Refund Cannot Be Withheld on TDS Excess When Section 148 Assessment Determines Nil Income: ITAT Delhi

Overview

The Delhi Bench of the Income Tax Appellate Tribunal, in the matter of D.B. Engineering Pvt. Ltd. Vs ACIT (ITAT Delhi), has delivered a significant ruling concerning the entitlement of an assessee to claim a refund of excess Tax Deducted at Source (TDS) in circumstances where the relevant assessment was completed under Section 147 of the Income Tax Act, 1961, and the total taxable income was determined at Nil. The Tribunal allowed the appeal, directing the Assessing Officer to grant a refund of Rs. 5,31,680/- along with applicable statutory interest, holding that Section 237 confers a substantive statutory right to refund that cannot be negated on procedural or technical grounds.

Background and Factual Matrix

The Assessee's Position

D.B. Engineering Pvt. Ltd. had not filed its return of income for Assessment Year 2019-20 within the time permitted under Section 139 of the Income Tax Act, 1961. Subsequently, based on data pertaining to certain high-value transactions available on the Insight Portal, reassessment proceedings were set in motion. An order under Section 148A(d) was passed, and a notice under Section 148 was issued on 27.03.2023.

In compliance with the said notice, the assessee filed its return of income on 21.04.2023, declaring a business loss of Rs. 1,38,29,756/- and claiming a refund of Rs. 5,31,680/- on account of TDS that had already been deducted. After adjusting the carried-forward losses, the returned taxable income was Nil.

Completion of Assessment

The assessment was completed under Section 147 read with Section 144B. The Assessing Officer broadly accepted the returned income and assessed the total income at Nil. Despite determining zero tax liability, the Assessing Officer refused to grant the refund of Rs. 5,31,680/-, reasoning that a refund could not be claimed through a return filed under Section 148 when no original return had been submitted under Section 139.

Stand Taken by the Lower Authorities

Assessing Officer's Reasoning

The Assessing Officer anchored his denial of refund on a reading of Section 239, contending that refund claims are admissible only where the underlying return has been filed under Section 139. Since the return in the present case was filed solely in response to a notice under Section 148, it was held to fall outside the scope of a valid refund claim.

CIT(A)'s Confirmation

The Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, upheld this position vide order dated 30.01.2026. The CIT(A) reasoned that reassessment proceedings under Section 147 are designed to serve the interests of the Revenue by bringing escaped income to tax, and are not intended as a mechanism through which assessees can assert fresh rights such as refund claims. The CIT(A) placed primary reliance on the Bombay High Court's ruling in K. Sudhakar S. Shanbhag, which in turn followed the Supreme Court's pronouncement in CIT v. Sun Engineering Works Pvt. Ltd., 198 ITR 297 (SC).

Arguments Advanced Before the Tribunal

Assessee's Contentions

Before the Tribunal, the authorised representative of the assessee advanced the following arguments: