2015 (6) TMI 217 - HC - Income Tax

Refund the excess amount paid with interest - Held that - The declaration of income furnished by the assessee under the revised return is declared to be invalid. In such circumstances, the provisions of self-assessment under Section 140-A of the Act, are not attracted. If the Assessing Officer is barred from framing a fresh assessment based on any invalid return, non-est in the eye of law, though is chargeable under Section 4 of the Act, Department, retaining that amount of tax paid on the basis of an invalid return without there being any self assessment/assessment made by the authorities under the Act, would violate Article 265 of the Constitution of India. When the assessment is annulled by the Authorities, the Department is bound to refund the excess amount of tax paid by the assessee on the valid return. The interpretation of the Tribunal that the return contemplated under the proviso (b) to Section 240 of the Act, includes both valid and invalid is not sustainable and has to be set aside. Since we are of the view that the tax amount paid on the invalid return has to be refunded the same analogy applies to the interest portion also. - Decided in favour of the assessee

Issues Involved:
1. Refund of excess amount paid with interest.
2. Unjust enrichment by the revenue.
3. Eligibility for refund when the revised return is void ab initio.

Issue-wise Detailed Analysis:

1. Refund of Excess Amount Paid with Interest:
The appellant filed a revised return on 30.12.1993, which was later declared invalid. The appellant argued that the invalid return was void ab initio, and thus, the authorities were required to refund the amount of Rs. 2,75,043/- paid as per the revised return along with interest under Proviso (b) to Section 240 of the Income Tax Act. The court noted that under Section 240, when an assessment is annulled, the refund shall become due only of the amount of tax paid in excess of the tax chargeable on the total income returned by the assessee. Since the revised return was declared invalid, the authorities had to consider the original return filed on 31.8.1992, which declared a total income of Rs. 57,810/-. The court concluded that the tax paid on the invalid return must be refunded as it was collected without authority of law, offending Article 265 of the Constitution.

2. Unjust Enrichment by the Revenue:
The appellant contended that retaining the tax amount paid based on an invalid return amounted to unjust enrichment at the cost of the appellant. The court agreed, stating that withholding taxes admitted in an invalid return amounts to tax collected without authority of law. The court emphasized that no tax shall be levied or collected except with the authority of law, and if the return itself is declared invalid, the tax paid on such a return cannot be retained by the department.

3. Eligibility for Refund When the Revised Return is Void Ab Initio:
The court examined whether the appellant was eligible for a refund of the tax paid when the revised return was void ab initio. The court held that the word 'return' in Section 240 should be understood as a legal and valid return under Section 139 of the Act. An invalid return has no legal sanctity and must be ignored. The court noted that the authorities and the Tribunal had declared the revised return invalid, and thus, the tax paid based on this return must be refunded. The court referred to various judgments, including CIT v. Shelly Products, which held that if the tax paid is in excess of the liability on the basis of the valid return, the excess shall be refunded to the assessee.

Conclusion:
The court concluded that the interpretation of the Tribunal that the return contemplated under the proviso (b) to Section 240 includes both valid and invalid returns was not sustainable. The court set aside the Tribunal's judgment and directed the revenue to refund the excess amount of tax paid by the assessee on the valid return along with interest. The appeal was allowed in favor of the assessee, emphasizing that equity has no role in taxation matters, and the interpretation should favor the assessee if more than one view is possible.

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