Dr.thirupathy Reddy (Huf) v. The Assistant Commissioner Of Income Tax, Central Circle Ii (1)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.08.2018 Reserved on 23.08.2018Delivered on 28.08.2018 C O R A M THE HON'BLE Mr.JUSTICE K.RAVICHANDRABAABU W.P.No.41940 of 2006andMP No.1 of 2006 Dr.Thirupathy Reddy (HUF),6, Porur, Somasundarar Street,T.Nagar,Chennai 600 017....Petitioner vs 1.The Assistant Commissioner of Income Tax, Central Circle II (1), 121, Nungambakkam High Road, Chennai 600 034. 2.The Income Tax Officer, Company Ward VI (1), 121, N.H.Road, Chennai 600 034. ...Respondents Prayer:Writ petition filed under Article 226 of the Constitutionof India for issuance of a writ mandamus to call for the recordsin Ref/WSA101/P1/Block Asst. dated 2.2.2006 read with Ref/WSa101/P1/Block Asst. dated 5.5.2006 and quash the same and directthe second respondent to refund to the petitioner the entire sumof Rs.19,23,067/- together with interest under section 244 ofthe Income Tax Act, from the date of payment of the said amounttill the date of refund. The petitioner is aggrieved against the orders of thesecond respondent dated 02.02.2006 and 05.05.2006, through whichhis request for refund of entire tax paid was rejected.Consequently, the petitioner seeks for refund of a sum ofRs.19,23,067/- together with interest under Section 244 of theIncome Tax Act. https://hcservices.ecourts.gov.in/hcservices/ 2. The case of the petitioner is as follows: The petitioner is a Hindu undivided family and an assesseeon the file of the first respondent. A search was conducted interms of Samyuktha Foundations Pvt. Limited, a Company in whichthe petitioner is a shareholder. On the basis of the saidsearch, a notice under Section 158 BD of the Income Tax Act wasissued to the petitioner on 18.07.1996. The petitioner filed areturn of income showing an undisclosed income ofRs.24,04,830/-. The return was not filed voluntarily but due tothe pressure exerted by the officials of the respondent. Sincethe return was not voluntary, the petitioner did not pay any taxalong with the said return. Thus, the said return was not validin law, as it was not accompanied by the tax on the incomedeclared in the return. Subsequently, the first respondentinitiated proceedings for making assessment under Section 158 BDread with Section 143(3) and consequently, made an order ofassessment on 27.08.1997. The petitioner challenged the saidorder of assessment in appeal before the Income Tax AppellateTribunal. By order dated 30.03.2005, the Appellate Tribunalheld that the assessment was barred by limitation. Thus, theAppellate Tribunal quashed the assessment order dated27.08.1997. The said order of Appellate Tribunal was confirmedby this Court in T.C.No.1008 of 2015. On 15.06.2005, the secondrespondent made an order giving effect to the order passed bythe Appellate Tribunal. In the aforesaid order, the secondrespondent, while calculating the reduction, adopted the tax asper the original order of assessment at Rs.39,09,468/- andinterest at Rs.7,42,266/-, making a total income ofRs.46,51,734/-. He adjusted the revised demand ofRs.14,42,898/- against the same and determined the reduction atRs.32,08,836/-. Along with the said order, the secondrespondent however refunded a sum of Rs.6,06,454/-. Since theentire assessment was anulled, the entire demand would standcancelled and hence the tax paid, pursuant to the aforesaidillegal demand, is liable to be refunded in full together withinterest. Therefore, the action of the second respondent innot refunding the entire tax paid is erroneous. The secondrespondent failed to accept the contentions made by thepetitioner in this regard. Therefore, the present writ petitionis filed questioning the action of the second respondent in notrefunding the entire tax paid by the petitioner. 3.The respondents filed a counter affidavit, wherein it isstated as follows: 3.The respondents filed a counter affidavit, wherein it isstated as follows: A search and seizure proceedings took place in the case ofM/s.Samyuktha Foundation Pvt. Limited, in which the assesseerepresented by the Kartha is a promoter and shareholder. Thesearch brought to light that the assessee made certaininvestments out of its undisclosed income. Therefore,proceedings under Chapter XIV B of the Act were initiated by issuing notice under Section 158 BD on 09.08.1996. In responseto the said notice, the petitioner filed its return of income on10.09.1996, admitting a sum of Rs.24,04,830/- as its undisclosedincome. The return filed by the petitioner was in response tothe said notice, a statutory requirement. The assessee, in itsreturn, furnished the details of total income as well asundisclosed income. Non payment of tax along with the returndoes not vitiate the validity of the return filed by theassessee. The return may be defective in terms of Section 