Refund Cannot Be Denied for Mere Technical Lapse: ITAT Invokes Article 265 to Protect Taxpayer’s Rights
Once Delay in E-Verification Is Condoned, Revenue Cannot Retain Tax That Is Not Legally Due
One of the most fundamental principles of taxation is that the Government can collect only the tax authorised by law-nothing more, nothing less. This principle is not merely a statutory requirement; it is a constitutional mandate embodied in Article 265 of the Constitution of India, which declares:
“No tax shall be levied or collected except by authority of law.”
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) has reaffirmed this constitutional protection by holding that a genuine tax refund cannot be denied merely because the taxpayer initially failed to e-verify the return, especially when the delay has subsequently been condoned by the Income Tax Department itself.
The Tribunal observed that denying a lawful refund on such technical grounds would amount to unjust enrichment of the Revenue and would directly offend the constitutional mandate contained in Article 265.
The decision serves as an important reminder that tax administration must be guided by substantive justice rather than procedural rigidity.
The Facts of the Case
The assessee filed the Income Tax Return within the prescribed time.
The return disclosed rental income and claimed a refund of approximately ₹17.08 lakh, representing excess tax deducted at source (TDS).
However, the return suffered from one procedural defect.
The assessee failed to complete e-verification within the time prescribed under the Income-tax Act.
Consequently, the return was initially treated as invalid.
Subsequently, the taxpayer applied for condonation of delay.
The Income Tax Department accepted the request and condoned the delay in e-verification.
Thereafter, the return stood validated.
Despite this, the refund was still denied.
The Assessing Officer refused to grant the refund, and the action was affirmed by the Joint Commissioner of Income Tax (Appeals).
The matter eventually reached the ITAT.
The Core Issue
The question before the Tribunal was straightforward but significant:
Can the Income Tax Department deny a legitimate refund even after condoning the delay in e-verification?
Or, stated differently:
Can a procedural lapse continue to deprive a taxpayer of a refund after the very procedural defect has already been condoned?
The Tribunal answered this question emphatically in favour of the taxpayer.
What the ITAT Held
The Tribunal observed that once the competent authority had condoned the delay in e-verification, the procedural defect ceased to exist.
The return acquired legal validity.
Consequently, the refund claim had to be examined on merits.
There was no justification for continuing to deny the refund merely because the return had originally suffered from a procedural lapse.
The Tribunal held that such an approach was contrary to both the Income-tax Act and the Constitution.
Article 265: A Constitutional Safeguard
One of the most significant observations made by the Tribunal appears in paragraph 11 of its order.
The Tribunal emphasized that Article 265 of the Constitution clearly provides that:
No tax shall be levied or collected except by authority of law.
The Tribunal observed that if a refund is denied merely on technical grounds after the procedural defect has already been condoned, the Revenue would be retaining money which is not legally due.
Such retention amounts to unjust enrichment.
According to the Tribunal, this would directly violate Article 265 of the Constitution.
The constitutional guarantee applies not only at the stage of collecting tax but equally at the stage of retaining amounts which are not lawfully payable.
Authorities Must Assist Taxpayers
Equally important is another observation made by the Tribunal in paragraph 9 of the order.
The Tribunal reiterated the settled principle that:
Tax can be collected only as provided under the Act and if an assessee, under a mistake or misconception, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate tax due is collected.
This observation reflects a long-standing principle repeatedly recognised by courts.
The objective of tax administration is not to maximise collections at any cost.
Its objective is to determine the correct tax liability under law.
Technical Lapses Should Not Defeat Substantive Rights
The ruling reinforces an important distinction.
There is a difference between:
• A procedural requirement; and
• A substantive tax liability.
Procedural provisions facilitate administration.
They are not intended to permanently deprive taxpayers of legitimate legal rights where the defect has already been regularised.
Once the delay in e-verification stood condoned, continuing to deny the refund served no statutory purpose.
Instead, it merely resulted in the Revenue retaining money that legally belonged to the taxpayer.
Reliance on High Court Precedents
While deciding the issue, the Tribunal also relied upon judicial precedents of the Karnataka High Court and the Gujarat High Court.
These decisions have consistently emphasized that:
• Technical lapses should not override substantive justice.
• Tax authorities should not unjustly enrich themselves by retaining amounts not legally payable.
• Constitutional principles must guide tax administration.
The Tribunal found these principles fully applicable to the present case.
Why This Judgment Matters
The decision has wider implications beyond the issue of e-verification.
It reinforces several important principles governing tax administration.
1. Procedural Defects Can Be Cured
Where the law itself permits condonation, the cured defect should not continue to prejudice the taxpayer.
2. Refunds Cannot Be Denied Arbitrarily
If excess tax has been collected and the refund is otherwise admissible, technical objections cannot become permanent barriers.
3. Article 265 Protects Taxpayers
The Constitution prevents not only unlawful collection of tax but also unlawful retention of money by the Revenue.
4. Tax Authorities Must Act Fairly
The Income-tax Department is expected to determine the correct tax liability—not merely defend technical objections.
Practical Lessons for Taxpayers
Taxpayers should nevertheless avoid procedural lapses wherever possible.
Timely:
• Filing of returns;
• E-verification;
• Response to notices;
• Updating bank details;
• Validation of refund accounts;
can prevent unnecessary litigation.
However, where procedural defects have genuinely occurred and have subsequently been condoned, taxpayers should not hesitate to assert their substantive legal rights.
Key Takeaways
The ITAT ruling lays down several important principles:
• Delay in e-verification, once condoned, cannot continue to defeat the refund claim.
• Refund cannot be denied merely on technical grounds.
• Article 265 prohibits collection or retention of tax without authority of law.
• Denial of a legitimate refund may amount to unjust enrichment by the Revenue.
• Tax authorities are duty-bound to ensure that only lawful tax is collected.
• Constitutional principles override procedural technicalities where substantive rights are involved.
The TAX Talk
The Constitution does not permit the Government to retain money that does not legally belong to it. Article 265 is much more than a constitutional formality-it is a guarantee that taxation will always remain subject to the authority of law.
The ITAT has rightly reminded the tax administration that procedural rules exist to facilitate justice, not to frustrate it. Once a procedural lapse has been condoned, it cannot continue to be used as a weapon to deny a lawful refund.
The decision reinforces a timeless principle of tax jurisprudence:
The objective of the Income-tax Act is to collect the correct amount of tax-not to profit from procedural mistakes committed by taxpayers. Where no tax is legally due, no technicality can justify its retention.
The copy of the order is as under:
