The Commissioner says the proviso to section 240 shows that returned income is sacrosanct, so he cannot give my client a refund below what he himself returned. Is that right?
No. The proviso to section 240 bites only in the two situations it describes — an assessment set aside or cancelled with a fresh assessment directed, and an assessment annulled — and says nothing about a case where neither has happened. There is no provision in the Act denying a refund of excess tax where the income ultimately assessable is less than the returned income; an assessee can be asked to pay only such tax as is legally due and nothing more.
Decided by the High Court (K. R. Shriram J and Dr. Neela Gokhale J; oral judgment per K. R. Shriram J) on 2024-03-14, reported as Writ Petition No. 2027 of 2016, High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction; neutral citation 2024:BHC-OS:4701-DB; assessment year 2011-12. It bears on section 240, section 264, section 143(1), section 48, section 45 of the Income Tax Act 1961, in Refunds, Interest & Condonation, Revision & Rectification and Capital Gains matters.
The proviso to section 240 is regularly used by revisional and assessing authorities as a general proposition that returned income cannot be reduced. This decision confines it to its own terms. It matters most where a later event shows that income returned on an estimate or on an agreed figure never in fact accrued — here part of the sale consideration for shares was withdrawn from an escrow account after the assessment was over — and where the only route left is a revision under section 264 because the time for a revised return has gone. The Bombay High Court held that section 264 was introduced to cater for exactly that situation and does not restrict the Commissioner to giving relief only up to the returned income; it is the Revenue's obligation to tax the correct income and, where a higher income has been offered, to compute the correct figure and grant the refund. Two limits are important. First, the reasoning is that of the Court's own earlier judgment in Dinesh Vazirani, reproduced in full here and adopted on facts the counsel agreed were identical, and the Revenue's special leave petition against Dinesh Vazirani is pending — see the validity note. Second, the threshold point that an intimation under section 143(1) is amenable to section 264 rests on the same Court's decision in Diwaker Tripathi and is not universally accepted elsewhere.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The petitioner was one of the promoters of WMI Cranes Ltd., holding 3,34,700 equity shares, 33.47 per cent of the total. The promoters entered into a Share Subscription and Purchase Agreement dated 11 October 2010 with M/s. Konecranes Finance Corporation of Finland to sell 51 per cent of the issued and paid-up equity capital, followed by a second agreement for the balance, transferring 100 per cent. The agreement fixed consideration of Rs 155,00,00,000, of which Rs 30,00,00,000 was kept in an escrow account under a separate escrow agreement against specific promoter indemnification obligations, the promoters receiving Rs 125,00,00,000 at closing. The petitioner filed his return for assessment year 2011-12 on 30 July 2011 declaring income of Rs 58,12,98,387 including long-term capital gains of Rs 55,62,81,900, computed on his proportion of the full Rs 155,00,00,000 including the escrow amount he had not received. The return was processed under section 143(1) accepting the returned income. Liabilities of about Rs 9,17,04,240 relating to the period before the sale then arose in the company and that amount was withdrawn from the escrow account, so the promoters never received it. The petitioner applied under section 264. The Principal Commissioner rejected the application by order dated 23 March 2016 on the ground that an intimation under section 143(1) is not amenable to revision under section 264. In the parallel case of a co-promoter, Dinesh Vazirani, whose facts counsel agreed were identical save that his assessment had been completed under section 143(3), the same authority had additionally relied on the proviso to section 240 to hold that returned income is sacrosanct and cannot be disturbed.
The order dated 23 March 2016 was quashed and set aside and the matter remanded to the Principal Commissioner to pass a fresh order on the footing that the capital gains on the transfer of the shares are to be computed after reducing the proportionate amount withdrawn from the escrow account from the full value of the consideration, and to allow the refund of the additional tax paid with interest; the fresh order was to be passed within six weeks after a personal hearing on seven working days' notice, and the refund with interest paid within two weeks of that order unless the Revenue had another claim permitting a legal adjustment. Rule was made absolute in terms of the prayers for certiorari and mandamus. On the proviso to section 240, reliance on it to hold that there is no power to reduce the returned income is fraught with error because the circumstances the proviso describes did not exist; there is no provision in the Act under which, if the ultimately assessed income is less than the returned income, the refund of the excess tax would not be granted.