139(9) of the Act, which is curable. Therefore, it is not correctto contend that the return was not filed voluntary. Theassessment was subsequently finalised under Section 158 BD readwith Section 143(3) of the Act on 27.08.1997, determining thetotal undisclosed income at Rs.65,15,781/- and computing the taxliability at Rs.38,09,488/-. The assessee remitted tax onundisclosed portion of income admitted by it. The Income TaxAppellate Tribunal held that the assessment was not valid andthus quashed the same as null and void. In order to give effectto the order of the Appellate Tribunal, revision order waspassed on 15.06.2005, deleting the addition made ofRs.41,11,451/- and determining the undisclosed income admittedby the assessee of Rs.24,04,834/-, as its total income andcomputing the tax at Rs.14,42,868/-. After discharging the taxpayment of Rs.19,.23,067/-, a sum of Rs.6,46,454/- wasquantified as the amount refundable along with interest. Formaking assessment, the basic requirement is the return of incomefiled. Once the return is filed, the total income admitted bythe assessee is taken as the basis for completion of assessmentproceedings. Thus, when an assessment is annulled by theAppellate Authority, only the addition made over and above theincome admitted in the income returned gets deleted. In thepresent case, the income admitted in the return wasRs.24,04,830/- and the addition made in the assessment order wasRs.41,11,451/-. While giving effect to the order of theAppellate Tribunal, the addition made in respect of assessmentorder was deleted, retaining the admitted undisclosed portion ofincome furnished in the return of income. Accordingly, the taxliability as well as the excess tax payment refundable wasdetermined. Therefore, nothing is erroneous on facts and law,while giving effect to the order of the Appellate Tribunal. Thepetitioner assessee sought to mix up fact with regard to a"defective return" and "invalid return". Return submittedwithout proof of tax paid is only defective and not invalid. Itis curable. An assessee, who defaults in making payment of taxalong with return, is treated as "an assessee in default" as perSection 140A(3). Therefore, such return continues to be validin the eye of law. 4.Mr.M.P.Senthilkumar, learned counsel for the petitionermade his submissions. He also filed written submission. Thesum and substance of submissions made on behalf of the https://hcservices.ecourts.gov.in/hcservices/ petitioner are as follows: 4.Mr.M.P.Senthilkumar, learned counsel for the petitionermade his submissions. He also filed written submission. Thesum and substance of submissions made on behalf of the https://hcservices.ecourts.gov.in/hcservices/ petitioner are as follows: The return of income filed by the petitioner on10.09.1996, pursuant to the notice under Section 158 BD of theAct, without payment of tax, was not valid in the eye of law.Therefore, any amount paid by the petitioner was not based onany valid return of income . Once the assessment is annulled, notax is chargeable on the total income returned by the assessee.Consequently, the full amount paid by the petitioner is liableto be refunded together with interest under Section 244. Theentire tax was paid only pursuant to the demand and recoveryaction by the Department and not paid with the return andtherefore, the tax paid is not covered by the proviso underSection 240. The decision of the Hon'ble Supreme Court reliedon by the Revenue in the case of CIT vs Shelly Products andanother, reported in 261 ITR 367, is distinguishable on factsand thus, the same would not apply to the present case. The taxpaid in cases of tax chargeable on total income returned by theassessee would not apply for undisclosed income returned by theassessee. The term "total income" and "undisclosed income" aretotally different. Merely because the petitioner declaredcertain income, the same cannot be termed as undisclosed income,unless the order of block assessment stands the test ofvalidity, which, in this case, failed. Therefore, the entiretax payment should be refunded along with interest. 5.On the other hand, Mr.A.P.Srinivas, learned SeniorStanding counsel for the respondents, after reiterating theaverments made in the counter, has further submitted that thereis a clear bar under Section 240(b) in refunding the tax on theincome returned by assessee. He further contended that onlysuch tax paid on income other than what is returned, can berefunded, in case, the assessment is set aside or annulledlater. Accordingly, the excess tax paid by the petitioner overand above the tax paid on the returned income was alreadyrefunded to the petitioner. Therefore, the petitioner is notentitled for the full refund. 6. In support of his contention, the learned counselrelied on the decision of the Hon'ble Supreme Court reported inCIT vs Shelly Products and another, reported in 261 ITR 367. 