Section 240 — Refund on Appeal or Revision (Complete Guide)
You won your appeal. The Income Tax Appellate Tribunal deleted the addition. The Commissioner (Appeals) reduced your assessed income. The High Court set aside the demand. Now what? You are entitled to a refund of the excess tax you paid pursuant to the assessment order — and you should not have to file a fresh application or chase the department separately to get it back. Section 240 of the Income Tax Act, 1961 is the specific provision that ensures this: whenever a refund becomes due as a result of any appellate, revisional, or reference proceeding under the Act, the Assessing Officer is duty-bound to grant the refund without waiting for a formal application from the taxpayer. This guide explains exactly how Section 240 works, which authorities' orders trigger it, how interest accrues under Section 244A on such refunds, what the AO's obligations are, the timeline for giving effect to the order, and what steps you should take to ensure your refund is received promptly after a successful appeal or revision.
What Is Section 240?
Section 240 of the Income Tax Act, 1961 states: "Where, as a result of any order passed in appeal or other proceeding under this Act, refund of any amount becomes due to the assessee, the Assessing Officer shall, except as otherwise provided in this Act, refund the amount to the assessee without his having to make any claim in that behalf." In plain terms — whenever an appellate, revisional, or other proceeding results in a reduction of assessed income, deletion of an addition, reduction of tax demand, or deletion of penalty — and this creates an excess payment relative to the revised tax liability — the AO must refund the excess amount automatically, without requiring the taxpayer to separately apply for it.
Section 240 is the post-appeal refund provision — it complements the general refund right under Section 237 (which covers all refunds) by specifically addressing refunds that arise as a consequence of a successful appeal or revision. It is part of Chapter XIX — Refunds (Sections 237 to 245). The key feature of Section 240 is its suo motu obligation on the AO — the AO must proactively give effect to the appellate order and initiate the refund without waiting for the assessee to demand it. Understand the complete income tax appeals hierarchy to know which authority's order can trigger a Section 240 refund.
Which Orders Trigger Section 240?
Section 240 is triggered by a refund arising as a result of an "order passed in appeal or other proceeding under this Act." This covers a wide range of orders from different authorities across the entire appeals and revision hierarchy:
| Authority | Nature of Order | Relevant Section | Section 240 Applies? |
|---|---|---|---|
| Commissioner of Income Tax (Appeals) — CIT(A) | Appeal against assessment order, penalty order, or TDS order — CIT(A) deletes or reduces addition or penalty | Section 250 / Section 251 | ✅ Yes |
| Joint Commissioner / Additional Commissioner (Appeals) | Appeal against AO orders within their jurisdiction — order reduces demand | Section 246 / 248 | ✅ Yes |
| Income Tax Appellate Tribunal (ITAT) | Second appeal — ITAT reduces or deletes addition confirmed by CIT(A) | Section 253 / 254 | ✅ Yes |
| High Court | Reference or appeal on question of law — HC decision reduces tax liability | Section 260A / 256 | ✅ Yes |
| Supreme Court | Civil appeal — SC decision in favour of assessee reduces tax | Section 261 | ✅ Yes |
| Commissioner — Revision u/s 263 | Commissioner revises assessment — but revision reduces tax in favour of assessee | Section 263 | ✅ Yes |
| Commissioner — Revision u/s 264 | Taxpayer applies for revision of order prejudicial to them — Commissioner revises and reduces tax | Section 264 | ✅ Yes |
| Dispute Resolution Panel (DRP) | DRP directions in international transaction / transfer pricing cases — resulting in reduced addition | Section 144C | ✅ Yes |
| Rectification under Section 154 | AO rectifies a mistake apparent from record — resulting in reduced tax | Section 154 | Covered under Section 237 — Section 240 spirit applies |
How Does Section 240 Work in Practice?
