2014 (11) TMI 1224 - HC - Income Tax

Refund of the tax paid in pursuance of the declaration filed u/s 158BC - entitled to claim the entire refund of taxes paid on the undisclosed income declared m the return of income filed by the assessee - Whether the Tribunal was correct in holding that the assessee would be entitled to claim the entire refund of taxes paid on the undisclosed income declared in the return of income filed by the assessee of ₹ 83 lakhs and the admitted tax paid along with the return of ₹ 14,50,000/- and the balance after assessment, since the assessment order was set aside by ignoring the principle that the amount admitted in the return of income cannot be refunded? - HELD THAT - Proviso (b) to section 240 is also declaratory. It seeks to clarify the law so as to remove doubts leading to the courts giving conflicting decisions, and in several cases directing the revenue to refund the entire amount of income-tax paid by the assessee where the revenue was not in a position to frame a fresh assessment, Being clarificatory in nature it must be held to be retrospective, in the facts and circumstances of the case. It is well settled that the legislature may pass a declaratory Act to set aside what the legislature deems to have been a judicial error in the interpretation of statute. It only seeks to clear a meaning of a provision of the principal Act and make explicit that which was already implicit. Where the assessment is annulled, the refund shall become due only In respect of the amount, if any, paid in excess of the tax chargeable on the total income return by the aesessee. Therefore, it necessarily follows that there should be return filed by the assessee showing his total income and paying tax. Thereafter, if the Assessing Officer were to make any addition and pass an assessment older and if that assessment is annulled, then, what is annulled is not the entire liability to pay tax. What is annulled is only additional tax foisted on the assessee by virtue of the assessment order in which event the tax refundable is only additional tax paid in pursuance of the assessment order and not the tax paid as per the returns. The returns filed was in pursuance of the notice issued under Section 158BC and it is not voluntary act. Whether the assessee files a NIL return or files a return showing a particular undisclosed income and pays tax, if the entire proceedings initiated is found to be without jurisdiction, the return filed becomes without jurisdiction and the order passed thereon also becomes without jurisdiction, in which event there is no liability to pay tax at all. Merely because the return was filed in pursuance of the said notice, it cannot be said that the assessee has filed a return showing his total income. The effect of setting aside the assessment order passed under Chapter XIV B is that there is no liability to pay tax insofar as the assessee is concerned. If any tax is collected in pursuance of such Cider, the entire tax becomes liable to be refunded. That is what the Tribunal has exactly held. - Decided against revenue.

Summary

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.