₹5.31 lakh TDS refund allowed by ITAT Delhi: Why absence of an original ITR did not block the taxpayer

A taxpayer who had not filed his original income tax return for assessment year 2019-20 was denied a ₹5.31 lakh tax refund after claiming it for the first time in a return filed in response to a Section 148 notice. The Income Tax Appellate Tribunal (ITAT), Delhi, has now directed the tax department to issue the refund with statutory interest, according to a report by Economic Times.

The case involved a taxpayer from Jor Bagh, New Delhi, who had not filed his original income tax return by the due date. The Income Tax Department issued a notice under Section 148 on 27 March 2023 after receiving information through its Insight portal about high-value transactions.

In response to the notice, the taxpayer filed an income tax return declaring a business loss of ₹1.38 crore. The return showed nil taxable income and claimed a refund of ₹5,31,680 towards tax deducted at source (TDS).

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Why the ₹5.31 lakh refund was denied

The Assessing Officer rejected the refund claim on the ground that the taxpayer had not filed an original return under Section 139 and was claiming the refund for the first time in a return filed in response to the Section 148 notice.

The taxpayer challenged the decision before the Commissioner of Income Tax (Appeals), but the CIT(A) upheld the Assessing Officer's order.

According to the report, the CIT(A) observed that reassessment proceedings under Section 147 were intended to benefit the Income Tax Department and could not be used to create a new right for the taxpayer to claim a refund.

The CIT(A) principally relied on the Bombay High Court's decision in K. Sudhakar S. Shanbhag, which followed the Supreme Court's ruling in Sun Engineering Works Pvt. Ltd.

The taxpayer then approached the ITAT Delhi.

ITAT Delhi orders refund with interest

The ITAT Delhi heard the appeal on 11 August 2026. S. Rifaur Rahman, Accountant Member, and Raj Kumar Chauhan, Judicial Member, were part of the bench.

The tribunal disagreed with the tax department's position that the refund could not be claimed because no original return had been filed under Section 139.

According to the report, the ITAT observed that Section 237 creates a substantive right to a refund when the tax paid or collected exceeds the amount properly chargeable from the taxpayer.

In this case, the reassessment resulted in nil taxable income. The tribunal held that the TDS already collected therefore became refundable.

The ITAT also noted that the Income Tax Department could not point to any statutory provision specifically prohibiting a refund merely because the return had been filed in response to a Section 148 notice.

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The tribunal relied on the Allahabad High Court's decision in CIT v. Vali Brothers and the Rajasthan High Court's decision in Kalindee Rail Nirman (Engineers) Ltd. v. CIT.

The ITAT also distinguished the Supreme Court's decision in Sun Engineering Works Pvt. Ltd., noting that the taxpayer in this case was not trying to raise a new deduction or reopen an issue unrelated to the reassessment. The refund arose from the reassessment itself, which determined the taxpayer's taxable income at nil.

The tribunal further observed that retaining tax that was not legally chargeable would be inconsistent with Article 265 of the Constitution, which provides that no tax can be collected except by authority of law.

The ITAT consequently directed the Assessing Officer to issue the taxpayer a ₹5,31,680 refund along with statutory interest admissible under law, according to the report.

The ruling provides relief in a case where the taxpayer's refund claim arose from the final determination of tax liability in reassessment proceedings, despite the absence of an original return under Section 139.