A refund cannot be denied for a TDS mismatch if the assessee filed a revised return in time and the revenue neither rejected it nor communicated any defect

A refund cannot be denied for a TDS mismatch if the assessee filed a revised return in time and the revenue neither rejected it nor communicated any defect

Issue

1. Whether the revenue department can legally ignore a revised return of income that was filed within the prescribed time to cure a defect notified under Section 139(9).
2. Is a mismatch between disclosed income and TDS details a sufficient ground for the revenue to neither process nor reject a revised return, thereby withholding a refund?
3. Is the assessee entitled to have their refund claim considered and adjusted against a tax liability determined in a subsequent assessment under Section 153C, when their revised return was never acted upon by the department?

Facts

For the assessment year 2016-17, the assessee filed an income tax return under Section 139(1), claiming a refund of excess tax paid. The Central Processing Centre (CPC) issued a notice under Section 139(9), treating the return as defective due to a mismatch between the income reported and the Tax Deducted at Source (TDS) details.

In response, the assessee filed a revised return within the statutory time limit to rectify the defect. However, the revenue department took no further action. It neither processed the revised return to issue the refund nor did it send any communication to the assessee rejecting the revised return. Subsequently, an assessment order under Section 153C was passed against the assessee, determining a tax liability. The assessee then filed an application for rectification, requesting that the refund claimed in the un-processed revised return be adjusted against this liability. During the court proceedings, the counsel for the revenue stated that this rectification application would be processed.

Decision

The High Court disposed of the writ petition in favour of the assessee by holding the revenue department to its statement.

The Court made the following key observations:

• It was an admitted fact that the revenue never communicated any intimation to the assessee that the revised return was also defective or was being rejected.
• A discrepancy between the income disclosed in a return and the TDS data available with the department may be a valid reason for further inquiry to verify the correctness of the income, but it cannot be a ground for the revenue to completely ignore the return itself.
• Given the statement made by the revenue’s counsel that the assessee’s rectification application would be processed to grant the refund after adjusting the tax liability determined under the Section 153C order, the Court bound the revenue to this commitment.
• The petition was disposed of with a specific direction that the revenue department must adhere to the statement made before the Court.

Key Takeaways

• Duty to Process Returns: The revenue department is under a statutory obligation to process every return of income filed. It cannot simply fail to act on a return, especially a revised one filed to cure a defect.
• Communication is Mandatory: If the revenue department finds a revised return to be defective or unacceptable, it must communicate this to the assessee. Inaction or silence is not a legally valid response.
• TDS Mismatch is for Inquiry, Not Rejection: A mismatch in TDS details is a ground for inquiry and verification, not for summarily ignoring a filed return and withholding a refund without due process.
• Binding Nature of Statements in Court: An undertaking or statement made by the revenue’s counsel before a court is binding, and the court can issue a writ to enforce compliance with such a statement.
• Right to Refund: An assessee’s right to a legitimate refund cannot be defeated by the procedural inaction of the tax department.