In a significant ruling, the Delhi High Court has held that the Income Tax Department cannot deny a taxpayer’s refund claim merely because the Tax Deducted at Source ( TDS ) does not reflect in Form 26AS. The court quashed the department’s order rejecting the taxpayer’s application to file a revised return and directed that the refund be processed accordingly.
The case involves the assessee, who filed his income tax return for the Assessment Year (AY) 2010-11 on June 24, 2010, declaring an income of ₹5,26,580. The return was processed under Section 143(1) of the Income Tax Act, 1961, on January 27, 2011.
The assessee had received enhanced compensation of ₹18,59,239 under the Land Acquisition Act, 1894, during the Financial Year (FY) 2009-10. The Land Acquisition Collector (LAC) (South) deducted TDS amounting to ₹1,68,118 on this compensation. However, this TDS was not reflected in his Form 26AS, a consolidated annual tax statement.
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Due to the discrepancy, the Assessee filed a writ petition seeking a direction to the LAC (South) to provide credit for the TDS deducted. On October 25, 2017, the Delhi High Court directed the LAC (South) to address his grievance. Consequently, the LAC issued a revised Form 16A on December 2, 2017.
Following this, the Assessee applied to the Income Tax Department to allow him to file a revised return for AY 2010-11 and to condone the delay under Section 119(2)(b) of the Income Tax Act. However, the department rejected his application, citing Central Board of Direct Taxes (CBDT) Circular No. 09/2015 dated June 9, 2015. The department argued that applications for condonation cannot be entertained beyond six years from the end of the relevant assessment year.
A bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja found the department’s stance untenable. The court held that a CBDT circular cannot override statutory provisions or impose a limitation period for taxpayers to seek legal remedies.
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“Insofar as the last observation is concerned, the concerned authority has clearly taken a wholly untenable view and in ignorance of the fact that no Circular of the CBDT or instruction could have created any period of limitation with respect to a citizen approaching this Court and invoking its jurisdiction under Article 226 of the Constitution,” the court noted.
The judges noted that the tax was duly deducted by the LAC (South) and that the non-reflection in Form 26AS was not attributable to any fault on the Assessee’s part. Therefore, denying the refund on this ground was unjust.
The court referred to several sections of the Income Tax Act to support its decision. Firstly, it cited Section 199, which states that any deduction of tax at source is deemed to be payment of tax on behalf of the person from whose income the deduction was made. This means that when tax is deducted at source (TDS), it is considered as if the taxpayer has already paid that amount of tax, regardless of whether it appears in Form 26AS.
Secondly, the court mentioned Section 205 of the Income Tax Act, which bars the department from demanding tax from the assessee if it has already been deducted at source. This provision protects taxpayers from being held liable for tax amounts that have been withheld by the deductor but not remitted or reflected due to administrative errors.
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Furthermore, the court highlighted Section 237 of the Income Tax Act, which entitles a person to a refund if the tax paid exceeds the amount chargeable. This section underscores the taxpayer’s right to claim a refund when they have paid more tax than is properly due, ensuring that they are not unfairly disadvantaged by overpayment.
Lastly, the court referred to Section 155(14) of the IT Act, which allows the Assessing Officer to amend an assessment if a TDS certificate is produced within two years from the end of the assessment year, even if it was not filed with the original return. This provision enables taxpayers to rectify their returns and claim credits for TDS deductions that were not initially accounted for, ensuring that they receive all due benefits.
Quashing the impugned order dated October 23, 2018, the Delhi High Court directed the Income Tax Department to accept the Assessee’s revised return, which he must file within four weeks. The department was instructed to process the refund in accordance with the law and consider the provisions related to interest on delayed refunds.
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“The respondents while framing the order for refund shall also bear in mind the statutory regime which applies with respect to interest in case of delayed disbursal and credit,” the court added.
This ruling reassures that procedural lapses or administrative errors, such as non-reflection of TDS in Form 26AS, would not trouble taxpayers who have complied with their statutory and compliance obligations.
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