1989 (1) TMI 151 - AT - Income Tax

Summary

Issues Involved:
1. Refund of the entire tax paid by the assessee.
2. Validity of the assessment framed by the I.T.O. under sections 143(3)/144B.
3. Entitlement to the refund of tax under sections 237 and 240 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Refund of the Entire Tax Paid by the Assessee:

The assessee, a private limited company, contested the action of the Commissioner of Income-tax (Appeals) for not granting a refund of the entire tax paid. The assessee paid Rs. 88,080 as advance tax and Rs. 27,887 as T.D.S., totaling Rs. 1,15,967. The Tribunal had canceled the assessment framed by the I.T.O. as being time-barred. The assessee argued that this cancellation entitled them to a full refund of Rs. 1,15,967. However, the CIT(A) only directed a refund of Rs. 16,265, stating that the tax due on the returned income of Rs. 1,16,920 was Rs. 67,521, and the assessee had already been refunded Rs. 22,728. The CIT(A) reasoned that the charging section automatically attracts tax liability on the returned income, and the cancellation of the assessment only affects the additional demand raised.

2. Validity of the Assessment Framed by the I.T.O. under Sections 143(3)/144B:

The I.T.O. initially framed the assessment on a total income of Rs. 15,93,020, making an addition of Rs. 12,32,000 for unexplained investment in the factory building. The assessee appealed, arguing the assessment was time-barred and disputing the addition. The CIT(A) did not accept the time-barred contention but restored the matter of the addition to the I.T.O. for fresh assessment. The Tribunal later canceled the assessment as time-barred, leading to subsequent appeals and orders, culminating in the CIT(A) vacating the fresh assessment order by the I.A.C. The Tribunal upheld this decision, dismissing the Revenue's appeal.

3. Entitlement to the Refund of Tax under Sections 237 and 240 of the Income-tax Act:

The assessee argued for a full refund under section 237, which states that if the tax paid exceeds the amount properly chargeable, the excess should be refunded. The CIT(A) and the Tribunal considered the scheme of the Act, noting that the charging section creates the tax liability, not the assessment order. The Tribunal emphasized that the advance tax and T.D.S. were paid under the authority of law, and the cancellation of the assessment does not negate the tax liability on the returned income. The Tribunal referenced several Supreme Court decisions, affirming that tax liability arises from the charging section, not the assessment. Consequently, the Tribunal upheld the CIT(A)'s order, denying the full refund but directing the refund of Rs. 16,265.

Conclusion:

The Tribunal dismissed the appeal, confirming that the assessee was not entitled to a full refund of Rs. 1,15,967. The tax liability on the returned income remained valid despite the cancellation of the assessment, and only the excess demand raised by the I.T.O. was considered without authority of law. The Tribunal's decision was based on the interpretation of the charging section, the scheme of the Income-tax Act, and relevant judicial precedents.