Understanding the practical flow of a Section 240 refund — from the appellate order to actual credit in your bank account — requires knowing the concept of "giving effect" to the appellate order:
Step 1 — Appellate / Revisional Order Is Passed
The relevant appellate authority (CIT(A), ITAT, HC, or SC) or revisional authority (Commissioner under Section 263 or 264) passes an order that reduces or deletes the assessment — creating a situation where the tax already paid by the assessee exceeds the revised tax liability. For example: the AO had assessed income at ₹25 lakh and raised a demand of ₹5 lakh after TDS; the assessee paid the demand and appealed; ITAT deletes the addition of ₹8 lakh — the revised income is ₹17 lakh and the demand is nil, meaning the ₹5 lakh already paid is now excess and fully refundable.
Step 2 — Order Becomes Final / Effect-Giving Stage
The AO can give effect to the appellate order only after it "becomes final" — i.e., no further appeal has been filed or the time limit for further appeal has expired, OR the higher authority has dismissed the Department's further appeal. For a CIT(A) order, the AO can give effect once the time limit for ITAT appeal has passed (60 days from CIT(A) order) and no appeal has been filed. For an ITAT order, effect can be given once the HC appeal period expires or HC dismisses the Department's appeal. Where the Department appeals further, the refund under Section 240 is deferred until that further proceeding is resolved.
Step 3 — AO Passes "Effect Giving Order"
The AO recomputes the total income and tax liability in accordance with the appellate/revisional order — passing a fresh modified assessment order incorporating the appellate directions. This is called "giving effect to the order". The resulting computation shows the revised tax liability and the excess amount paid. The AO then issues a refund for the excess — under Section 240 read with Section 237.
Step 4 — Refund Credited to Bank Account
The refund — including interest under Section 244A on the delayed amount — is credited to the assessee's pre-validated bank account linked to PAN. The same ECS/NEFT mechanism used for regular ITR-based refunds is used here. Track your income tax refund status on the portal after the effect-giving order is passed.
Time Limit for Giving Effect — Section 153(5)
One of the most practically important aspects of Section 240 refunds is the statutory time limit within which the AO must give effect to the appellate or revisional order. This is governed by Section 153(5) of the Income Tax Act:
In practice, AOs often delay giving effect to appellate orders — especially those passed by ITAT or higher courts — because the department may be evaluating whether to file a further appeal. Taxpayers must actively monitor whether the effect-giving order is passed within the 3-month window and follow up accordingly.
Interest on Refund Under Section 244A — For Appeal Refunds
When a refund becomes due under Section 240 as a result of an appellate or revisional order, Section 244A provides for interest on the delayed refund — and the computation is slightly different from ordinary refunds:
| Component | Details |
|---|---|
| Interest Rate | 6% per annum (0.5% per month or part thereof) |
| Interest Runs From | The date on which the tax / demand was actually paid by the assessee to the Government (i.e., when they paid the demand raised pursuant to the assessment order that was subsequently set aside or reduced in appeal) |
| Interest Runs To | The date of grant of refund — i.e., the date on which the refund is actually made to the assessee |
| No Minimum Period | Unlike ordinary refunds (where interest starts only if delay exceeds 3 months), interest on appeal refunds under Section 244A(1)(b) begins from the date of payment of demand — with no 3-month threshold |
| Is Interest Taxable? | Yes — taxable as Income from Other Sources under Section 56 in the year of receipt; must be declared in ITR for that year |
AO raised a demand of ₹8,00,000 for AY 2021-22. Assessee paid it on 15th October 2022. Assessee filed appeal before CIT(A). CIT(A) order dated 20th March 2024 deleted addition of ₹15 lakh — reducing demand to nil. AO gives effect and grants refund of ₹8,00,000 on 15th August 2024.
