M/S. N.M. FINANCE & INVESTMENT CONSULTANCY LIMITED,KOLKATA vs. D.C.I.T., CC - 3(1), KOLKATA

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ITA 656/KOL/2026Status: DisposedITAT Kolkata30 October 2026AY 2022-20239 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the sole reason for the CPC treating the return as defective was an erroneous click of a radio button in the e-filing utility, indicating 'NO' to the 5% threshold queries, despite the assessee's actual cash receipts and payments being within the 5% statutory cap. The Tribunal emphasized that section 139(9) provides a mechanism for rectifying defects to prevent the summary rejection of bona fide returns. When a taxpayer provides a specific explanation demonstrating that section 44AB is not attracted on facts, revenue authorities should not adopt a hyper-technical approach and disregard substantive compliance due to automated validation hurdles. The Tribunal cited the principle that procedure is the handmaid of justice, not its mistress, and an assessee should not be penalized for an inadvertent clerical error. If cash transactions are within the 5% limit, an audit report under section 44AB is not statutorily mandated. Treating a validly filed return as invalid in such a scenario is harsh and contrary to the spirit of CBDT Circular No. 14(XL-35) of 1955. Consequently, the Tribunal set aside the impugned order of the CIT(A) and the action of the CPC declaring the return invalid. The matter was restored to the jurisdictional Assessing Officer (JAO) with a direction to verify the assessee's books of accounts to ascertain if cash receipts and payments did not exceed 5% of the total turnover/payments. If verified, the return would be treated as valid and processed accordingly. The assessee was directed to cooperate fully.

What were the facts?

The assessee, M/s N M Finance & Investment Consultancy Limited, filed its return of income for AY 2022-23 on November 7, 2022, declaring a total income of Rs. 2,56,44,591/- and gross turnover of Rs. 3,81,62,486/-. The CPC, Bengaluru, issued a notice under section 139(9) of the Income Tax Act, 1961, stating the return was defective because gross receipts exceeded Rs. 1 crore, but books of account were not audited under section 44AB. The assessee responded that it was not eligible for audit under section 44AB as cash receipts and payments did not exceed 5% of the total amount, and turnover was less than Rs. 10 crore. The CPC did not accept the explanation and declared the return invalid. The CIT(A) dismissed the assessee's appeal. The assessee then appealed to the ITAT.

What were the issues?

1. Whether the learned CIT(A) erred in confirming the action of the learned CPC in treating the return filed under section 139(1) as invalid and defective under section 139(9) due to the incorrect reasoning that income under the head 'Profits & gains of Business or Profession' was more than Rs. 1 crore and books of accounts were not audited under section 44AB, without considering the explanation that as per section 44AB(a), cash transactions did not exceed 5% of the total amount, thus making the assessee not liable for audit. 2. Whether the learned CIT(A) erred in confirming the action of the learned CPC in treating the return filed under section 139(1) as defective, given that section 44AB was not applicable to the appellant, thereby making the invocation of section 139(9) on this ground invalid, and that there was no option to correct the data in the return filed. Assessee's Contentions: The assessee argued that its turnover was below the Rs. 10 crore threshold for audit under the first proviso to section 44AB(a). All transactions were through banking channels, with cash receipts/payments not exceeding 5%. A cogent explanation was provided to the CPC. The assessee also contended that the time limit for filing a revised return had expired, and the portal lacked an option to modify the schedule without uploading a tax audit report, thus incapacitating online structural changes. An inadvertent clerical error should not lead to the invalidation of the return. Revenue's Contentions: The learned Departmental Representative supported the orders of the CPC and CIT(A), stating that the CPC processed the return based on the data fed by the assessee. The assessee failed to remove the defect as required under section 139(9), justifying the CIT(A)'s upholding of the invalidation.

Which sections of the Income-tax Act were involved?

