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Income Tax Appellate Tribunal, ‘D‘ BENCH
आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 19/12/2022 passed by CIT(A)-47, Mumbai for the quantum of assessment passed u/s.143(3) for the A.Y.2016- 17. 2. In the grounds of appeal, assessee has raised the following grounds:-
2 M/s. M.P. Re-Cycling Co. Pvt.Ltd 1. The Commissioner of Income-tax (Appeals)-47, Mumbai (hereinafter referred to as the CIT(A)) erred in not admitting the following additional ground of appeal- "
The Dy. Comm. of Income-tax (Central Circle)-1(4), Mumbai erred in issuing notice dated 11.08.2018 under section 143(2) of the Act, beyond the prescribed/notified period of 6 months from the end of financial year in which the original return was filed. The appellant contends that on the facts and in the circumstances of the case and in law, the notice issued under section 143(2) is bad in law and consequently, the assessment order needs to be quashed" The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought to have admitted aforesaid ground of appeal and ought to have disposed of the same on merits
2. The Assistant Commissioner of Income-tax, Central Circle 1(4), Mumbai (hereinafter referred to as the Assessing Officer) erred in issuing notice under section 143(2) of the Act dated 11.08.2018. The appellants contend that on the facts and in the circumstances of the case and in law, the Assessing Officer ought not to have issued the impugned notice under section 143(2) inasmuch as the same is issued beyond the time limit prescribed in first proviso to section 143(2) and hence, the notice issued is bad in law and consequently, the assessment order needs to be quashed.
3. The CIT(A) erred in upholding the action of the Assessing Officer in not allowing business loss of Rs 5,65,88,223 to be carried forward on the ground that the appellants have not filed their return of income within the time prescribed in section 139(1) of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to 3 ITA No.488/Mum/2023 M/s. M.P. Re-Cycling Co. Pvt.Ltd have upheld the action of the Assessing Officer in not allowing the business loss to be carried forward inasmuch as the appellants have filed their return of income on 14th October, 2016, which is within the time prescribed under section 139(1) of the Act.
4. The CIT(A) erred in upholding the action of the Assessing Officer in making an addition of Rs 31,85,842 under section 41(1) of the Act. The appellants contend that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer in making the impugned addition inasmuch there is nothing on record to show that there is a cessation of liability and hence, the impugned addition of Rs 31,85,842 needs to be deleted.
One of the main issues raised by the assessee is that the notice u/s. 143(2) which has been issued by the ld. AO on 11/08/2018 is beyond statutory time limit provided under the Act and consequently entire assessment order deserves to be quashed.
The brief facts qua the legal issue are that the assessee has e-filed its return of income for A.Y.2016-17 on 14/10/2006 declaring total income at Nil and has shown loss of Rs. (-)5,65,88,223. However, the said return was treated as defective by CPC and accordingly defect notice u/s 139(9) dated 01/11/2016 was issued band subsequent reminders dated 16/12/2016 and 20/01/2017 requesting the assessee to remove the defects. Thereafter, assessee filed return of income on 07/04/2017 us/139(9) of the Act rectifying the return showing Nil income and losses for the current year at Rs.(-)5,53,97,873/-.
4 M/s. M.P. Re-Cycling Co. Pvt.Ltd The said return was selected for scrutiny and accordingly, notice u/s.143(2) was issued on 11/08/2018. The ld. AO held that since assessee has filed the return of income on 14/10/2016 declaring loss of Rs. 5,65,88,223/- and it was a defective return declared by CPC and has not removed defect within the stipulated time therefore, the loss return is not eligible to be carried forward for the subsequent years to be adjusted.
Apart from that AO has also made addition / disallowance of Rs.31,85,842/- for fixation of liability u/s.41(1) on account of trade payables which according to ld. AO, assessee could not substantiate the aforesaid claim. Accordingly, the ld. AO computed the income at Nil in the following manner:-
Particulars Amount Amount Total Loss as per the (-)5,65,88,223 computation Add Cessation of Liability 31,85,842 31,85,842 u/s.41(1) of the Act (As discussed in para 6) Balance Loss (-)5,34,02,381 Less Loss disallowed as (-)5,34,02,381 discussed in para 5 Accessed total income Nil Accordingly, the loss was determined by him at Rs. (-) 5,34,02,381 was not allowed to be carried forward in the subsequent years.
5 M/s. M.P. Re-Cycling Co. Pvt.Ltd 6. Before the ld. CIT (A), assessee has raised additional ground on the issue of notice u/s. 143(2) being barred by limitation, however refused to admit the additional ground following the judgments of the Hon’ble Supreme Court in the case of Jute Corporation of India Ltd. vs. CIT 187 ITR 688. In so far as issue relating to disallowance of carried forward of losses, he rejected the assessee’s contention holding that the ld. AO has rightly treated the return of income filed by the assessee on 14/10/2016 as invalid. According to him, since assessee has filed the return of income beyond the time limit u/s. 139(1), the ld. AO was correct in not allowing them to carried forward the current year losses to the subsequent years as per the provision of Section 72. He has also confirmed the action of confirming the addition u/s. 41(1) of Rs.31,85,840/-.
7. Before us ld. Counsel for the assessee submitted that the return which was filed by the assessee u/s.139(1) on 14/10/2016 wherein assessee had shown loss of Rs.(-) 5,65,88,223/-. Since there was some defect in the return of income, a notice u/s. 139(9) was issued for removing the defect. Even though assessee had rectified the said return after the date specified by the ld. AO, then also it does not tantamount to filing of the fresh return as it relates back to the date of filing of original return of income u/s.139(1). Ergo, firstly, the time limit for issuance of notice u/s. 143(2) have to be reckoned from the date of return filed on 14/10/2016; and secondly, the loss was also required to be carried forward to subsequent years. In support of his contention that date of filing of original return 6 ITA No.488/Mum/2023 M/s. M.P. Re-Cycling Co. Pvt.Ltd u/s. 139(1) has to be considered for the purpose of computing period of limitation u/s.143(2) and not from the date on which defect was actually removed u/s.139(9), he relied on the judgment of the Hon’ble Gujarat High Court in the case of Kunal Structure India Private Limited vs. DCIT reported in (2020) 269 Taxman 440.
On the other hand, ld. CIT DR submitted that in terms of Section 139(9), if there is any defect in the return of income, then AO intimates the defect to the assessee and gives opportunity to rectify the defect within a period of 15 days and if that is not so, then return has to be treated as invalid return. Once it is invalid return, then there is no requirement for issuance of any notice u/s. 143(2). She further, submitted that though the proviso to section 139(9) provides that if assessee rectifies the defect after the expiry of the said period of 15 days or further period granted by AO but before the assessment is made, the ld. AO may condone the delay and treat the return as valid return. However, in this case there is no such finding by the ld. AO that he has condoned the filing of return after the expiry of time limit provided by him in the notice u/s.139(9). In fact, he has held that return has not been filed in time which means he has not condoned the delay and accordingly, not only the loss can be allowed to be carried forward but also the issue of delay in the service of notice u/s.143(2) does not arise.
7 M/s. M.P. Re-Cycling Co. Pvt.Ltd 8. We have heard rival submissions and perused the relevant finding given in the impugned orders. It is an undisputed fact that the original return u/s. 139(1) was filed on 14/10/2016 declaring loss of Rs. (-)5,65,88,223/-. The said return was treated as defective return by the CPC which vide communication dated 01/11/2016 u/s 139(9) intimating that the return filed is defective /incomplete. However, the assessee did not remove the defect within the stipulated time as mentioned in the communication. Thereafter, further reminders were also given to which assessee also did not remove the defect. Finally, assessee removed the defect on 07/04/2017, the chronology of events as note in the impugned order in this regard reads as under:- Date Activity Status Downloads/Status Description 14-10-2016 - ITR Filed ITR-VI Acknowledgement XML ITR Form 01-11- 2016- ITR filed is Date of sending the defective Defective / incomplete communication:01-11-2016 16-12-2016 Reminder 1: Date of sending the defective ITR submitted is communication:16-12-2016 Defective /incomplete 20-01- 2017 Reminder 2: Date of sending the defective ITR submitted is communication: 20-01-2017 Defective /incomplete 20-01- 2017 Reminder 2: Date of sending the defective ITR submitted is communication 20-01-2017 Defective /incomplete 07-04-2017: Response to Defective notice u/s 139(9) Return filed u/s 139(9) For the above filing:
The ld. AO held that since assessee has not filed the return of income in time, therefore, losses claimed by the assessee is not eligible to be carried forward and has issued notice u/s. 143(2) based on return filed removing defect on 07/04/2017.
Section 139(1) provides that return has to be filed on or before the due date which has been provided under Explanation (2) to Subsection (1) of 139 of the Act. Section 139(3) provides that, if any person who has sustained a loss in any previous year under the head "Profits and gains of business or profession" or under the head "Capital gains" and claims that the loss or any part thereof should be corrected thereof, may furnish the return of income within the time provided u/s. 139(1) in the prescribed form. Section 139(4) provides that if any person has not furnished a return within the time allowed to him u/s.139(1), he may furnish the return for any previous year at any time before three months prior to the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Subsection (5) of 139 provides that, if any person has furnished a return u/s.139(1) & 139(4) discovers any omission or any wrong statement therein, he may furnish a revised return at any time before three months prior to the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Thus, the return of income for claiming loss 9 M/s. M.P. Re-Cycling Co. Pvt.Ltd has to be filed within the due date as prescribed u/s. 139(1). 139(4) provides for filing of revised return within the period prescribed therein and subsection (5) of 139 provides that any person may file revise return if he discovers any omission or any wrong statement.
11. However, Subsection (9) of Section 139 provides that if AO finds the return of income furnished by the assessee defective, then he can issue a notice to remove the defects within the time period of 15 days or further period so allowed by him. The said provision reads as under:- (9) Where the [Assessing] Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the [Assessing] Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return : Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.
12. Thus, this section gives power to the AO to issue notice to the assessee to remove the defect in the return of income 10 M/s. M.P. Re-Cycling Co. Pvt.Ltd furnished by the assessee within the time provided therein, and if the defect has not been removed within the prescribed time, the return is to be treated as invalid. However, the proviso to Subsection (9) to Section 139 provides that if assessee rectifies the defect after the expiry of the period prescribed under the notice or further period allowed but before the assessment is made, AO may condone the delay and treat the return as valid return. Thus, if the AO is permitted to remove the defect after the time period, then he also has the power to treat it as valid return. The word “may condone” has to be seen from action of the AO and it is not necessary that he has to specifically pass a separate order or mention that delay in rectifying the return has been condoned. If AO has accepted the return of income and proceeded to compute the income in accordance with the return of income and has permitted the assessee to remove defect, then it has to be treated as a valid return.
13. Now the issue is, whether the date of filing of return should be reckoned from the date the return was filed u/s.139(1); or the date when the assessee has removed the defect after the notice issued by the AO u/s.139(9). Section 139(9) is not for filing of return of income as the same has been provided in Section 139(1), 139(4) and 139(5). It merely gives power to the AO to issue notice to the assessee if he finds that the return filed by the assessee is defective and defective return has already been provided in Explanation to Section 139(9). If the assessee does not remove the defect, then AO has the power to treat the return filed u/s. 139(1) as invalid. But if he has not treated the return 11 M/s. M.P. Re-Cycling Co. Pvt.Ltd as invalid, then it to be accepted that the defect has been removed by the assessee, and then it cannot be held that the date of removal of the defect is the date of filing of return of income u/s. 139(1). The case of ld. AO is that, since assessee has not filed the return of income in time, therefore, loss is not eligible to be carried forward for the subsequent years to be adjusted against profits. He is treating the return, as if it has been filed u/s. 139(9) and since this return is a belated return, therefore, in terms of Section 139(3), loss cannot be carried forward. Thus, AO has not treated the return as invalid, albeit, he has accepted the removal of the defect by the assessee and once that is so, then the date of filing of return of income has to be reckoned to have been filed within the due date provided u/s. 139(1), which herein in this case was filed within the due date, i.e., 14/10/2016. Accordingly, the date of return of income has to be taken from date provided u/s. 139(1) and not the date when the defect was removed u/s. 139(9).
This precise issue had come up for consideration before the Hon’ble Gujarat High Court in the case of Kunal Structure India Private Limited (supra) wherein in the writ petition was filed by the petitioner stating that notice u/s.143(2) issued by the AO was beyond the statutory time limit. In that case original return u/s. 139(1) was filed on 10/09/2016 and thereafter, the petitioner was called upon to remove the defects u/s.139(9) which ultimately was removed on 07/07/2017. It was contended on behalf of the petitioner when the date of filing of original return of income which was 10/09/2016 then, taking into 12 ITA No.488/Mum/2023 M/s. M.P. Re-Cycling Co. Pvt.Ltd consideration this date the notice u/s.143(2) should have been issued on or before 30/09/2017, however, notice u/s.143(2) was issued on 11/08/2018 which was beyond the period of limitation. After detail analyzing the arguments from both the sides and also considering the provisions of Section 139 & 143(2), the Hon’ble High Court observed and held as under:-
Sub-section (9) of section 139 of the Act is attracted when the Assessing Officer considers the return on income filed by the assessee to be defective. If the Assessing Officer considers the return of income to be defective, he is required to intimate such defect to the assessee and give him an opportunity to rectify such defect within a period of fifteen days from the date of such intimation or within such further time, which the Assessing Officer in his discretion allows on an application made by the assessee in this behalf. If the defects are not removed within fifteen days or within such further period granted by the Assessing Officer, then notwithstanding anything contained in any other provision of the Act, the return shall be treated as an invalid return and the provisions of the Act would apply as if the assessee has failed to furnish his return. Thus, if the defects are removed within fifteen days or within the further time granted by the Assessing Officer, the very same return would be considered to be valid.