7. Heard both sides.8. The point for consideration is as to whether thepetitioner is entitled to full refund of tax already paid, sincethe assessment was annulled later by the competent Authority andsuch annulment has become final and conclusive. 9. Though the learned counsel for the petitioner invitedthis Court various provisions under the Income Tax Act toelaborately go into the issue, the crux of the contentions so https://hcservices.ecourts.gov.in/hcservices/ raised can be narrowed down simply as follows:a) The return filed by the petitioner pursuant to thenotice under Section 158 BD did not accompany the tax paymentand thus, the said return was not valid in law.b) Consequently, all the payment of tax, based on suchinvalid return, is liable to be refunded, since the veryassessment made based on such return, was subsequently annulledby the Appellate Tribunal and confirmed by this Court in TaxCase (Appeal) No.1008 of 2005. 10. On the other hand, the contention of the Revenue isthat the claim of the petitioner for full refund is barred underSection 240(b) of the Income Tax Act, 1961. The Revenue, insupport of its contention, relied on the decision of the ApexCourt made in the case of Commissioner of Income Tax vs. ShellyProducts, 261 ITR 367. 10. On the other hand, the contention of the Revenue isthat the claim of the petitioner for full refund is barred underSection 240(b) of the Income Tax Act, 1961. The Revenue, insupport of its contention, relied on the decision of the ApexCourt made in the case of Commissioner of Income Tax vs. ShellyProducts, 261 ITR 367. 11. There is no dispute to the fact that in pursuant tothe search and seizure action, in the case of a Company calledSamyuktha Private Limited, wherein the petitioner assesseerepresented by its Kartha, is a shareholder, a notice underSection 158BD of the said Act, was issued to the petitioner on09.08.1996. It is also not in dispute that in response to thesaid notice, the petitioner filed its return of income on10.09.1996, admitting a sum of Rs.24,04,830/- as its undisclosedincome. Even though it is contended before this Court as thoughfiling of such return was under pressure of the officials of theRevenue, this Court is not in a position to appreciate the saidcontention, in the absence of any materials substantiaing suchallegation, more particularly, in the absence of any challengeby the petitioner against further proceedings in pursuance ofsuch notice. 12. On the other hand, as rightly contended by theRevenue, the statutory obligation vested on the part of theassessee was discharged by filing a return with true and correctparticulars of the total income including the undisclosed incomein respect of which, the assessee was assessable for a concernedblock. Therefore, the petitioner is not entitled to contend nowthat filing of such return itself was under pressure. On theother hand, it is to be taken that the petitioner has dischargedits statutory obligation by filing its return, showing the aboveundisclosed income. 13. It is true that the petitioner at the time of filingthe return had not paid the tax. But at the same time, it isnot in dispute that the petitioner had paid such tax later ondemand and recovery action. Whether the payment of tax wasvoluntary or out of such demand, the fact remains that suchpayment of tax was also towards the disclosed income in thereturn and therefore, the manner and time of payment of such https://hcservices.ecourts.gov.in/hcservices/ tax, do not have any significance. On the other hand, it is tobe construed that such payment of tax was in respect of thereturn filed by the assessee containing disclosure of admittedincome. Therefore, it is evident that the defective return filedearlier became valid later by the petitioner's own conduct ofsubmitting to the assessment proceedings by paying the tax ondemand. Thus, the petitioner is not justified in contendingthat the return filed by him without payment of tax is invalidone and consequently, subsequent payment of tax based on suchreturn is liable to be refunded. 14.It is true that once the assessment is annulled, theassessee is entitled to refund of tax, as provided under Section240 of the Income Tax Act, which reads as follows:"240. Refund on appeal, etc.: Where, as a result of any order passed in appealor other proceeding the [Assessing] Officer shall,except as otherwise provided in this Act, refund theamount to the assessee without his having to make anyclaim in that behalf:[Provided that where, by the order aforesaid,--(a) an assessment is set aside or cancelled andan order of fresh assessment is directed to be made,the refund, if any, shall become due only on the makingof such fresh assessment.