Section 139(4) IT Act | CPC-Condoned E-Verification Delay Does Not Bar TDS Refund; Article 265 Protects Right to Refund : ITAT Delhi

The Income Tax Appellate Tribunal, Delhi, has held that the denial of a TDS refund solely on the ground of delayed e-verification - despite condonation by the CPC - constitutes unjust enrichment by the Revenue and violates Article 265 of the Constitution. This ruling reinforces that statutory compliance must yield to constitutional principles when tax has been lawfully deducted but not lawfully retained.

Background & Facts

The Dispute

The appellant, Gurcharan Singh Bhatia, an individual taxpayer, filed his Income Tax Return (ITR) for Assessment Year 2015-16 on 03.09.2015, declaring nil taxable income. He claimed a refund of Rs. 17,08,200, arising from Tax Deducted at Source (TDS) on rental income, as reflected in Form 26AS. The return was filed electronically within the statutory due date. However, the e-verification of the return was not completed within the one-month window prescribed under Rule 12A of the Income Tax Rules, 1962.

Key Facts

• The return was filed on 03.09.2015 with Acknowledgement No. 771174300030915.
• The assessee claimed refund of Rs. 17,08,200 based on TDS deducted under Section 194-I on house property income.
• The assessee’s father, Shri Santokh Singh, aged 83, was seriously ill during September 2015 to February 2018, requiring constant care and frequent hospital visits.
• Due to these exigencies, the assessee was unable to complete e-verification within the stipulated period.
• On 16.02.2018, the assessee submitted a condonation request to the Centralized Processing Centre (CPC), which was accepted. The CPC issued an e-verified acknowledgement receipt dated 16.02.2018 using Aadhaar OTP, validating the return filed on 03.09.2015.
• Despite this validation, the Assessing Officer (AO) and later the Commissioner of Income Tax (Appeals) refused to process the refund, citing non-compliance with the e-verification timeline.
• The assessee filed multiple applications for refund, including a grievance on 12.02.2024 (Ack. No. 16158243) and a rectification application under Section 154 on 20.02.2024 (Ack. No. 41451235052).
• The AO rejected the rectification application on 30.04.2024, and the JCIT(A), Chennai, upheld the rejection on 30.10.2025.

Procedural History

• 03.09.2015: ITR filed for AY 2015-16, claiming refund of Rs. 17,08,200.
• 16.02.2018: CPC condoned delay and e-verified the return via Aadhaar OTP.
• 12.02.2024: Grievance application filed with the Revenue.
• 20.02.2024: Rectification application under Section 154 filed.
• 30.04.2024: AO rejected refund claim and rectification application.
• 30.10.2025: JCIT(A), Chennai, dismissed appeal, holding e-verification beyond deadline invalidates return.
• 19.03.2026: Hearing before ITAT Delhi.
• 16.06.2026: Judgment pronounced.

Relief Sought

The appellant sought: (1) setting aside of the JCIT(A) order dated 30.10.2025; (2) direction to the AO/CPC to process and issue refund of Rs. 17,08,200; (3) recognition that the return, once condoned by CPC, is valid for refund purposes under Section 240 of the Income Tax Act.

The Legal Issue

The central question was whether the refund of TDS lawfully deducted and admitted to have been deducted can be denied merely because the e-verification of a validly filed return was delayed, even though the CPC condoned the delay and validated the return.

Arguments Presented

For the Appellant

The appellant’s counsel relied on two key precedents: K. Nagesh v. ACIT (2015) 376 ITR 473 (Karnataka HC) and S. R. Koshti v. CIT (2005) 276 ITR 165 (Gujarat HC). He argued that:

• The return was filed on time and later validated by the CPC, making it legally effective.
• Section 199 of the Act mandates that TDS deducted must be credited to the assessee, and denial of refund violates this statutory obligation.
• Article 265 of the Constitution prohibits taxation without authority of law; retaining TDS without assessment or refund amounts to unconstitutional unjust enrichment.
• The delay was due to a compelling personal emergency, and the Revenue’s rigid adherence to procedural timelines disregards the spirit of the law and the constitutional duty to assist taxpayers.

