Section 242 — Correctness of Assessment Not to be Questioned
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A finality provision: in a refund claim under the Chapter, the assessee cannot question the correctness of any assessment or other matter that has become final and conclusive, and is entitled only to a refund of tax wrongly paid or paid in excess.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 242 protects the finality of assessments. It provides that, in a claim under Chapter XIX, it is not open to the assessee to question the correctness of any assessment or other matter that has become final and conclusive, or to ask for a review of it; the relief obtainable on a refund claim is confined to a refund of tax wrongly paid or paid in excess. A refund proceeding cannot be used as a collateral channel to reopen a concluded assessment.
The provision must be read with the proper, statutorily-provided routes for challenging an assessment — appeal (sections 246A, 253), revision (sections 263, 264) and rectification (section 154). Where those remedies have been exhausted or not pursued and the assessment has attained finality, section 242 bars its reagitation through a refund claim, while still permitting recovery of tax that was wrongly or excessively paid as such.
The section also reflects the boundary recognised in the refund jurisprudence: section 237 and the Chapter refund what was wrongly collected, but they do not sit in appeal over a final assessment. The principle in Shelly Products — that the assessee can recover tax wrongly or excessively paid, but not reopen what is concluded — is the conceptual counterpart of section 242.
Section 242 has generated little independent litigation; it operates as a guardrail rather than as a source of contested rights, and is applied in harmony with the appeal/revision/rectification scheme and with the substantive refund right in section 237.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
242. In a claim under this Chapter, it shall not be open to the assessee to question the correctness of any assessment or other matter decided which has become final and conclusive or ask for a review of the same, and the assessee shall not be entitled to any relief on such claim except refund of tax wrongly paid or paid in excess.
C. AUTHORITIES
Section 242 is a finality safeguard with little direct reported authority; it is applied alongside the appeal, revision and rectification machinery. The substantive boundary it marks — recovery of wrongly/excess-paid tax, but no reopening of a final assessment — is reflected in Shelly Products.
Conceptual counterpart — what a refund claim can and cannot achieve
Shelly Products marks the same boundary section 242 enacts: refund of wrongly-collected tax, not reopening of concluded liability.
Held: (i) Provisos (a) and (b) to section 240 are declaratory and clarificatory, and therefore operate retrospectively; the CBDT Circular dated 23 January 1990 is likewise only clarificatory. (ii) The liability to pay income-tax arises by force of the charging provisions read with the Finance Act, not from the making of an assessment; Article 265 is not breached merely because no fresh assessment is framed after an annulment. (iii) Where an assessment is annulled and the Revenue does not (or cannot) make a fresh assessment, the assessee is entitled to a refund only of the amount paid in excess of the tax chargeable on, and paid in respect of, the income returned — i.e. tax paid pursuant to the annulled order over and above the tax on the returned income. (iv) Taxes paid voluntarily and on the assessee's own admission of liability, such as advance tax and self-assessment tax referable to the returned income, are not refundable merely because the assessment is annulled; conversely, if the assessee has wrongly paid excess tax (e.g. by misreading an exemption), it may bring the fact to the AO's notice for refund.
Significance: The cornerstone decision on proviso (b) to section 240. It draws the crucial line between (a) tax wrongly collected under an annulled order, which is refundable, and (b) tax voluntarily paid on returned income, which is not. Applied by the Supreme Court in CIT v. Micro Nova Pharmaceuticals (P) Ltd. to block-period self-assessment tax.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the local Act (base text amended up to the Finance Act, 2025); the publisher's footnote apparatus and amendment-marker brackets have been removed, and three asterisks (***) denote words or a sub-section omitted by amendment and retained only to mark the omission. Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported. Where a section has not been the subject of a direct reported decision, that is stated candidly and the nearest governing authority or circular is given. This digest is for professional reference and is not legal advice.
CHAPTER XIX — REFUNDS
Section 242 — Correctness of Assessment Not to be Questioned
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. A finality provision: in a refund claim under the Chapter, the assessee cannot question the correctness of any assessment or other matter that has become final and conclusive, and is entitled only to a refund of tax wrongly paid or paid in excess.