The Court disposed of the threshold objection by following its own decision in Diwaker Tripathi v. Principal Commissioner of Income tax-17, holding that an intimation under section 143(1) is amenable to revisional jurisdiction under section 264, and quashed the order on that ground (para 9). On the merits it adopted in full the reasoning of its earlier judgment in Dinesh Vazirani, reproduced at para 5. That reasoning was: the amount withdrawn from the escrow account was neither received by nor accrued to the promoters, so it cannot form part of the full value of consideration in computing capital gains under section 48; the purchase price defined in the agreement was not an absolute amount but was subject to liabilities that might arise on subsequent events, and the full value of consideration is what the promoters ultimately received after those adjustments; income is chargeable on the basis of real income, and on Shoorji Vallabhdas, if income does not result at all there cannot be a tax even though a book entry is made about a hypothetical income which does not materialise; section 264 exists to cater for a situation where the event occurs after the assessment is complete and does not restrict the Commissioner to relief only up to the returned income, since it is the obligation of the Revenue to tax the assessee on the income chargeable under the Act and, where higher income has been offered, to compute the correct income and grant the refund. On the proviso to section 240 the Court held that its two limbs describe circumstances that indisputably did not exist, that annulment was not the case at hand, and that the only thing that is sacrosanct is that an assessee can be asked to pay only such tax as is legally due under the Act and nothing more.
Reliance by respondent no.1 on the provisions of Section 240 of the Act to hold that there is no power on respondent no.1 to reduce the returned income, is fraught with error because the circumstances provided in the provisio to Section 240 indisputably do not exist in the present case.
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The proviso to section 240 bites only in the two situations it describes — an assessment set aside or cancelled with a fresh assessment directed, and an assessment annulled — and says nothing about a case where neither has happened. There is no provision in the Act denying a refund of excess tax where the income ultimately assessable is less than the returned income; an assessee can be asked to pay only such tax as is legally due and nothing more. This was decided by the High Court (K. R. Shriram J and Dr. Neela Gokhale J; oral judgment per K. R. Shriram J) and bears on section 240, section 264, section 143(1), section 48, section 45 of the Income Tax Act 1961. It is reported as Writ Petition No. 2027 of 2016, High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction; neutral citation 2024:BHC-OS:4701-DB; assessment year 2011-12. The proviso to section 240 is regularly used by revisional and assessing authorities as a general proposition that returned income cannot be reduced. This decision confines it to its own terms. It matters most where a later event shows that income returned on an estimate or on an agreed figure never in fact accrued — here part of the sale consideration for shares was withdrawn from an escrow account after the assessment was over — and where the only route left is a revision under section 264 because the time for a revised return has gone. The Bombay High Court held that section 264 was introduced to cater for exactly that situation and does not restrict the Commissioner to giving relief only up to the returned income; it is the Revenue's obligation to tax the correct income and, where a higher income has been offered, to compute the correct figure and grant the refund. Two limits are important. First, the reasoning is that of the Court's own earlier judgment in Dinesh Vazirani, reproduced in full here and adopted on facts the counsel agreed were identical, and the Revenue's special leave petition against Dinesh Vazirani is pending — see the validity note. Second, the threshold point that an intimation under section 143(1) is amenable to section 264 rests on the same Court's decision in Diwaker Tripathi and is not universally accepted elsewhere. If it applies to you, the first step is this: When the Commissioner invokes the proviso to section 240, put the proviso to him clause by clause and ask which limb he says applies; if there is no set aside, cancellation or annulment, the proviso is simply not in the field.
The petitioner was one of the promoters of WMI Cranes Ltd., holding 3,34,700 equity shares, 33.47 per cent of the total. The promoters entered into a Share Subscription and Purchase Agreement dated 11 October 2010 with M/s. Konecranes Finance Corporation of Finland to sell 51 per cent of the issued and paid-up equity capital, followed by a second agreement for the balance, transferring 100 per cent. The agreement fixed consideration of Rs 155,00,00,000, of which Rs 30,00,00,000 was kept in an escrow account under a separate escrow agreement against specific promoter indemnification obligations, the promoters receiving Rs 125,00,00,000 at closing. The petitioner filed his return for assessment year 2011-12 on 30 July 2011 declaring income of Rs 58,12,98,387 including long-term capital gains of Rs 55,62,81,900, computed on his proportion of the full Rs 155,00,00,000 including the escrow amount he had not received. The return was processed under section 143(1) accepting the returned income. Liabilities of about Rs 9,17,04,240 relating to the period before the sale then arose in the company and that amount was withdrawn from the escrow account, so the promoters never received it. The petitioner applied under section 264. The Principal Commissioner rejected the application by order dated 23 March 2016 on the ground that an intimation under section 143(1) is not amenable to revision under section 264. In the parallel case of a co-promoter, Dinesh Vazirani, whose facts counsel agreed were identical save that his assessment had been completed under section 143(3), the same authority had additionally relied on the proviso to section 240 to hold that returned income is sacrosanct and cannot be disturbed. The matter was decided on 2024-03-14 by the High Court (K. R. Shriram J and Dr. Neela Gokhale J; oral judgment per K. R. Shriram J). On those facts the High Court held as follows. The order dated 23 March 2016 was quashed and set aside and the matter remanded to the Principal Commissioner to pass a fresh order on the footing that the capital gains on the transfer of the shares are to be computed after reducing the proportionate amount withdrawn from the escrow account from the full value of the consideration, and to allow the refund of the additional tax paid with interest; the fresh order was to be passed within six weeks after a personal hearing on seven working days' notice, and the refund with interest paid within two weeks of that order unless the Revenue had another claim permitting a legal adjustment. Rule was made absolute in terms of the prayers for certiorari and mandamus. On the proviso to section 240, reliance on it to hold that there is no power to reduce the returned income is fraught with error because the circumstances the proviso describes did not exist; there is no provision in the Act under which, if the ultimately assessed income is less than the returned income, the refund of the excess tax would not be granted.
The Court disposed of the threshold objection by following its own decision in Diwaker Tripathi v. Principal Commissioner of Income tax-17, holding that an intimation under section 143(1) is amenable to revisional jurisdiction under section 264, and quashed the order on that ground (para 9). On the merits it adopted in full the reasoning of its earlier judgment in Dinesh Vazirani, reproduced at para 5. That reasoning was: the amount withdrawn from the escrow account was neither received by nor accrued to the promoters, so it cannot form part of the full value of consideration in computing capital gains under section 48; the purchase price defined in the agreement was not an absolute amount but was subject to liabilities that might arise on subsequent events, and the full value of consideration is what the promoters ultimately received after those adjustments; income is chargeable on the basis of real income, and on Shoorji Vallabhdas, if income does not result at all there cannot be a tax even though a book entry is made about a hypothetical income which does not materialise; section 264 exists to cater for a situation where the event occurs after the assessment is complete and does not restrict the Commissioner to relief only up to the returned income, since it is the obligation of the Revenue to tax the assessee on the income chargeable under the Act and, where higher income has been offered, to compute the correct income and grant the refund. On the proviso to section 240 the Court held that its two limbs describe circumstances that indisputably did not exist, that annulment was not the case at hand, and that the only thing that is sacrosanct is that an assessee can be asked to pay only such tax as is legally due under the Act and nothing more. In the words reproduced by the source cited on this page: "Reliance by respondent no.1 on the provisions of Section 240 of the Act to hold that there is no power on respondent no.1 to reduce the returned income, is fraught with error because the circumstances provided in the provisio to Section 240 indisputably do not exist in the present case." The decision followed or applied Dinesh Vazirani, Writ Petition No. 2475 of 2015 (Bombay High Court, 8 April 2022) — reproduced in full and applied on identical facts; Diwaker Tripathi v. Principal Commissioner of Income tax-17 — followed on the amenability of a section 143(1) intimation to section 264; CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC) — quoted within the adopted judgment on real income.
It was decided by the High Court on 2024-03-14 and is reported as Writ Petition No. 2027 of 2016, High Court of Judicature at Bombay, Ordinary Original Civil Jurisdiction; neutral citation 2024:BHC-OS:4701-DB; assessment year 2011-12. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 240, section 264, section 143(1), section 48, section 45, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The order dated 23 March 2016 was quashed and set aside and the matter remanded to the Principal Commissioner to pass a fresh order on the footing that the capital gains on the transfer of the shares are to be computed after reducing the proportionate amount withdrawn from the escrow account from the full value of the consideration, and to allow the refund of the additional tax paid with interest; the fresh order was to be passed within six weeks after a personal hearing on seven working days' notice, and the refund with interest paid within two weeks of that order unless the Revenue had another claim permitting a legal adjustment. Rule was made absolute in terms of the prayers for certiorari and mandamus. On the proviso to section 240, reliance on it to hold that there is no power to reduce the returned income is fraught with error because the circumstances the proviso describes did not exist; there is no provision in the Act under which, if the ultimately assessed income is less than the returned income, the refund of the excess tax would not be granted. It arises in Refunds, Interest & Condonation, Revision & Rectification and Capital Gains matters, on section 240, section 264, section 143(1), section 48, section 45 of the Income Tax Act 1961, and was decided by K. R. Shriram J and Dr. Neela Gokhale J; oral judgment per K. R. Shriram J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where a post-assessment event shows the returned income never accrued, and the time for a revised return has expired, apply under section 264 and say expressly that the application is made under that section because the event post-dates the completion of the assessment. Plead real income: rely on Shoorji Vallabhdas for the proposition that if income does not result at all there can be no tax even though a book entry was made, and show the amount was never received by or accrued to the client. If the order under revision is an intimation under section 143(1), be ready for the objection that it is not amenable to section 264; in Bombay that is answered by Diwaker Tripathi, but check the position in your own High Court before relying on it. Ask for the refund with interest and for a time-bound direction; the Court fixed six weeks for the fresh order and two weeks thereafter for payment, subject to any legally permissible adjustment of an existing demand.