- Period of delay = 15th October 2022 to 15th August 2024 = 22 months
- Interest u/s 244A @ 0.5% per month = 0.5% × 22 × ₹8,00,000 = ₹88,000
- Total refund = ₹8,00,000 + ₹88,000 = ₹8,88,000
- The ₹88,000 interest is taxable as Income from Other Sources in FY 2024-25
Section 240 vs Section 237 — Key Distinction
Both Section 237 and Section 240 deal with income tax refunds — but they operate in different contexts and carry different procedural implications:
| Parameter | Section 237 — General Refund | Section 240 — Refund on Appeal / Revision |
|---|---|---|
| Context | Excess tax paid over actual tax liability — as computed in original assessment or ITR filing | Excess tax paid over revised tax liability — arising because appellate / revisional order reduced the assessment |
| Trigger | Filing of ITR showing excess TDS / advance tax over tax liability; or processing of ITR by CPC | Appellate, revisional, or reference proceeding order reducing assessed income, demand, or penalty |
| Application Required? | ITR serves as the refund application (no separate Form 30 needed in most cases) | No application at all required — Section 240 itself mandates the AO to refund without the assessee making any claim |
| AO's Obligation | Process the return and grant refund after CPC processing | Mandatory duty to give effect to appellate order and refund — within 3 months (Section 153(5)) |
| Interest (Section 244A) | From 1st April of AY (for TDS/advance tax refunds); from date of payment (for self-assessment tax); after 3-month threshold | From date of actual payment of demand — no 3-month threshold; runs until date of grant |
| Section 245 Adjustment Possible? | Yes — refund can be adjusted against outstanding demands after prior intimation | Yes — Section 245 applies to Section 240 refunds as well; AO can adjust against other outstanding demands |
What Happens When the Department Files a Further Appeal?
One of the most common practical complications with Section 240 refunds is when the Income Tax Department itself files a further appeal against the appellate order. In such cases:
- If the Department has filed a further appeal and the higher court has granted a stay of the lower appellate order — the AO is not required to give effect to the lower order and the Section 240 refund is held in abeyance pending the higher court's decision
- If the Department has filed a further appeal but no stay has been granted by the higher court — there is a strong legal position that the AO must still give effect to the lower appellate order and grant the refund. The Department's mere filing of an appeal without a stay does not automatically suspend the lower order
- If the Department's further appeal is ultimately dismissed — the refund becomes fully due under Section 240 along with interest under Section 244A running from the original date of payment
- If the Department's further appeal succeeds — and the higher court restores the original assessment — the refund already granted under Section 240 becomes a demand again and the AO issues a fresh demand notice under Section 156
What If the AO Does Not Give Effect — Your Remedies
Despite the clear mandatory obligation under Section 240 and the 3-month deadline under Section 153(5), AOs sometimes delay giving effect to appellate orders — particularly in large refund cases or where the Department is evaluating a further appeal. If the AO does not grant your Section 240 refund within the prescribed time, you have several remedies:
- Written Reminder to the AO: Send a formal written reminder to the Assessing Officer — citing Section 240 and Section 153(5) — specifically asking when the effect-giving order will be passed and the refund granted. Maintain records of all such communications. Many times a formal written reminder resolves the delay without escalation.
- Application to the Principal Commissioner / Commissioner: If the AO does not respond — escalate to the Principal Commissioner or Commissioner of Income Tax having supervisory jurisdiction over the AO. File a written application citing the appellate order, date of its receipt by the department, and the AO's failure to give effect within the 3-month limit under Section 153(5). The PC/C has the authority to direct the AO to give effect immediately.
- Grievance on the Income Tax Portal (e-Nivaran): File an online grievance on www.incometax.gov.in under the Grievance module — mentioning the appellate order details, date, and the pending refund. Refer to our guide on responding to income tax issues online. The Grievance Redressal Cell tracks such complaints and follows up with the AO.
- Application to the Income Tax Ombudsman: If the refund is not granted despite reminders and grievance filings — approach the Income Tax Ombudsman (where functional) for redressal of the grievance of delayed refund after appellate order.
- Writ Petition Before the High Court: In cases of prolonged inaction — particularly for large refund amounts — file a Writ Petition (Mandamus) before the jurisdictional High Court directing the AO to give effect to the appellate order and grant the refund. Courts have consistently held that the obligation under Section 240 is mandatory and the AO can be directed by a writ to comply — also directing payment of Section 244A interest for the period of wrongful delay.
Section 245 — Adjustment of Section 240 Refund Against Outstanding Demand
Even when a refund is triggered by a Section 240 appellate order, the AO retains the power under Section 245 to adjust that refund against any other outstanding tax demand of the assessee for any Assessment Year — before crediting the balance to the assessee. This is the same Section 245 adjustment power that applies to ordinary ITR-based refunds. Check your outstanding demand status proactively after winning an appeal so you are not caught off guard.