FA 2026: No amendment by the Finance Act, 2026.
A. SECTION COMMENTARY
Section 242 protects the finality of assessments. It provides that, in a claim under Chapter XIX, it is not open to the assessee to question the correctness of any assessment or other matter that has become final and conclusive, or to ask for a review of it; the relief obtainable on a refund claim is confined to a refund of tax wrongly paid or paid in excess. A refund proceeding cannot be used as a collateral channel to reopen a concluded assessment.
The provision must be read with the proper, statutorily-provided routes for challenging an assessment — appeal (sections 246A, 253), revision (sections 263, 264) and rectification (section 154). Where those remedies have been exhausted or not pursued and the assessment has attained finality, section 242 bars its reagitation through a refund claim, while still permitting recovery of tax that was wrongly or excessively paid as such.
The section also reflects the boundary recognised in the refund jurisprudence: section 237 and the Chapter refund what was wrongly collected, but they do not sit in appeal over a final assessment. The principle in Shelly Products — that the assessee can recover tax wrongly or excessively paid, but not reopen what is concluded — is the conceptual counterpart of section 242.
Section 242 has generated little independent litigation; it operates as a guardrail rather than as a source of contested rights, and is applied in harmony with the appeal/revision/rectification scheme and with the substantive refund right in section 237.
B. STATUTORY POSITION (verbatim text)
Reproduced from the local Act (base text to the Finance Act, 2025).
242. In a claim under this Chapter, it shall not be open to the assessee to question the correctness of any assessment or other matter decided which has become final and conclusive or ask for a review of the same, and the assessee shall not be entitled to any relief on such claim except refund of tax wrongly paid or paid in excess.
C. AUTHORITIES
Section 242 is a finality safeguard with little direct reported authority; it is applied alongside the appeal, revision and rectification machinery. The substantive boundary it marks — recovery of wrongly/excess-paid tax, but no reopening of a final assessment — is reflected in Shelly Products.
Conceptual counterpart — what a refund claim can and cannot achieve
Shelly Products marks the same boundary section 242 enacts: refund of wrongly-collected tax, not reopening of concluded liability.
CIT v. Shelly Products (2003) 261 ITR 367 (SC)
Court: Supreme Court of India; (2003) 261 ITR 367 / 129 Taxman 271.
Held: (i) Provisos (a) and (b) to section 240 are declaratory and clarificatory, and therefore operate retrospectively; the CBDT Circular dated 23 January 1990 is likewise only clarificatory. (ii) The liability to pay income-tax arises by force of the charging provisions read with the Finance Act, not from the making of an assessment; Article 265 is not breached merely because no fresh assessment is framed after an annulment. (iii) Where an assessment is annulled and the Revenue does not (or cannot) make a fresh assessment, the assessee is entitled to a refund only of the amount paid in excess of the tax chargeable on, and paid in respect of, the income returned — i.e. tax paid pursuant to the annulled order over and above the tax on the returned income. (iv) Taxes paid voluntarily and on the assessee's own admission of liability, such as advance tax and self-assessment tax referable to the returned income, are not refundable merely because the assessment is annulled; conversely, if the assessee has wrongly paid excess tax (e.g. by misreading an exemption), it may bring the fact to the AO's notice for refund.
Significance: The cornerstone decision on proviso (b) to section 240. It draws the crucial line between (a) tax wrongly collected under an annulled order, which is refundable, and (b) tax voluntarily paid on returned income, which is not. Applied by the Supreme Court in CIT v. Micro Nova Pharmaceuticals (P) Ltd. to block-period self-assessment tax.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced from the local Act (base text amended up to the Finance Act, 2025); the publisher's footnote apparatus and amendment-marker brackets have been removed, and three asterisks (***) denote words or a sub-section omitted by amendment and retained only to mark the omission. Finance Act, 2026 changes are flagged in the commentary. Citations are stated as reported. Where a section has not been the subject of a direct reported decision, that is stated candidly and the nearest governing authority or circular is given. This digest is for professional reference and is not legal advice.