If one looks at the language employed in sub-sections (1), (3) and (5) of section 139 of the Act, a common thread in all the sub- sections is that the assessee is required to file a return of income under those sub-sections. However, from the language employed in sub-section (9) of section 139 of the Act, the same does not require any return to be filed by the assessee. All that the section says is that the assessee is required to be given an opportunity to rectify the defect in the return filed by him within the time provided; failing which such return would be treated as an invalid return. Unlike sub-section (5) of section 139 of the Act which requires an assessee to file a revised return of income in case of any omission or wrong statement in the return of income filed under sub-section (1) thereof, sub-section (9) of section 139 13 M/s. M.P. Re-Cycling Co. Pvt.Ltd of the Act, does not require an assessee to file a fresh return of income, but requires the assessee to remove the defects in the original return of income filed by him within the time provided therein. Once the defects in the original return of income are removed, such return would be processed further under the Act. In case such defects are not removed within the time allowed, such return of income would be treated as an invalid return.
In view of what is discussed hereinabove, the contention that the return under sub-section (9) of section 139 of the Act was filed by the petitioner on 07.07.2017, and that it was this return which was selected for scrutiny under the CASS system in August 2018 and not the defective return filed on 10.09.2016, does not merit acceptance. While the impugned notice under sub-section (2) of section 143 of the Act does say that the return filed by the petitioner on 07.07.2017 has been selected for scrutiny, in the opinion of this court, the reference to the return as the return filed on 07.07.2017 is incorrect, inasmuch as sub- section (9) of section 139 of the Act, does not contemplate filing of a return of income. As noticed hereinabove, it is the original return filed by the assessee which gets rectified upon the removal of the defects contained therein. 14. …………………..
15. Thus, the petitioner has been called upon to ensure that no information in the original return is changed apart from the errors pointed out. The petitioner is also told that if while correcting the defects, any changes are made, leading to change of income and/or taxation under other heads of income, he should file a revised return and not a corrected return as per the provisions of the Act. In other words, if the petitioner wants to make any changes in the return of income, he is required to file a revised return under section 139(5) of the Act. In the present case, the petitioner has not filed revised return under sub- section (5) of section 139of the Act, but has merely removed the defects in the original return, which is termed as a corrected return in the notice under sub-section (9) of section 139 of the Act.
It may be noted that there is no concept of corrected return of income under the Act. Therefore, in effect and substance, 14 M/s. M.P. Re-Cycling Co. Pvt.Ltd what the notice under sub-section (9) of section 139 of the Act does is to call upon the petitioner to remove the defects pointed out therein. Therefore, mere reference to the expression "corrected income"in the notice under sub-section (9) of section 139 of the Act does not mean that a fresh return of income has been filed under that sub-section. Thus, under sub-section (9) of section 139 of the Act, it is only the original return which gets corrected and no new return is filed. In other words, the original return which was defective when it was filed is rectified upon removal of the defects under sub-section (9) of section 139 of the Act and becomes a valid return. Thus, as held by the Bombay High Court in the decisions cited by the learned counsel for the petitioner as referred to hereinabove, the action of removal of the defects would relate back to the filing of the original return of income and accordingly, it is the date of filing of the original return which has been considered for the purpose of computing the period of limitation under sub-section (2) of section 143 of the Act and not the date on which the defects actually came to be removed.