(b) the assessment is annulled, the refund shallbecome due only of the amount, if any, of the tax paidin excess of the tax chargeable on the total incomereturned by the assessee.] Where, as a result of any order passed in appealor other proceeding the [Assessing] Officer shall,except as otherwise provided in this Act, refund theamount to the assessee without his having to make anyclaim in that behalf:[Provided that where, by the order aforesaid,--(a) an assessment is set aside or cancelled andan order of fresh assessment is directed to be made,the refund, if any, shall become due only on the makingof such fresh assessment.(b) the assessment is annulled, the refund shallbecome due only of the amount, if any, of the tax paidin excess of the tax chargeable on the total incomereturned by the assessee.] 15. Perusal of the above provision would show that theentitlement to get refund of tax, in case the assessment isannulled, is confined only to the tax paid in case of taxchargeable on the total income returned by the assessee and notto the entire tax paid by the assessee including the taxchargeable on the total income including the tax chargeable onthe income returned by the assessee. In otherwords, if theassessee has filed his return admitting certain amount as totalincome, such admission is binding on the assessee, even thoughthe consequential assessment made is annulled later. To put itmore precisely, an assessee, who admitted the income in hisreturn as the total income, is not entitled to retract suchadmission or go against such admission, merely because theassessment made based on such return, was subsequently annulled.The annulment of the assessment, at the best, may result inrefund of excess tax levied by way of such assessment over andabove the admitted tax paid. Therefore, on any account, theassessee cannot be heard to say that even in respect of admittedliability, the assessee is entitled to refund of tax paid onsuch liability, once the assessment is set aside or annulledlater. 16. At this juncture, it is to be noted that what was setaside or annulled by the competent forum, was only the order ofassessment made in pursuance to the filing of return by thepetitioner assessee. Therefore, it goes without saying thatonly such assessment made, either by making any addition ordeletion, etc., consequent upon filing of such return by theassessee, cannot have any force in view of such annulment andnot the very return filed by the assessee also in so far as theself declaration of undisclosed income in pursuance to thereceipt of notice under Section 158BD. Such self declaredundisclosed return stands, even though the assessment madethereafter either was set aside or annulled. Thus, theassessee, who discharged his statutory obligation in filing thereturn, in compliance of notice under Section 158BD, is bound byhis own return and cannot be heard to say that such return alsois invalid on account of annulment of the assessment made, basedon such return. 17. It is vehemently contended by the learned counsel forthe petitioner that non payment of the tax along with the returnmakes the very return itself invalid and therefore, based onsuch invalid return, any tax paid thereunder, cannot be retainedby the Revenue. I am unable to accept the said contention forthe following reasons. 17. It is vehemently contended by the learned counsel forthe petitioner that non payment of the tax along with the returnmakes the very return itself invalid and therefore, based onsuch invalid return, any tax paid thereunder, cannot be retainedby the Revenue. I am unable to accept the said contention forthe following reasons. 18. Section 139 of the said Act deals with return ofincome. Section 140A deals with Self-asessment, wherein areturn filed under Section 158 BC is also included. Section140A contemplates that any tax payable on the basis of anyreturn required to be furnished under Section 158BC, etc., shallbe paid together with interest and the return shall beaccompanied by proof of payment of such tax. Section 140 A(3)further contemplates that if any assessee fails to pay the wholeor any part of such tax or interest or both, in accordance withthe provisions of sub section (1) of Section 140A, he shall bedeemed to be an assessee in default in respect of the tax orinterest or both, remaining unpaid. However, under Section 139,sub clause (9), the Assessing Officer may intimate the defect tothe assessee and give him an opportunity to rectify the defect.Only when such defect was not rectified within the time grantedby the Assessing Officer, the return so filed is treated as aninvalid return. In this case, it is not in dispute that thoughthe assessee has not paid the tax along with the return at thetime of filing the same, on notice from the Assessing Officer,he paid the same subsequently. Therefore, a defective returnfiled by the assessee in this case has become valid return onpayment of tax subsequently on notice from the AssessingOfficer. Thus, the