The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the Income Tax Department cannot deny a legitimate tax refund merely because the taxpayer failed to e-verify the income tax return within the prescribed time, particularly when the delay has subsequently been condoned by the Central Processing Centre (CPC).
The bench of directed the Assessing Officer (AO) and CPC to process and grant a refund of ₹17.08 lakh to the assessee, observing that retention of lawfully deducted tax on purely technical grounds would amount to unjust enrichment by the Revenue and would violate Article 265 of the Constitution of India.
The assessee had filed his income tax return for Assessment Year 2015-16 on 3 September 2015 within the prescribed due date. The return declared nil taxable income after set-off of business losses and brought-forward losses. A refund of ₹17,08,202 was claimed on account of TDS deducted from rental income and advance tax paid.
According to the assessee, although the return was filed on time, he could not complete the e-verification process within the stipulated period because he was occupied with caring for his 83-year-old father, who was seriously ill and required repeated hospitalization.
Subsequently, the assessee filed a condonation request before the CPC. The CPC accepted the request and treated the return as validly e-verified on 16 February 2018 through Aadhaar OTP verification. Despite the condonation and validation of the return, the refund was never processed or issued.
After several unsuccessful attempts to obtain the refund, the assessee filed a grievance petition and later a rectification application under Section 154 of the Income Tax Act seeking release of the refund amount. However, the Assessing Officer rejected the request on the ground that the return had not been e-verified within the original prescribed period.
The first appellate authority, JCIT(A), upheld the rejection. It held that refunds can be processed only on the basis of a validly verified return and that an unverified return is treated as invalid. The appellate authority further observed that it did not possess the power to condone delays in verification and therefore dismissed the appeal.
Before the Tribunal, the assessee argued that the Department had already accepted the condonation request and validated the return. Therefore, there was no legal justification for withholding the refund.
The assessee further contended that the TDS deduction was duly reflected in Form 26AS. The return had originally been filed within time. The delay in verification occurred due to genuine and unavoidable circumstances. There is no provision under the Income Tax Act permitting denial of TDS credit or refund once the delay in verification has been condoned. The department cannot enrich itself by retaining tax lawfully belonging to the taxpayer merely because of a procedural lapse.
The Tribunal examined whether the department could retain taxes admittedly deducted at source solely because of a technical lapse that had already been condoned by the CPC.
The Bench relied on the Karnataka High Court’s decision in K. Nagesh v. ACIT and the Gujarat High Court’s ruling in S.R. Koshti v. CIT. The Tribunal noted that courts have consistently held that tax authorities are duty-bound to ensure that only legitimate taxes are collected and retained.
Particularly relying upon Article 265 of the Constitution, which provides that no tax shall be levied or collected except by authority of law, the Tribunal held that retention of the refund despite condonation of delay would be contrary to constitutional principles.
The Tribunal observed that the TDS amount of ₹17.08 lakh had unquestionably been deducted and deposited with the Government. Once the CPC had condoned the delay and accepted the e-verification, the return stood validated.
The Bench emphasized that denial of refund under such circumstances would effectively permit the Revenue to retain money that was not legally due to it. Such retention, it held, would amount to unjust enrichment and would violate Article 265 of the Constitution.
The Tribunal also accepted the assessee’s explanation that the delay in e-verification occurred because of his father’s serious illness and noted that sufficient cause had been demonstrated and accepted by the CPC itself.
Setting aside the orders of the Assessing Officer and the first appellate authority, the ITAT allowed the appeal and held that refusal to grant the refund had resulted in a miscarriage of justice. The Tribunal directed the Assessing Officer and CPC to take necessary steps in accordance with law for issuing the refund to the assessee.
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