What happens to your income tax refund claim if you forget to file an original income tax return under Section 139? That’s the question that the Income Tax Appellate Tribunal (ITAT) in Delhi has sought to answer.In this particular case, the refund claim was for an amount of over Rs 5 lakh. A taxpayer from Jorbagh area in New Delhi, failed to file his original income tax return (ITR) by the due date for AY 2019-2020. He subsequently received a tax notice from the Income Tax Department.
What the tax refund case is about
The department had received information through its Insight Portal indicating that the taxpayer had undertaken certain high-value transactions but had not filed an Income Tax Return for the same.The department then issued a Section 148 tax notice on March 27, 2023. In response, the taxpayer filed an ITR. The taxpayer reported a business loss of Rs 1.38 crore and sought a refund of Rs 5.31 lakh on account of the TDS that had been deducted.The Section 148 ITR therefore showed no taxable income and instead sought a tax refund of Rs 5.31 lakh.
Why the Income Tax Assessing Officer rejected the claim
While completing the assessment, the Income Tax Assessing Officer (AO) rejected the refund claim on the sole ground that a refund could not be claimed through an ITR filed under Section 148 when no original ITR had been filed under Section 139.The Commissioner of Appeals (CIT A) noted that the tax notice had been issued because of suspicions that the taxpayer had not disclosed high-value transactions. The taxpayer was using the income tax return filed in response to the notice to claim a tax refund for the first time.The CIT(A) consequently upheld the AO’s decision, holding that proceedings under Section 147 are meant to serve the interests of the Income Tax Department and do not create a fresh right for the taxpayer to seek a tax refund.In reaching this conclusion, the CIT(A) relied primarily on the judgment of the Bombay High Court in the K. Sudhakar S. Shanbhag case, which followed the decision of the Hon’ble Supreme Court in the case involving Sun Engineering Works Pvt. Ltd.
Why ITAT approved the tax refund
The Jorbagh taxpayer subsequently challenged the decision before ITAT Delhi and won the case on August 11, 2026. S. Rifaur Rahman, Accountant Member, and Raj Kumar Chauhan, Judicial Member, of ITAT Delhi heard the matter. Chartered Accountant R.S. Singhvi, CA Shri Satyajeet Goyal and CA Shri Rajat Garg appeared for the taxpayer.ITAT Delhi ruled in favour of the taxpayer and instructed the Income Tax Department to refund Rs 5,31,680, along with the applicable statutory interest.Explaining the rationale, Chartered Accountant Suresh Surana told ET that, the tribunal rejected the Income Tax Department’s interpretation and held that Section 237 provides a substantive right to a refund when the amount of tax already paid or collected is higher than the tax actually chargeable from the taxpayer.In this case, Surana said, the reassessment resulted in Nil taxable income. As a result, there was no tax liability against which the TDS already collected could be adjusted or retained.The ITAT also pointed out that the Income Tax Department was unable to identify any specific provision in law that barred a refund simply because the relevant ITR had been filed in response to a Section 148 notice.According to Surana, the tribunal referred to the Allahabad High Court ruling in CIT v. Vali Brothers and the Rajasthan High Court decision in Kalindee Rail Nirman (Engineers) Ltd. v. CIT. Both judgments supported the view that once reassessment proceedings establish the taxpayer’s correct liability, any excess tax collected has to be refunded and the taxpayer’s statutory right cannot be denied on procedural or technical grounds.The tribunal also distinguished the Income Tax Department’s reliance on the Sun Engineering Works Pvt. Ltd. judgment. It noted that the taxpayer in this case was not seeking to introduce a new deduction or reopen an issue unrelated to the reassessment. Instead, the refund arose as a direct consequence of the assessment determining Nil taxable income.The ITAT therefore held that once the reassessment established the taxpayer’s taxable income at Nil, the TDS already collected became refundable under Section 237. Rejecting the refund merely because the taxpayer had not filed an original return under Section 139 would, according to the tribunal, give greater weight to procedural requirements than to the actual tax liability determined during assessment.Surana said the ITAT Delhi further observed that retaining tax that had been deducted and was admittedly not chargeable would be inconsistent with Article 265 of the Constitution of India, which states that no tax can be collected except by authority of law.The taxpayer therefore succeeded because the right to the refund arose directly from the completed reassessment rather than from a separate or fresh claim. The ITAT directed the AO to issue a refund of Rs 5,31,680 along with the statutory interest admissible under the law and allowed the taxpayer’s appeal.
