By TIOL News Service

CHENNAI, SEPT 06, 2018: THE ISSUE IS - Whether when defective return filed earlier has become valid by assessee's own conduct of submitting to assessment proceedings by paying taxes on demand, then it is not open to him to contend that subsequent payment of tax based on such return is liable to be refunded. YES IS THE VERDICT.

Facts of the case:

The assessee is a HUF. During the year under consideration, a search was conducted in terms of Samyuktha Foundations Pvt. Limited, a Company in which the assessee was a shareholder. On the basis of the said search, a notice u/s 158-BD came to be issued. In response, the assessee filed a return showing an undisclosed income of Rs.24,04,830/-. However, the said return was not filed voluntarily but due to the pressure exerted by the Revenue officials. Since the return was not voluntary, the assessee did not pay any tax along with the said return. Accordingly, the ITO initiated proceedings for making assessment u/s 158-BD r/w/s 143(3). This came to be challenged by the assessee before the Tribunal, where it was held that the assessment was barred by limitation, and resultantly, the assessment was quashed. When this order of ITAT was confirmed by this Court, the ITO passed an order giving effect to the decision of ITAT, whereby he adopted the tax as per the original order of assessment at Rs.39,09,468/- and interest at Rs.7,42,266/-, making a total income of Rs.46,51,734/-. He thereafter adjusted the revised demand of Rs.14,42,898/- against the same and determined the reduction at Rs.32,08,836/-. Along with the said order, the ITO refunded a sum of Rs.6,06,454/-.

However, as per the assessee, since the entire assessment was anulled, the entire demand would stand cancelled and hence the tax paid, pursuant to the said illegal demand, was liable to be refunded in full together with interest. Therefore, the action of Departmental authorities in not refunding the entire taxes paid, came to be challenged under present petition.

On writ, the High Court held that,

++ the issue that arises for consideration, is as to whether the assessee is entitled to full refund of tax already paid, since the assessment was annulled later by the competent Authority and such annulment has become final and conclusive. There is no dispute to the fact that in pursuant to the search and seizure action, in the case of a Company called Samyuktha Private Limited, wherein the assessee represented by its Kartha, is a shareholder, a notice u/s 158BD was issued to him. It is also not in dispute that in response to the said notice, the assessee filed its return admitting a sum of Rs.24,04,830/- as its undisclosed income. Even though it is contended before this Court as though filing of such return was under pressure of the officials of the Revenue, this Court is not in a position to appreciate the said contention, in the absence of any materials sub-stantiaing such allegation, more particularly, in the absence of any challenge by the assessee against further proceedings in pursuance of such notice. On the other hand, as rightly contended by the Revenue, the statutory obligation vested on the part of assessee was discharged by filing a return with true and correct particulars of the total income including the undisclosed income in respect of which, the assessee was assessable for a concerned block. Therefore, the assessee is not entitled to contend now that filing of such return itself was under pressure. On the other hand, it is to be taken that the assessee has discharged its statutory obligation by filing its return, showing the said undisclosed income;

++ it is true that the assessee at the time of filing the return had not paid the tax. But at the same time, it is not in dispute that the assessee had paid such tax later on demand and recovery action. Whether the payment of tax was voluntary or out of such demand, the fact remains that such payment of tax was also towards the disclosed income in the return and therefore, the manner and time of payment of such tax, do not have any significance. On the other hand, it is to be construed that such payment of tax was in respect of the return filed by assessee containing disclosure of admitted income. Therefore, it is evident that the defective return filed earlier became valid later by the assessee's own conduct of submitting to the assessment proceedings by paying the tax on demand. Thus, the assessee is not justified in contending that the return filed by him without payment of tax is invalid one and consequently, subsequent payment of tax based on such return is liable to be refunded. It is true that once the assessment is annulled, the assessee is entitled to refund of tax, as provided u/s 240. A perusal of the said provision would show that the entitlement to get refund of tax, in case the assessment is annulled, is confined only to the taxes paid in case of tax chargeable on the total income returned by assessee and not to the entire tax paid by assessee including the tax chargeable on the total income including the tax chargeable on the income returned by the assessee. Simply, an assessee, who admitted the income in his return as the total income, is not entitled to retract such admission or go against such admission, merely because the assessment made based on such return, was subsequently annulled. The annulment of the assessment, at the best, may result in refund of excess tax levied by way of such assessment over and above the admitted tax paid. At this juncture, it is to be noted that what was set aside or annulled by the competent forum, was only the order of assessment made in pursuance to the filing of return by the assessee;

++ the provision of Section 139 deals with return of income. Section 140A deals with Self-asessment, wherein a return filed under Section 158 BC is also included. Section 140A contemplates that any tax payable on the basis of any return required to be furnished under Section 158BC, etc., shall be paid together with interest and the return shall be accompanied by proof of payment of such tax. Section 140 A(3) further contemplates that if any assessee fails to pay the whole or any part of such tax or interest or both, in accordance with the provisions of sub section (1) of Section 140A, he shall be deemed to be an assessee in default in respect of the tax or interest or both, remaining unpaid. However, under Section 139, sub clause (9), the Assessing Officer may intimate the defect to the assessee and give him an opportunity to rectify the defect. Only when such defect was not rectified within the time granted by the AO, the return so filed is treated as an invalid return. In this case, it is not in dispute that though the assessee has not paid the tax along with the return at the time of filing the same, on notice from the AO, he paid the same subsequently. Therefore, a defective return filed by the assessee in this case has become valid return on payment of tax subsequently on notice from the AO. Consequently, the tax paid on the admitted income shown in such return is not liable to be refunded, as prohibited u/s 240(b) of the Act. Further, the Apex Court in the case of Commissioner of Income Tax vs Shelly Products & Another - 2003-TIOL-100-SC-IT, categorically observed that the liability to pay income tax chargeable u/s 4(1) does not depend upon the assessment being made and that the liability to pay the tax arises, as soon as the Finance Act prescribes the rate or rates for any assessment year. Hence, a deemed acceptance of the return furnished by assessee stands and holds good and consequently, any tax paid either along with the return or later under any circumstances would certainly fall under the purview of "tax chargeable on the total income returned by the assessee" as referred to in Proviso (b) of Section 240 of the Act.

(See 2018-TIOL-1824-HC-MAD-IT)