The critical safeguard is that Section 245 adjustment cannot be done silently — the AO must give the taxpayer prior written intimation, specifying the demand to be adjusted and giving a reasonable time (usually 30 days) to respond. If the taxpayer disputes the outstanding demand — on the ground that it is already paid, under appeal, or erroneous — they must respond within the deadline. If the outstanding demand is itself under appeal and the taxpayer has obtained a stay of demand — the adjustment against that demand cannot be made while the stay is in operation. Also consider using rectification vs appeal vs revision to resolve the underlying outstanding demand if it is incorrect.
Practical Checklist After Winning an Appeal
After receiving a favourable appellate or revisional order, follow this checklist to ensure your Section 240 refund is received promptly:
- Obtain a Certified Copy of the Appellate Order: Get the certified copy of the CIT(A) / ITAT / HC / SC order from the relevant authority. You will need this to submit to the AO when following up on the effect-giving order.
- Verify That the Order Has Been Received by the Department: Confirm with the AO's office that the appellate order has been officially received and registered. The 3-month clock under Section 153(5) starts from the end of the month in which the order is received by the Principal Commissioner or Commissioner — so earlier receipt means earlier deadline for the AO.
- Check Whether the Department Has Filed a Further Appeal: Verify with the AO / your tax advocate whether the Department has filed a further appeal and whether any stay has been granted. If no stay — the AO must still give effect. If stay obtained — the refund is suspended until the higher court decides.
- Pre-Validate Your Bank Account on the Portal: Ensure your bank account on the Income Tax portal (www.incometax.gov.in) is pre-validated and linked to your PAN — the Section 240 refund will be credited via the same ECS mechanism as regular ITR refunds. Track status using our refund status tracking guide. If there is a failure, use the refund reissue request process.
- Monitor the 3-Month Timeline: Calculate the 3-month deadline from the end of the month of receipt of the appellate order. If the AO has not passed the effect-giving order by this deadline — send a formal written reminder immediately. Do not wait passively.
- Check the Effect-Giving Order Carefully: When the AO passes the effect-giving order and computation — verify that all appellate directions have been correctly implemented. If any direction has been ignored or incorrectly applied — file a rectification under Section 154 immediately. Also understand the difference between rectification vs appeal vs revision to choose the right remedy.
- Account for Section 244A Interest: Verify that the refund amount includes interest under Section 244A from the date you paid the demand to the date of grant. If the AO grants the refund without interest — file a rectification application specifically for Section 244A interest. You are legally entitled to it.
- Declare the Interest in Your ITR: The Section 244A interest received on the Section 240 refund is taxable as Income from Other Sources in the year of receipt. Ensure this is declared in your ITR under Section 139(1) for that year — it will appear in your AIS as well.
Section 240 — Quick Reference
| Particulars | Details |
|---|---|
| Governing Section | Section 240, Income Tax Act, 1961 |
| Part of | Chapter XIX — Refunds (Sections 237 to 245) |
| Applicable When | Refund becomes due as a result of an order in appeal, revision, or other proceeding under the Act |
| Triggering Authorities | CIT(A), ITAT, High Court, Supreme Court, Commissioner u/s 263 / 264, DRP. See full appeals hierarchy. |
| AO's Obligation | Mandatory — must refund without assessee making any claim; give effect to appellate order within 3 months (Section 153(5)) |
| Application Required? | No — assessee need not apply separately; AO must act suo motu |
| Time Limit for Effect | 3 months from end of month of receipt of order; extendable by 3 more months by Principal Commissioner / Commissioner |
| Interest on Refund | Section 244A @ 6% p.a. from date of payment of demand to date of grant — no 3-month threshold |
| Interest Taxable? | Yes — Income from Other Sources u/s 56 in year of receipt |
| Section 245 Adjustment? | Yes — AO can adjust Section 240 refund against outstanding demands after prior written intimation |
| Remedy for AO Delay | Written reminder → PC/C escalation → Portal grievance → Writ Petition (Mandamus) before High Court |
| Department Further Appeal with Stay? | Section 240 refund is deferred if higher court grants stay on the lower appellate order |
| Related Sections | Section 237, Section 244A, Section 245, Section 154 |
Frequently Asked Questions (FAQs)
Section 240 of the Income Tax Act, 1961 provides that when a refund of any amount becomes due to an assessee as a result of any order passed in appeal or other proceeding under the Act — such as an order of CIT(A), ITAT, High Court, Supreme Court, or Commissioner in revision under Section 263 or 264 — the Assessing Officer is mandatorily required to refund that amount to the assessee without the assessee having to make any separate claim. The AO must give effect to the appellate or revisional order and process the refund proactively within 3 months (as per Section 153(5)). Section 240 ensures that a taxpayer who wins an appeal receives their money back promptly and automatically.