return filed by the assessee had not becomeinvalid return at any point of time. Consequently, the tax paidon the admitted income shown in such return is not liable to be refunded, as prohibited under Section 240(b) of the said Act.19. It is relevant to note at this juncture that the verysame issue was already considered by the Apex Court in the caseof Commissioner of Income Tax vs Shelly Products & Another, 261ITR 367, wherein it was held as follows: "..In the cases in hand the question is only withregard to the refund of tax paid by way of advance taxor self-assessment tax which was paid by the assesseesthemselves admitting their liability to pay such tax.The asseessees do not contend that the tax of whichrefund is claimed was not chargeable or payable, butclaim refund on the sole ground of the failure of theauthorities to pass an order of assessment. refunded, as prohibited under Section 240(b) of the said Act.19. It is relevant to note at this juncture that the verysame issue was already considered by the Apex Court in the caseof Commissioner of Income Tax vs Shelly Products & Another, 261ITR 367, wherein it was held as follows: "..In the cases in hand the question is only withregard to the refund of tax paid by way of advance taxor self-assessment tax which was paid by the assesseesthemselves admitting their liability to pay such tax.The asseessees do not contend that the tax of whichrefund is claimed was not chargeable or payable, butclaim refund on the sole ground of the failure of theauthorities to pass an order of assessment. Having considered the authorities on the subject,we find ourselves in agreement with the view of theGujarat High Court in Saurashtra Cement and ChemicalIndustries Ltd.'s case [1992] 194 ITR 659 . Thequestion that falls for our consideration in theseappeals is whether on the failure or inability of theauthorities to frame a regular assessment after theearlier assessment is set aside or nullified, the taxdeposited by an assessee by way of advance tax or selfassessment tax, or tax deducted at source is liable tobe refunded to the assessee, since its retention by theRevenue would result in breach of Article 265 of theConstitution which prohibits the levy or collection ofany tax except by authority of law. The Revenue doesnot dispute the position that if an assessment isframed, which is later nullified in appeal or revisionor other proceedings, any amount paid by way of incometax pursuant to the order of assessment, over and abovethe advance tax and self-assessment tax is undoubtedlyrefundable under section 240 of the Act. The onlydispute is with regard to the refund of the advance taxand self-assessment tax which is paid by the assesseeon his own assessment of his liability and is based onthe return of income filed by him. According to theRevenue, the tax so paid represents the admittedliability of the assessee, and failure or inability toframe another assessment after the earlier assessmentis set aside or nullified in appropriate proceedings,does not entitle the assessee to claim refund becauseto this extent the assessee has admitted his liabilityto pay tax in accordance with law. The tax liability iscomputed on the basis of the relevant Finance Actlaying down the rate or rates at which the tax ispayable and provides for other matters relevant to thecomputation of tax. Thus the tax is required to be paidin advance by the assessee, even before assessment ismade, and he himself is required to compute his liability having regard to the rates and exemptionsapplicable. Thus, both the levy and collection of taxis in accordance with law. liability having regard to the rates and exemptionsapplicable. Thus, both the levy and collection of taxis in accordance with law. We find considerable force in the submission ofthe revenue and it must be upheld. We have earliernoticed the scheme of the Act. Section 4 of the Actcreates the charge and provides, inter alia, forpayment of tax in advance or deduction of tax atsource. The Act provides for the manner in whichadvance tax is to be paid and penalises any assesseewho makes a default or delays payment thereof.Similarly, the deduction of tax at source is alsoprovided for in the Act and failure to comply with theprovisions attracts the penal provisions against theperson responsible for making the payment. It is,therefore, quite apparent that the Act itself providesfor payment of tax in this manner by the assessee. TheAct also enjoins upon the assessee the duty to file areturn of income disclosing his true income. On thebasis of the income so disclosed, the assessee isrequired to make a self-assessment and to compute thetax payable on such income and to pay the same in themanner provided by the Act. Thus the filing of returnand the payment of tax thereon computed at theprescribed rates amounts to an admission of