17. Reference may also be made to the decision of this court in case of Babubhai Ramanbhai Patel (supra), on which reliance has been placed by the learned senior standing counsel for the respondents, wherein this court has placed reliance upon a decision of the Allahabad High Court in case of Dhampur Sugar Mills v. CIT [1973] 90 ITR 236, wherein it has been held that there is a clear distinction between revised return and a correction of return. Once a revised return is filed, the original return must be taken to have been withdrawn and substituted by a fresh return for the purpose of assessment. Thus, when a revised return is filed under section 139(5) of the Act, the original return gets substituted and it is the revised return which is to be considered as a return for the purpose of assessment. However, the court has clearly drawn a distinction between a revised return and a correction of return. Adverting to the facts of the present case, this case relates to correction of the return of income originally filed and not a revised return. Had it been a case of filing of a revised return of income, the original return of income would have stood substituted by the revised return, but when it comes to correction of a return of income, it is only the original return of income which gets corrected.
15 M/s. M.P. Re-Cycling Co. Pvt.Ltd 18. ……………………………….
On a plain reading of sub-section (2) of section 143 of the Act, it is apparent that the Assessing Officer or the prescribed income-tax authority must issue a notice under that sub-section only in those cases where a return has been made under section 139 or in response to a notice issued under section 142(1), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, but such notice must be served within a period of six months from the end of the financial year in which such return is furnished. Thus, if, after furnishing a return of income, the assessee does not receive a notice under sub-section (2) of section 143 of the Act within the period referred to in the sub-section, the assessee is entitled to presume that the return has become final and no scrutiny proceedings are to be started in respect of that return. It is only after the issuance of notice under sub-section (2) of section 143 of the Act that the Assessing Officer can proceed further under sub-section (3) thereof to make an assessment order. Therefore, the notice under section 143(2) of the Act is a statutory notice, upon issuance of which, the Assessing Officer assumes jurisdiction to frame the scrutiny assessment under sub-section (3) of section 143 of the Act. Consequently, if such notice is not issued within the period specified in sub-section (2) of section 143 of the Act viz. before the expiry of six months from the end of the financial year in which the return is furnished, it is not permissible for the Assessing Officer to proceed further with the assessment.
In the facts of the present case, as discussed earlier, the petitioner filed its return of income under sub-section (1) of section 139 of the Act on 10.09.2016. Since the return was defective, the petitioner was called upon to remove such defects, which came to be removed on 07.07.2017, that is, within the time allowed by the Assessing Officer. Therefore, upon such defects being removed, the return would relate back to the date of filing of the original return, that is, 10.09.2016 and consequently, the limitation for issuance of notice under sub- section (2) of section 143 of the Act would be 30.09.2017, viz. six months from the end of the financial year in which the return under sub-section (1) of section 139 came to be filed. In the 16 ITA No.488/Mum/2023 M/s. M.P. Re-Cycling Co. Pvt.Ltd present case, it is an admitted position that the impugned notice under sub-section (2) of section 143 of the Act has been issued on 09.08.2017, which is much beyond the period of limitation for issuance of such notice as envisaged under that sub-section. The impugned notice, therefore, is clearly barred by limitation and cannot be sustained.
It has also pointed out that the Hon’ble Supreme Court has dismissed the SLP filed by the Revenue in this case which is reported in (2021) 270 Taxman 401. Sequitur of the aforesaid judgment is that there is no concept of corrected return of income and removal of defect u/s.139(9) does not mean, as if fresh return of income has been filed u/s.139(9). It is only the original return gets corrected and no new return is filed. It is only original return which was defective and when it has been filed as rectified return upon the removal of defects under Sub- section (9) of Section 139, it becomes a valid return. The Hon’ble Court has also cited judgment of Hon’ble Bombay High Court in the case of Atul Projects India Pvt. Ltd vs. Union of India (Writ petition No.3501 of 2018 dated 24/01/2019, wherein the Hon’ble Bombay High Court held that action of removal of defect would relate back to the filing of original return of income and accordingly it is to be treated as date of filing of the original return which has been considered for the purpose of computing the period of limitation under Subsection (2) of Section 143 and not the date on which defect actually came to be removed.
17 M/s. M.P. Re-Cycling Co. Pvt.Ltd 16. Thus, we hold that here in this case, the notice u/s.143(2) was required to issued from the period of six months from the end of the financial year in which the return was filed, i.e., on or before 30/09/2017. Accordingly, notice issued u/s. 143(2) dated 11/08/2018 is clearly beyond the time limit prescribed and consequently, the whole assessment u/s. 143(3) is void ab initio and hereby quashed. Secondly, we hold that once the defect has been removed u/s. 139(9) and the same has been treated as a valid return by the AO, then the loss claimed by the assessee in the return of income is to be allowed to be carried forward to the subsequent years under the head "Profits and gains of business or profession" in accordance with law.
In the result, appeal of the assessee is allowed.