Section 139(9),Section 139(1),Section 44AB,Section 139(5)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “C” BENCH, KOLKATA

Before: Shri Rajesh Kumar & Shri Pradip Kumar Choubey

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA

Before Shri Rajesh Kumar, Accountant Member and Shri Pradip Kumar Choubey, Judicial Member ITA No 656 /KOL/2026 Assessment Year- 2022-23 M/s N M Finance & Investment Consultancy Limited..........................................Appellant 10/3, Acropolis, Kasba, 1858/1, Rajdanga Main Road, Kolkata West Bengal- 700107 [PAN No. AAACN9020C]

Vs. DCIT, Central Circle 3(1),............................................,..……………....……….Respondent Kolkata, West Bengal- 700107 Appearances by: Sunil Surana, CA., appeared on behalf of the Appellant. Sumit Ahuja, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing: October 07, 2026 Date of pronouncing the order: October 30 ,2026 ORDER Per Pradip Kumar Choubey, Judicial Member:

1.

This appeal by the assessee is directed against the appellate order passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) / CIT(A), Kolkata-21 [DIN & Order No. ITBA/APL/S/250/2025-26/1084877958(1) dated 16.01.2026] arising out of the order/intimation issued by the Centralized Processing Centre (CPC), Bengaluru under section 139(9) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") dated 15.12.2023 for the Assessment Year (AY) 2022-23.

ITA No.656/Kol/2026 2. The brief facts of the case of the assessee is that the assessee is a resident corporate entity. For the Assessment Year under consideration (A.Y. 2022-23), the assessee e-filed its Return of Income under section 139(1) of the Act on 07.11.2022, declaring a total income of Rs. 2,56,44,591/-. The gross turnover/sales/gross receipts from business reported by the assessee for the year was Rs. 3,81,62,486/-. Subsequently, the Centralized Processing Centre (CPC), Bengaluru issued a Defective Return Notice under section 139(9) of the Act dated 23.10.2023 (Error Code: GROSSRCPTGT01CR_2022_006), stating:“Tax Payer has claimed gross receipt or income under the head 'Profits and gains of Business or Profession' more than 1 crore. However, books of account are not audited u/s 44AB of the Income Tax Act.” In response to the said defective notice, the assessee submitted its reply on the e-filing portal on 03.11.2023 within the prescribed statutory time, selecting the option “Disagree” with the following detailed justification: “Return filed u/s 139(1) is not defective even if the gross receipt or income under the head 'Profits and gains of Business or Profession' is more than 1 crore and books of account are not audited u/s 44AB of the Income Tax Act. As per sub clause a and b of the section 44AB(a) the aggregate of all amounts received and payments made in cash does not exceed 5% of the said amount in our case and also the turnover was less than 10 crore, therefore we were not eligible for audit u/s 44AB.” However, the CPC did not

ITA No.656/Kol/2026 accept the response or examine the explanation provided by the assessee and passed an order/communication dated 15.12.2023 declaring the return of income as “Invalid”.

Aggrieved by the said order assessee preferred an appeal before the learned CIT(A) where in appeal of the assessee has been dismissed.

3.

Aggrieved by the said order assessee preferred appeal by taking following grounds: -

1.

For that the Ld. CIT(A) erred in confirming the action of Ld. CPC in treating the return filed u/s 139(1) as invalid and defective u/s 139(9) due to incorrect reasoning that the income under the head Profits & gains of Business or Profession is more than 1 crore & books of accounts are not audited u/s 44AB without considering the explanation that as per section 44AB(a) the aggregate of all amounts received and payments made in cash does not exceed 5% of the total amount, therefore the assessee was not liable for audit. 2. For that the Ld. CIT(A) erred in confirming the action of Ld. CPC in treating the return filed u/s 139(1) as defective since there was no applicability of section 44AB in the case of appellant thereby the invocation of section 139(9) on the ground of applicability of section 44AB is invalid as per the law. Even there was no option to correct the data in the return filed.” 3.1. The learned Authorized Representative (AR) for the assessee submitted that the actual turnover of the assessee is Rs. 3,81,62,486/-, which is well below the statutory threshold of Rs. 10 Crores prescribed under the first proviso to section 44AB(a) of the Act.All business transactions (receipts and payments) were carried out through banking channels, and cash receipts/payments did not exceed the 5% threshold.In response to the defect notice under section 139(9), the assessee gave a cogent explanation on 03.11. 2023.Because the time limit to file a revised return under section 139(5) had 3

ITA No.656/Kol/2026 expired and no utility option was provided on the portal to modify solely that schedule without uploading a tax audit report, the assessee was incapacitated from making online structural changes.It was argued that an inadvertent clerical tick-mark error cannot forfeit the assessee’s right to have its return processed, causing severe prejudice and leading to invalidation of a return declaring income exceeding Rs. 2.56 Crores.