For the Respondent

The Revenue contended that:

• E-verification is a mandatory statutory requirement under Rule 12A.
• A return not e-verified within the stipulated period is deemed invalid and cannot be processed under Section 143(1).
• The CPC’s condonation does not empower the AO or JCIT(A) to override statutory timelines.
• The JCIT(A) lacks jurisdiction to condone delay; only the Commissioner under Section 119(2)(b) may do so.
• Allowing refunds in such cases would open floodgates to abuse and undermine procedural compliance.

The Court's Analysis

The Tribunal rejected the Revenue’s technical argument as inconsistent with constitutional and statutory principles. It emphasized that while procedural compliance is important, it cannot override substantive rights when the taxpayer has acted in good faith and the Revenue has been fully informed.

"The Department, retaining the amount of tax paid on the basis of an invalid return without there being any self-assessment/assessment made by the authority under the Act, would violate Article 265 of the Constitution of India."

The Tribunal noted that the Karnataka High Court in K. Nagesh had squarely held that retention of tax paid without any assessment under the Act violates Article 265. Similarly, the Gujarat High Court in S. R. Koshti had cautioned that tax authorities must not adopt the attitude of private litigants and must assist taxpayers who have been over-assessed due to mistake or misunderstanding.

The Tribunal observed that the CPC, as the designated authority under the Act for processing returns, had exercised its power under Rule 12A to condone the delay and validate the return. This validation was not a mere administrative formality but a legal recognition of the return’s validity. The fact that the return was not processed under Section 143(1) was not the assessee’s fault but a failure of the Revenue system.

The Tribunal further held that Section 199 of the Act, which provides that tax deducted at source shall be deemed to have been paid to the assessee, creates a statutory right to credit. Denying refund of such credit, after the return has been validated, amounts to unjust enrichment of the Revenue and is constitutionally impermissible.

The Tribunal explicitly rejected the argument that the JCIT(A) lacked jurisdiction to consider condonation. It clarified that the issue before it was not whether the delay should have been condoned, but whether, once condoned by the CPC, the refund could be denied. The answer, under Article 265 and Section 199, was unequivocally no.

The Verdict

The appeal was allowed. The order of the JCIT(A) dated 30.10.2025 was set aside. The Assessing Officer and CPC are directed to process and refund the TDS amount of Rs. 17,08,200 to the assessee within 60 days from the date of the order. The refund shall carry interest at the rate of 6% per annum from 01.04.2016 until the date of actual payment, as per Section 244A of the Income Tax Act. Costs of Rs. 10,000 are awarded to the appellant.

What This Means For Similar Cases

Refund Rights Trump Procedural Lapses

• Practitioners must now argue that once the CPC validates a belatedly e-verified return, the return is legally effective for refund purposes under Section 240 and Section 199.
• Denial of refund on technical grounds after CPC condonation is no longer sustainable in law.

Article 265 as a Shield Against Unjust Enrichment

• Taxpayers can invoke Article 265 of the Constitution to challenge retention of TDS where no assessment has been made.
• Revenue authorities cannot retain funds lawfully deducted without a valid legal basis.

CPC Validation Is Binding for Refund Purposes

• The CPC’s acceptance of a condonation request and issuance of an e-verified acknowledgement constitutes a final determination of return validity for refund processing.

• AO and appellate authorities cannot re-litigate the validity of a return once validated by CPC.

• Always file a condonation request with CPC immediately upon realizing e-verification delay.

• Retain proof of CPC’s e-verification and correspondence as conclusive evidence of return validity.

• In refund denial cases, cite K. Nagesh and S. R. Koshti to invoke Article 265 and Section 199.