess tax/TDS under s.237 despite not filing a return under s.139(1), and set aside the Pr. CIT's ... Revision u/s 263 - granting of refund and also allowing the carried forward loss where the return of income has not been filed within the time allowed u/s 139(1) - assessee has not filed its return of income under section 139(1) of the Act but has filed his return of income in response to the notice u/s 147 HELD THAT:- When the AO has framed the assessment considering the income as NIL as filed by the assessee in its return of income, the assessee is entitled for the refund of excess amount paid as taxes. Various judicial pronouncements have upheld the aforesaid view. Section 237 of the Act provides that if the assessee has paid excess of the amount for which the assessee is properly chargeable under the Act for that assessment year such person is entitled to get the refund of the excess amount. In the instant case, the entire amount of TDS paid by the assessee was in excess of the amount which was actually chargeable. The assessee was therefore, entitled to have refund of the excess amount. Section 237 of the Act, does not specify that an assessment order must be made and that some amount must be found to be payable as tax, where the assessee has paid some amount in excess of amount. It is not a pre-condition for invoking that some liability must have been cast upon the person claiming the refund. We therefore, set-aside the order of the Pr. CIT on the issue of directing the Ld. AO to withdraw the refund. Since the assessee has not filed its return of income within the due date specified u/s 139(1) CIT has in accordance with the provisions of section 139(3) directed the AO to carry forward loss and we are of the considered view that there is no infirmity in the order of the Ld. Pr. CIT on this issue. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee who is a non-filer under section 139(1) but who files a return in response to a notice under section 148 and is assessed to nil income under section 147 r.w.s. 144B is entitled to refund of excess tax/TDS claimed in that return. 2. Whether carried forward losses claimed in a return filed after the due date under section 139(1) can be allowed when the return is filed in response to a notice under section 148; and whether the Principal Commissioner's direction to disallow such carried forward losses under section 263 (by directing the AO in view of section 139(3)) is sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to refund of excess tax/TDS when return filed only in response to section 148 notice and assessment is completed as nil Legal framework: Sections 147 and 148 permit reopening of assessment where income has escaped assessment; section 237 provides entitlement to refund where an assessee has paid in excess of the amount properly chargeable under the Act; procedure for assessment under section 144B (summary proceedings) is relevant to the framing of assessment on a return filed in response to a notice. Precedent Treatment: The Court referred to multiple judicial pronouncements supporting the proposition that where an assessment on a return is accepted by the AO and results in nil tax, the assessee is entitled to refund of TDS/ excess tax irrespective of whether the return was originally a belated filing in response to reassessment proceedings. Those authorities were followed and applied to the facts. Interpretation and reasoning: The AO, after issuing notice under section 148 and receiving the return, examined the return and supporting material and framed assessment under section 147 r.w.s. 144B accepting the declared income as nil. The refund arose from TDS credits reflected in Form 26AS and the amount of TDS exceeded the tax properly chargeable for the year as finally determined by the AO. Section 237 is not drafted so as to require that some tax liability be first determined payable by the assessee before a refund can be claimed; it speaks to any excess payment over the amount for which the assessee is properly chargeable for the assessment year. Consequently, where the assessment itself establishes that the tax chargeable is nil, an excess deduction or deposit (TDS) gives rise to a statutory right to refund. The fact that the return was filed only in response to a notice under section 148 does not negate the entitlement where the AO, after scrutiny, accepts the return and returns an assessment showing no tax liability. The Principal Commissioner's direction to withdraw the refund was therefore held to be erroneous and prejudicial to the revenue insofar as it denied a statutory refund established by the assessment outcome. Ratio vs. Obiter: Ratio - Where an assessment framed under section 147 r.w.s. 144B accepts the return filed in response to a notice under section 148 and determines tax chargeable as nil, the assessee is entitled under section 237 to refund of excess tax/TDS shown in the return; entitlement does not depend on prior timely filing under section 139(1). Obiter - Observations about the array of judicial pronouncements supporting this view (without detailed reconciliation of all lines of authority) are ancillary to the decision. Conclusion: The Tribunal set aside the Principal Commissioner's direction to withdraw the refund and held the assessee entitled to the refund of Rs. 4,12,417 (as determined by the AO) that arose from excess TDS, since the assessment accepted the return and assessed income as nil. Issue 2 - Allowability of carried forward losses where return was not filed within the time under section 139(1) Legal framework: Section 139(1) prescribes the time for filing return; section 139(3) (and related provisions and scheme) restrict certain claims (including carry forward and set-off of losses) where returns are not filed within the prescribed due date; section 263 empowers the Principal Commissioner to revise orders that are erroneous and prejudicial to the interests of the revenue. Precedent Treatment: The Tribunal applied the statutory bar in section 139(3) as interpreted in consistent judicial treatment holding that carry forward of business losses is not allowable if the return is not filed within the time specified under section 139(1), subject to exceptions not present on the facts. Those authorities were treated as applicable and followed. Interpretation and reasoning: The assessee conceded that the return was not filed within the due date under section 139(1) and that the claim for carry forward of losses was made only in the return filed in response to the notice under section 148. Section 139(3) and the statutory scheme deny the benefit of carry forward/set-off of losses where the return has not been filed within the time allowed under section 139(1). The Principal Commissioner, invoking section 263, directed the AO to disallow the carried forward loss of Rs. 76,33,897 and to amend the assessment accordingly. The Tribunal found no infirmity in that direction because it conformed with the statutory prohibition: the return was belated and the claim for carry forward losses could lawfully be refused. The Tribunal therefore upheld the Principal Commissioner's direction insofar as it disallowed the carry forward loss. Ratio vs. Obiter: Ratio - Where a return is not filed within the time prescribed by section 139(1), the assessee is not entitled to carry forward business losses claimed in that belated return; a revisional direction under section 263 to deny carry forward losses on that ground is sustainable. Obiter - Any commentary on discretionary equitable doctrines (e.g., unjust enrichment) raised by the assessee but not supported by the statutory scheme is incidental. Conclusion: The Tribunal upheld the Principal Commissioner's direction to disallow the carried forward loss of Rs. 76,33,897 because the return was not filed within the time prescribed under section 139(1), and held there was no infirmity in refusing the carry forward claim. Outcome (cross-reference): The Tribunal partly allowed the appeal by restoring the refund of excess TDS under issue 1 but confirmed the disallowance of carried forward loss under issue 2, resulting in partial allowance of the appeal.