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The Income Tax Act provides mechanisms for issuing refunds when tax payments, including Tax Deducted at Source (TDS), exceed a taxpayer's actual tax liability. Reassessment proceedings under Section 148 are initiated when income has escaped assessment, raising questions about whether taxpayers can claim refunds in such cases, especially concerning excess TDS.

This article explores the possibilities of claiming refunds in four distinct scenarios: (1) when the taxpayer files a return within the time limit prescribed in a notice under Section 148, (2) when a return is filed beyond the time limit prescribed in the notice under section 148, (3) when no return is filed in response to notice under section 148 and (4) when proceeding initiated by issue of notice under section 148 is dropped.

TDS and Refund Mechanism: A Recap

• Section 237: A taxpayer is entitled to a refund if the tax paid exceeds the actual tax liability for any assessment year.
• Section 239: Refund claims must be made by furnishing a return in accordance with Section 139.
• Section 199: Governs the credit for TDS, stating that it is given for the assessment year in which the income is assessable.

The complication arises in reassessment cases under Section 148, especially when filing deadlines are missed or not adhered to.

Can Refund of Excess TDS Be Claimed if a Return is Filed Within the Time Allowed in the Notice Under Section 148?

If a taxpayer files a return within the time limit specified in a notice under Section 148, the law treats this return as if it were filed under Section 139. The same is clear from the wordings "The provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139." used in section 148 as substituted with effect from 1/10/2005 and 01/04/2021. Further, similar wordings have been used in the Section 148(2), which is inserted by the Finance (No.2) Act, 2024 with effect from 01/09/2024.

Thus, when a taxpayer furnishes a return within the time prescribed in the notice under section 148, the same is treated as filed under section 139, hence, the taxpayer becomes entitled to TDS credit in term of section 199 ( Rule 37BA) and excess TDS will be refundable in term of Section 237 as the condition of Section 239 is met.

Example:

A taxpayer receives a notice under Section 148 for an assessment year and he files a return within the time allowed in the notice. The AO issues a notice under Section 143(2) and completes the reassessment under Section 143(3). The return shows excess TDS paid for the assessment year, since the return is treated as deemed to be filed under Section 139, the taxpayer is eligible for a refund of the excess TDS.

Can Refund of Excess TDS Be Claimed if a Return is Filed Beyond the Time Allowed in the Notice Under Section 148?

Notice under Section 148 stipulates a time frame within which a taxpayer is required to file a return after receiving the said notice. 

The proviso to Section 148, introduced on April 1, 2023, states that any return filed after the time specified in the notice shall not be deemed a return filed under Section 139. The same wording has been used in the amended Section 148(2), effective from September 1, 2024.

Legal Impact:

A return filed after the time limit allowed in a Section 148 notice, loses the benefit of being treated as filed under Section 139. This has a direct impact on refund eligibility, as refunds are generally processed based on returns filed under or deemed to be filed under Section 139.

Example 1: Return Filed After April 1, 2023

A taxpayer files a return after the deadline specified in the Section 148 notice. Since this late return is not treated as filed under Section 139, the taxpayer loose the benefit of getting a refund of excess TDS paid.

Example 2: Return Filed Before April 1, 2023

A taxpayer files a return beyond the time limit prescribed in the notice u/s 148 , but before the reassessment was completed. Since the proviso to Section 148 had not yet come into effect (April 1, 2023), as the return is filed in response to notice u/s 148, the taxpayer becomes eligible for refund of excess TDS made.

Can Refund of Excess TDS Be Claimed When No Return is Filed in Response to a Section 148 Notice, and Assessment is Completed Under Section 144?

If no return is filed in response to a Section 148 notice, the AO completes the assessment using best judgment under Section 144. Since no return is filed, the taxpayer is not eligible for refund in term of section 139.

Can Refund of Excess TDS Be Allowed When Reassessment Proceedings Initiated by Notice Under Section 148 Are Dropped?

When reassessment proceedings initiated by a notice under Section 148 are dropped—whether due to the taxpayer's income being below the basic exemption limit or for any other reason—the return filed in response to the notice does not survive. In such cases, the return cannot be treated as having been filed under Section 139, which is a prerequisite for claiming a refund of excess TDS.

The dropping of reassessment proceedings effectively nullifies the return filed in response to the Section 148 notice. Consequently, since the return is not considered as treated as filed under Section 139, the question of allowing a refund for excess TDS credit does not arise.

Conclusion:

For taxpayers involved in reassessment proceedings under Section 148 who wish to claim refunds on excess TDS, the following key takeaways are crucial:

• Timely Filing is Essential: Always file returns within the time limit specified in the Section 148 notice to ensure the return is treated as one filed under Section 139. This is a prerequisite for claiming refunds.
• Consequences of Late or No Return: Filing a return after the deadline or failing to file a return severely diminishes the chances of claiming refunds. For returns filed on or after April 1, 2023, late submissions will not be treated as valid under Section 139, making refund claims nearly impossible.

By adhering to reassessment procedures, particularly the timelines and return filing requirements under Sections 148, taxpayers can ensure a smooth process for claiming refunds on excess TDS.

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Disclaimer:

The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice.. Readers are advised to consult with a qualified tax advisor or legal professional for specific advice tailored to their individual circumstances, particularly regarding reassessment proceedings and claiming refunds. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the content of this article.