TDS Refunds After Reassessment: Can You Claim Excess TDS in Returns Filed Under Section 148?

Why Excess TDS Refunds After Reassessment Matter

Many taxpayers believe that if they miss filing their income tax return under section 139 and later become subject to reassessment (section 148), any TDS already deducted is lost if their final income turns out to be nil or a loss. This results in significant sums being unfairly withheld by the Revenue, just because the return was late and filed under compulsion. The latest ITAT Delhi ruling in D.B. Engineering Pvt. Ltd. Vs ACIT provides much-needed clarity for all such taxpayers.

Background: Filing Returns Under Section 148

When the tax department detects unreported or suspicious transactions—often via its Insight Portal—officers can reopen past assessments under sections 147/148. This is known as reassessment. Taxpayers are then served a notice under section 148, requiring them to file a return for that year anew, even if they had missed filing earlier.

A frequent issue: when the taxpayer files their return under section 148, claims a refund of TDS (tax deducted at source), but the department denies this refund, stating that refunds are allowed only for returns filed voluntarily under section 139—not in response to a reassessment notice.

The Situation in This Case

1. D.B. Engineering Pvt. Ltd. failed to file its return for AY 2019-20.
2. The department, discovering high-value transactions, initiated reassessment under section 147.
3. Notice under section 148 was served on 27.03.2023; the company filed its return on 21.04.2023, claiming a business loss and a TDS refund of Rs. 5,31,680.
4. The reassessment was completed: income was accepted as nil; but the Assessing Officer denied the TDS refund.
5. Both the AO and CIT(A) held that refund is not available in a return filed responding to section 148.

What Does the Income-tax Act Actually Say?

• Section 237: Provides that if a person has paid more tax (including TDS) than what is finally determined as tax payable, they are entitled to a refund.
• Section 239: Lays out how to claim a refund—by making a claim (typically via return of income).
• The Act does not restrict refunds only to returns filed under section 139; it covers all returns accepted in assessment or reassessment.

ITAT Delhi’s Ruling: Refund Cannot Be Denied After Reassessment

• The Tribunal held there is no legal bar on refunds arising from reassessments under section 147/148, if the final assessed income is nil (or a loss) and TDS exceeds the tax liability.
• The right to refund is statutory and unconditional—unless some other specific provision barring it applies.
• The Tribunal relied on High Court and ITAT precedents (such as CIT v. Vali Brothers, Kalindee Rail Nirman (Engineers) Ltd., and Ajit Kumar v. ACIT), all of which favour refund entitlement after reassessment.
• Revenue’s argument, based on an old Supreme Court decision (Sun Engineering Works Pvt. Ltd.), was distinguished: that case related to whether loss can be carried forward, not refund entitlement.

What This Means For Taxpayers

1. If you file any return under section 148 and are assessed at nil income or a loss, you are entitled to your excess TDS refund—even if you didn’t file an original return under section 139.
2. Assessing Officers should not deny legitimate TDS refunds solely on the ground that the return was filed in response to a section 148 notice.
3. The refund will come with statutory interest, as mandated by law.

Mini Timeline of the D.B. Engineering Case

A Word on Policy: Article 265 of the Constitution

Tax cannot be retained by the government unless legally due. Keeping back refunds just because of the return's timing or route would violate Article 265—which demands that tax collection and retention must be properly sanctioned by law.

Practical Steps for Affected Taxpayers

1. When filing a return under section 148, claim your legitimate TDS refund in the return itself.
2. If the AO denies the refund, refer to this ITAT Delhi decision and the supporting precedents mentioned above.
3. If required, file an appeal to secure your statutory right.
4. Keep all TDS certificate copies and computation details ready.

When Refund May Still Be Denied

Refund could be withheld only if:

• Specific legal bar exists for that year/assessment.
• Assessment makes additions and tax becomes payable.

Otherwise, once nil or loss is accepted, refund of excess TDS is your right.

Conclusion

This ITAT Delhi judgment strengthens taxpayer rights for those facing reassessment. TDS deducted in good faith is not lost just because a return is belatedly filed following a section 148 notice. The statutory right to a refund, along with interest, remains intact unless a clear legal bar is present.