Refund on Appeal, etc. [Section 240]

Under Section 240 of the Income Tax Act, 1961, refunds arising from appellate or other proceedings are granted automatically without requiring a separate claim from the taxpayer. Here’s a detailed breakdown:

1. Key Provisions of Section 240

• Automatic Refund: If any amount becomes refundable due to an appeal, revision, rectification, or other proceedings(e.g., orders under Sections 154, 263, or 260), the Assessing Officer (AO) must refund it without the taxpayer needing to apply.
• Scope of “Other Proceedings”: Includes:
  • Appellate orders (CIT(A), ITAT, High Court, Supreme Court).
  • Rectification orders (Section 154).
  • Settlement Commission orders (Section 245D).
  • Revisionary orders (Section 263).

2. Conditions for Refund

• Excess Payment: Refund is due only if the taxpayer paid more than the legally chargeable tax.
• Exceptions:
  • Fresh Assessment Ordered: If the appellate authority directs a reassessment, the refund is processed only after the new assessment is completed.
  • Annulled Assessment: Only the excess over the returned incomeis refundable (not advance/self-assessment tax).

3. Judicial Precedents

• Shelly Products Case (Supreme Court):
  • Confirmed that refunds are mandatory if an assessment is annulledand no fresh assessment is made.
  • Only excess tax paid over the returned incomeis refundable (not voluntary payments like advance tax).
• Micro Nova Case: Applied Shelly Products to block-period assessments, reiterating that mandatory taxes paid per returns are non-refundable.

4. Practical Implications

• No Separate Application: Taxpayers need not file Form 30 or other claims for refunds under Section 240.
• Interest on Delayed Refunds: If the refund is delayed beyond the prescribed period, interest is payable under Section 244A.
• Withholding Refunds: For AY 2017-18 onwards, refunds can be withheld under Section 241Aif scrutiny is pending and revenue recovery is at risk.

Comparison with Proposed Clause 435 (2025 Bill)

• Current System (Section 240): Implies automatic refunds but relies on procedural compliance.
• Clause 435: Explicitly mandates fully automated refundsintegrated with CPC systems, reducing delays.

Key Takeaways

For disputes, taxpayers should verify Form 26AS and track refund status via the income tax portal