No. Section 240 explicitly states that the AO must refund the amount "without his having to make any claim in that behalf." This means you do not need to file Form 30, write a separate letter, or apply to any authority specifically claiming the refund. The AO has a statutory duty to give effect to the appellate or revisional order and grant the refund on their own initiative. You should, however, monitor whether the AO gives effect within the 3-month deadline under Section 153(5) and follow up proactively if they do not. Track your refund status on the portal regularly.
Under Section 244A of the Income Tax Act, you are entitled to interest at 6% per annum (0.5% per month or part thereof) on the refund amount arising from an appellate or revisional order. The interest runs from the date on which you actually paid the demand (raised pursuant to the assessment order that was subsequently reduced or set aside in appeal) to the date on which the refund is actually granted to you. Unlike ordinary ITR-based refunds where interest starts only after a 3-month threshold, there is no minimum period threshold for appeal refunds — interest begins from the very date of payment of the demand.
Under Section 153(5) of the Income Tax Act, the AO must pass the effect-giving order within 3 months from the end of the month in which the appellate or revisional order was received by the Principal Commissioner or Commissioner. This period can be extended by a further 3 months by the Principal Commissioner or Commissioner if giving effect within the original 3 months is not possible for reasons beyond control — making the maximum total period 6 months. If the AO fails to give effect within this period, the taxpayer can escalate to the PC/C, file a portal grievance, or file a Writ Petition (Mandamus) before the jurisdictional High Court.
If the Department files a further appeal and the higher court grants a stay of the lower appellate order, the AO need not give effect and the Section 240 refund is deferred until the higher court disposes of the matter. If no stay is granted by the higher court, there is a strong legal position that the AO must still give effect to the lower appellate order and grant the refund — the mere filing of an appeal by the Department without a stay does not suspend the lower order. If the Department's further appeal ultimately succeeds and the assessment is restored, the refunded amount becomes recoverable as a fresh demand. See our stay of demand guide for more details.
Yes. Section 245 of the Income Tax Act applies to Section 240 refunds as well. The AO can set off the refund due under Section 240 against any outstanding tax demand from any other Assessment Year — but only after giving the taxpayer a prior written intimation and a reasonable opportunity to respond (usually 30 days). If you disagree with the proposed adjustment — because the outstanding demand is wrong, already paid, or under appeal — you must respond within the deadline with supporting documents including payment challans and rectification orders. Ignoring the Section 245 intimation results in automatic adjustment of your appeal refund against the old demand.
Yes. The interest received from the Income Tax Department under Section 244A — whether on an ordinary ITR refund or on an appeal refund under Section 240 — is taxable as "Income from Other Sources" under Section 56 of the Income Tax Act in the year in which it is received. Failure to declare this interest income in your ITR for that year leads to a discrepancy in AIS and may result in a Section 143(1) mismatch intimation or demand from the CPC. Always account for and declare this interest income in your return.
Section 237 is the general refund provision — it covers excess tax paid over actual tax liability, typically arising from excess TDS or advance tax reflected in the ITR. Section 240 is specifically for refunds arising from appellate or revisional orders — where tax was paid on a demand raised by the AO and that demand has been reduced or deleted in appeal. The key procedural difference is that Section 237 refunds arise through ITR processing, while Section 240 refunds arise through the AO giving effect to the appellate order. Additionally, Section 244A interest on Section 240 refunds begins from the date of actual payment — with no 3-month threshold — unlike ordinary refunds.
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