In fact, such a situation could even arise in case an individual has inflated his income and paid taxes. Now that he has been caught or admitted to the fraud - can he claim refund of the already-paid taxes?

The basic question would be why should an individual inflate his income? The main reason many people do this is because they want to get a higher loan from a bank. Or, sometimes it is also used to convert black money. 

The first issue is: Who is eligible for refund of income tax already paid? Simply put, any tax payer who has paid income tax, which is higher than the tax legally payable by him, can claim a refund of excess income tax paid. Income Tax can be paid by way of deduction at source, advance tax or as self-assessment tax.

The next issue is: How to claim refund of such excess taxes paid? A tax payer can claim refund of taxes by filing a revised return, in which he has to reflect the correct income (which is actually taxable), the income tax already paid and the refund due on the basis of his revised return.

A person can file a revised return at any time before the expiry of 1 year from the end of the relevant assessment year or before the completion of the income tax assessment, whichever is earlier.

Theoretically, a return can be revised any number of times before the expiry of 1 year from the end of the assessment year or before assessment by the Income Tax department is completed; whichever event occurs earlier. So, the law technically provides for a person, who wants to claim refund of taxes or who wants to make any other changes in the original return, by giving him a provision of filing a revised return.

An assessee can also claim refund of income tax by making a rectification application under section 154 of the Act, to amend the assessment order passed by the assessing officer.

But it can only be done if there is a mistake, which is apparent from the record. Such a rectification application can be filed by the assessee before the expiry of four years from the end of the financial year, in which the assessment order  was sought to be amendedwas passed earlier.

Every claim for refund of taxes shall be made in the prescribed form no 30. While making a claim for refund, an assessee cannot question the correctness of any assessment or other matters decided that have become final and conclusive or ask for a review of the same through these provisions. The taxpayer will also be eligible for interest on refund at an annual interest rate of 6 per cent.

But Sections 138(5) and 154 of the act apply only to a bonafide mistake made by the assessee and therefore, a person who has out of a malicious intent, disclosed higher profits, to give a false picture of his organisation to the world at large cannot take the benefit of these sections for claiming refund of taxes already paid.

The operative expression in this whole exercise is 'bonafide mistake'. In case, the income or profits have been inflated just to make things look rosy for acquiring a loan or some other purpose, the assessee will not get the benefit of these sections.

The writer is a chartered accountant.