2016 (11) TMI 1014 - HC - Income Tax

Claim of refund of tax paid earlier since the return was treated as Invalid by the AO - delay in rectification of return u/s 139(9) - After declaring the above return of income as invalid return, the revenue invoking coercive action for recovery of the tax and interest - attachment orders - Held that - This court is of opinion that the reliance on the Karnataka High Court ruling in K. Nagesh (2015 (6) TMI 217 - KARNATAKA HIGH COURT ) for saying that the amounts paid as advance tax are in fact refundable, because of Section 139 (9) read with Section 240 is inapt. That court, with respect, appears to have overlooked the salient aspect underscored by the Supreme Court, i.e., the levy of tax is under Section 4 (1); the rates may vary. Likewise, filing of return, self-assessment tax, advance tax, etc. and provisions which flesh out the mechanisms under the Act for collection cannot be construed literally. Even Section 240 presupposes an order, leading to refund. Now, it is moot whether the nullification on ground of non-compliance due- not due to denial of liability - but other reasons, automatically leads to a situation contended by the assesseee. Facially, the contention is insubstantial, because Section 139, even while obliging the officer to a course of action, i.e., declaring the return invalid, also says significantly that and the provisions of this Act shall apply as if the assessee had failed to furnish the return. Furthermore, as clarified by the Supreme Court, Section 240 itself is premised upon some authority of the revenue officials to decide whether the entire amount deposited, or part of it, or none at all, is to be refunded. Besides the above conclusion, this court is also of the view that the assessment is at large, given that the search resulted in a notice to the assessee under Section 153A. No doubt, it has claimed refund; yet those issues are to be adjudicated. Therefore, its claim cannot succeed.

Summary

Issues Involved:
1. Validity of the notice issued under section 226(3) of the Income-tax Act, 1961.
2. Legality of attachment of bank accounts by the Income Tax authorities.
3. Implications of declaring a return of income as invalid under section 139(9) of the Act.
4. Jurisdiction of revenue to recover tax and interest based on an invalid return.
5. Refundability of amounts paid as advance tax or self-assessment tax in light of invalid return.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under section 226(3) of the Income-tax Act, 1961:
The petitioner sought the quashing of the notice dated 12.03.2015 issued under section 226(3) of the Income-tax Act, 1961. The petitioner argued that once the return of income is treated as invalid, the revenue authorities lose the jurisdiction to take cognizance of the information furnished in the said return. The petitioner contended that the invalidation of the return ousts the officers of the revenue from taking any action based on that return.

2. Legality of attachment of bank accounts by the Income Tax authorities:
The petitioner challenged the attachment of its bank accounts by the revenue without any prior or subsequent notice. The petitioner argued that the attachment orders were issued without proper jurisdiction since the return of income was declared invalid. The revenue, however, maintained that the petitioner was an assessee in default due to non-payment of the admitted tax liability, thereby justifying the attachment under section 226(3).

3. Implications of declaring a return of income as invalid under section 139(9) of the Act:
The petitioner’s return of income for the assessment year 2013-14 was declared invalid under section 139(9) due to non-payment of tax and interest. The petitioner argued that an invalid return is deemed non-existent, thus nullifying any liability shown in it. The revenue, however, emphasized that the petitioner admitted its tax liability in the return and partially paid the amount, leaving a shortfall. The court noted that the invalidation of the return did not negate the admitted tax liability.

4. Jurisdiction of revenue to recover tax and interest based on an invalid return:
The petitioner argued that since the return was invalid, no valid demand for tax and interest could be raised, and consequently, the revenue lacked jurisdiction to recover any amount. The court, referencing the Supreme Court’s decision in Commissioner of Income Tax v Shelly Products, held that the liability to pay tax arises under section 4(1) of the Act and does not depend on the assessment order. The court concluded that the admitted liability in the return remains valid despite the return being declared invalid.

5. Refundability of amounts paid as advance tax or self-assessment tax in light of invalid return:
The petitioner claimed that the amounts paid as advance tax and self-assessment tax should be refunded due to the invalidation of the return. The court, however, referred to the Supreme Court’s ruling in Shelly Products, which stated that the tax paid by way of self-assessment or advance tax represents an admitted liability and is not refundable merely because the return is declared invalid. The court emphasized that the levy of tax is under section 4(1) and the mechanisms under the Act for collection cannot be construed literally to mandate a refund in such circumstances.

Conclusion:
The court dismissed the petitioner’s writ petition, holding that the revenue had the jurisdiction to recover the admitted tax liability despite the return being declared invalid. The court also upheld the legality of the attachment of bank accounts and rejected the claim for refund of advance tax and self-assessment tax. The court found no merit in the petitioner’s arguments and dismissed the petition without costs.