Under appeal, and the appeal has not been decided. The label attaches to the reasoning rather than to this petition. The Revenue filed a special leave petition against the parent decision, Dinesh Vazirani: SLP (Civil) Diary No. 24710 of 2023, Principal Commissioner of Income Tax-7 and another v. Dinesh Vazirani, before the Supreme Court. Registrar's orders of 26 February 2024 and 18 September 2024 were read on indiankanoon; as at 18 September 2024 the matter was still at the service stage, the sole respondent being unserved, and it was directed to be listed again on 2 December 2024. No order after that date was located and the outcome of the special leave petition is not known. No separate check was made for an appeal against the present judgment of 14 March 2024. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read in full from the indiankanoon print view; the file carries the Bombay High Court neutral citation 2024:BHC-OS:4701-DB and the internal reference 217-oswp-2027-2016-J.doc. The structure needs care and has been checked line by line: paragraph 5 of this judgment reproduces the whole of the Court's earlier judgment in Writ Petition No. 2475 of 2015 (Dinesh Vazirani), decided 8 April 2022, as an indented quotation running from its paragraph 1 to its paragraph 20. The passage on the proviso to section 240 quoted below is therefore paragraph 15 of the Dinesh Vazirani judgment as reproduced inside paragraph 5 of this judgment, not a paragraph 15 of this judgment; the present Court's own paragraphs run 1 to 12. That attribution is stated in the quote source. The figure of Rs 9,17,04,240 is the total withdrawn from the escrow account for liabilities of the company, not this petitioner's share; the direction is to reduce the proportionate amount. The impugned order in the present petition is dated 23 March 2016 (the order of 13 February 2015 mentioned in the quoted judgment is the order in Dinesh Vazirani's own case). The respondent is described as Principal Commissioner of Income Tax-8 in the cause title. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The order dated 23 March 2016 was quashed and set aside and the matter remanded to the Principal Commissioner to pass a fresh order on the footing that the capital gains on the transfer of the shares are to be computed after reducing the proportionate amount withdrawn from the escrow account from the full value of the consideration, and to allow the refund of the additional tax paid with interest; the fresh order was to be passed within six weeks after a personal hearing on seven working days' notice, and the refund with interest paid within two weeks of that order unless the Revenue had another claim permitting a legal adjustment. Rule was made absolute in terms of the prayers for certiorari and mandamus. On the proviso to section 240, reliance on it to hold that there is no power to reduce the returned income is fraught with error because the circumstances the proviso describes did not exist; there is no provision in the Act under which, if the ultimately assessed income is less than the returned income, the refund of the excess tax would not be granted.
TaxSphere, “Gopal Vazirani v Principal Commissioner of Income Tax”, https://taxnotice.vittsphere.com/caselaw/case/gopal-vazirani-240-proviso-refund-below-returned-income/ (validity last checked 2026-09-07)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
Cash seized in a search was appropriated against a tax liability that the Tribunal later knocked out. The Department has paid me interest from the date of the assessment to the date of refund. Am I entitled to anything for the years before the assessment?
My assessment was annulled by the Tribunal and the department cannot make a fresh one. Do I get back everything I paid, including the tax on my own returned income?
Can I still rely on Sandvik Asia to claim interest on the interest due on my refund?
I deducted tax under s.195 because the officer told me to, and the CIT(A) has now held it was not deductible. Do I get interest on the refund, or only the tax back?