taxliability which the assessee admits to have incurred inaccordance with the provisions of the Finance Act andthe Income Tax Act. Both the quantum of tax payable andits mode of recovery are authorized by law. Theliability to pay income-tax chargeable under section 4(1) of the Act thus, does not depend on the assessmentbeing made. As soon as the Finance Act prescribes therate or rates for any assessment year, the liability topay the tax arises. The assessee is himself required tocompute his total income and pay the income tax thereonwhich involves a process of self-assessment. Since allthis is done under the authority of law, there is noscope for contending that Article 265 is violated. What then is the effect of the failure to make anorder of assessment after the earlier assessment madeis set aside or nullified in appropriate proceedings?If the assessing authority cannot make a freshassessment in accordance with the provisions of the Actit amounts to deemed acceptance of the return of incomefurnished by the assessee. In such a case the assessingauthority is denuded of its authority to verify thecorrectness and completeness of the return, whichauthority it has while framing a regular assessment. Itmust accept the return as furnished and shall not inany event raise a demand for payment of further taxes. Accepting the income as disclosed in the return ofincome furnished by the assessee, it must refund to theassessee any tax paid in excess of the liabilityincurred by him on the basis of income disclosed. Evenif the tax paid is found to be less than that payable,no further demand can be made for recovery of thebalance amount since a fresh assessment is barred. Inother words, the tax paid by the assessee must beaccepted as it is, and in the event of the tax paidbeing in excess of the tax liability duly computed onthe basis of return furnished and the rates applicable,the excess shall be refunded to the assessee, since itsretention may offend Article 265 of the Constitution." Accepting the income as disclosed in the return ofincome furnished by the assessee, it must refund to theassessee any tax paid in excess of the liabilityincurred by him on the basis of income disclosed. Evenif the tax paid is found to be less than that payable,no further demand can be made for recovery of thebalance amount since a fresh assessment is barred. Inother words, the tax paid by the assessee must beaccepted as it is, and in the event of the tax paidbeing in excess of the tax liability duly computed onthe basis of return furnished and the rates applicable,the excess shall be refunded to the assessee, since itsretention may offend Article 265 of the Constitution." 20. The Hon'ble Supreme Court in the above decision hascategorically observed that the liability to pay income taxchargeable under Section 4(1) of the Act, does not depend uponthe assessment being made and that the liability to pay the taxarises, as soon as the Finance Act prescribes the rate or ratesfor any assessment year. It is further observed therein that ifthe Assessing Authority cannot make a fresh assessment after theearlier assessment made was set aside or nullified, it amountsto deemed acceptance of the return of income furnished by theassessee. Going by the above law laid down by the Apex Courtand applying the same to the present facts and circumstances, Iam of the firm view that in pursuant to the nullifying of theassessment, a deemed acceptance of the return of incomefurnished by the assessee stands and holds good andconsequently, any tax paid either along with the return or laterunder any circumstances would certainly fall under the purviewof "tax chargeable on the total income returned by the assessee"as referred to in Proviso (b) of Section 240 of the said Act.Consequently, whatever the amount paid by the assessee in casesof the tax chargeable on the total income more than returned bythe assessee alone could be refunded and not a full refund.This is what happened in the present case. Admittedly, theRevenue has refunded a sum of Rs.6,46,454/-, being the excesstax paid by the assessee. Hence, the tax paid by the Assesseeon the admitted return filed by him cannot be refunded and thus,the respondents are justified in rejecting such claim.Accordingly, I find no merits in the writ petition and thus, thesame is dismissed. No costs. The connected miscellaneouspetition is dismissed. s/d- vri https://hcservices.ecourts.gov.in/hcservices/ To1.The Assistant Commissioner of Income Tax, Central Circle II (1), 121, Nungambakkam High Road, Chennai 600 034.2.The Income Tax Officer, Company Ward VI (1), 121, N.H.Road, Chennai 600 034. 3.The Commissioner of Income Tax (Appeals)-VII, 121, Mahatma Gandhi Road, Chennai 600 034.+1 CC to Mr. Srinivas, Advocate sr 59027.+1 CC to M/s. Mallika Srinivasan, Advocate sr 58547.W.P.No.41940 of 2006MG(CO)SP(10/09/2018)