4.

On the other hand, the learned Departmental Representative (DR) supported the orders of the CPC and the learned CIT(A), submitting that the CPC processed the return strictly according to the data fed by the assessee itself. The assessee failed to remove the defect in the manner required under section 139(9), and therefore, the CIT(A) was justified in upholding the invalidation of the return.

5.

We have heard both sides, perused the material on record, and considered the relevant statutory provisions. The undisputed facts are that the assessee company e-filed its return of income for A.Y. 2022-23 on 07.11.2022 declaring total income of Rs. 2,56,44,591/-. The first proviso to Section 44AB(a) reads as follows:“Provided that in the case of a person whose— (a) aggregate of all amounts received including amount received for sales, turnover or gross receipts during the previous year, in cash, does not exceed five per cent of the said amount; and (b) aggregate of all payments made including amount 4

ITA No.656/Kol/2026 incurred for expenditure, in cash, during the previous year does not exceed five per cent of the said payment, this clause shall have effect as if for the words "one crore rupees", the words "ten crore rupees" had been substituted.” It is evident from the statutory provision that where aggregate cash receipts and payments do not exceed 5% of the total, the monetary limit for compulsory audit under Section 44AB stands enhanced from Rs. 1 Crore to Rs. 10 Crores. In the instant case, the assessee has categorically asserted before the CPC in response to the Section 139(9) notice, as well as before the CIT(A) and before us, that its cash receipts and payments were well within the 5% statutory cap. The sole reason the CPC treated the return as defective was that in Schedule Part-A General, the assessee erroneously clicked the radio button as “NO” to the 5% threshold queries.

5.1. Section 139(9) provides a mechanism to rectify defects so that bona fide returns are not summarily rejected. When a taxpayer submits a specific reply under Section 139(9) explaining that the error was purely inadvertent/clerical and demonstrating that on facts Section 44AB is not attracted, the Revenue authorities cannot take a hyper-technical approach and disregard substantive compliance merely because of automated validation hurdles.

5.2. It is trite law that procedure is the handmaid of justice, not its mistress. An assessee cannot be penalized or deprived of having its return processed merely 5

ITA No.656/Kol/2026 on account of an inadvertent clerical error committed while toggling a radio button on the e-filing utility. If the actual cash component of receipts and payments is less than 5%, the assessee was never statutorily mandated to obtain an audit report under Section 44AB. In such a scenario, treating the validly filed return as "invalid" and non-est operates harshly and runs contrary to the spirit of CBDT Circular No. 14(XL-35) of 1955, which mandates that the Department must not take undue advantage of an assessee’s ignorance or inadvertent mistake.

6.

In view of the above discussion and in the interest of substantial justice, we set aside the impugned order of the learned CIT(A) as well as the action of the CPC declaring the return invalid. We restore the matter to the file of the jurisdictional Assessing Officer (JAO) with the direction to verify the assessee’s books of accounts/financial statements to ascertain whether the aggregate cash receipts and payments during the relevant financial year did not exceed 5% of the total turnover/payments. If upon verification, the cash transactions are found within the 5% limit, the return filed by the assessee under section 139(1) shall be treated as valid and regular. The Assessing Officer/CPC shall accordingly process the return of income in accordance with the law. The assessee is also directed to extend full cooperation and furnish all relevant

ITA No.656/Kol/2026 books of accounts, bank statements, and necessary reconciliation before the Assessing Officer.

. In the result, the appeal filed by the assessee is allowed for statistical purposes.

Kolkata, the 30th October, 2026.

Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member

MANISH Digitally signed by MANISH DC KUMAR KUMAR BHOI Dated: 30. 10.2026. Date: BHOI 2026.11.02 11:19:26 +05'30'

Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- 5. CIT(DR)

ITA No.656/Kol/2026 //True copy// By order

ITA No.656/Kol/2026

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