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Facts
The assessee, a transporter, filed an original return under Section 143(1). A survey and subsequent notice under Section 148 led to the assessee filing a revised return with higher income. The AO completed the assessment based on this revised return without issuing a Section 143(2) notice or a Section 139(9) notice to rectify the defective return. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal held that the return filed in response to the Section 148 notice was defective as it did not comply with Section 140A. Since the AO failed to issue a notice under Section 139(9) to cure the defect, the defective return was deemed non-est, rendering the assessment based on it invalid. No assessment or reassessment can be made on an invalid return without following due process.
Key Issues
Whether an assessment made on a defective return filed in response to a Section 148 notice is valid when the Assessing Officer fails to issue a notice to cure the defect under Section 139(9).
Sections Cited
143(1), 143(2), 148, 139(9), 140A, 139(1), 144, 292B, 119
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
This is an appeal filed by the assessee against the Order passed by the CIT(A) vide DIN &Order No: ITBA/APL/M/250/2023-24/1072548858(1) dated 24.01.2025.
Briefly stated the facts of the case are that the assessee is engaged in the business of transportation and uses own vehicles as well as hired vehicles for his business, filed original return of income on 16.09.2012 declaring income of Rs.56,94,350/-. The return was processed under section 143(1) of the Act. A survey was conducted in the premises of the assessee on 06.02.2013 and the case was selected for scrutiny and notice under section 143(2) of the Act was issued to the assessee. Subsequently, other statutory notices were issued to the assessee to examine the original return filed by the assessee on 16.09.2012. Later on a notice under section 148 of the Act dated 04.03.2014 was issued ot the assessee. In response to the notice, assessee filed return manually, declared income of Rs.1,08,25,483/-. The scanned of return copy is as under:
During the course of reassessment proceedings, the documents were called for which were submitted. The AO, after verification of the books of accounts, the income declared in the revised return of Rs. 1,08,25,483/- was accepted and assessed at Rs.1,08,25,483/- and completed assessment on 14.03.2014.
Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A) dismissed the appeal of the assessee.
Aggrieved from the above Order, assessee filed appeal before the Tribunal.
The learned Counsel submitted that the AO did not issue notice under section 143(2) of the Act for taking decision after filing return of income in pursuance of notice u/s 148 of the Act. Therefore, the assessment made by the AO is beyond the jurisdiction of the AO and void abnitio in the eyes of law and he further submitted that the return filed by the assessee under section 148 of the Act dated 10.03.2014 itself was a defective return which cannot be considered as a valid return for making the assessment and the income declared in the defective return should not be considered for determining the assessed income of the assessee. The return filed by the assessee is defective. The AO ought to have issued defective notice as per the provision of section 139(9) of the Act read with explanation aa omitted by the Finance Act 2016 w.e.f. 01.04.2017 which is as under:
“the tax together with interest, if any payable in accordance with the provisions of section 140A, has been paid on or before the due date of furnishing of the return”
6.1 As per the above provision, the return is defective and it cannot be processed or it cannot be considered as a valid return. Therefore, the income shown in the return filed dated 10.07.2014 cannot be considered as part of the income. In support of his argument, he relied on the judgment of Hon’ble High Court of ANDHRA PRADESH in the case of CIT Vs. Bake Foods Products Pvt. Ltd., reported in (2012) 28 taxmann.com 186 (AP) Order dated 21.08.2012. He further submitted that after filing of defective return, there was no notice issued by the jurisdictional AO to cure the defect.
7. On the other hand, the learned DR relied on the Order of the lower authorities and submitted that provision is very much clear that it is discretionary power of the AO to issue notice to cure the defect. If he considers to issue notice to cure the defect there is no mandatory provision as per section 139(9) of the Act and he also clarified that the AO has not issued any defective notice. In the section the word has been used “MAY” so it depends upon the AO, if he considers necessary to issue defect notice or not to be issued. The assessment framed by the Ao is correct. He further referred to section 292B of the Act.
8. In the rejoinder, the learned Counsel for the assessee submitted that once the return filed by the assessee is defective, it is mandatory to issue defective notice to cure the defect as per provisions of section 139(9) of the Act so that the defective return cannot be considered for completing the assessment / reassessment by the AO. Therefore, the income declared in the original return filed u/s 139(1) will be treated as the income and income declared in the return filed in response to notice u/s 148 cannot be considered for assessment of the income of the assessee.
9. Considering the rival submissions, we noted that the assessee filed return of income originally u/s 139(1) declaring income of Rs.58,29,483/- on 16.09.2012 showing tax payable of Rs. 10,28,370/- placed at paper Book Page No.
Thereafter a notice u/s 143(2) dated 19.08.2013 was issued to examine the return fied on 16.09.2012 for the AY 2012-13 Further, a notice was issued under section 148 of the Act dated 04.03.2014 placed at paper Book page No. 42 for the AY 2012-13. Pursuant to the notice issued under section 148 of the Act, assessee fled return on 10.03.2014 as scanned supra, where the assessee has shown tax payable of Rs.8,57,000/- and gross total income shown by the assessee is Rs.1,08,25,483/-. On going by the provision of section 139(9) of the Act, the return is defective return. However, the AO did not issue any defective notice to the assessee to cure the defect within the specified time. During the course of hearing, the learned DR conceded that no notice has been issued to the assessee to cure the defect by the AO. If the assessee files any return which is defective, the AO ought to have been issued notice under section 139(9) of the Act to cure the defect. Therefore, the judgment relied on by the learned Counsel supports the case of the assessee. The relevant part of the Order is as under:
“6. We have considered the submissions of the counsel for the appellant and the respondent.
The assessment which is subject matter of this appeal is for the assessment year 1986-87. Section 139 (1) of the Act provides for filing of a return by an assessee if his total income during the previous year exceeds the maximum amount which is not chargeable to income tax. At that relevant time (i.e. in 1986-87), there was sub-section (2) in Section 139 which provided as follows: "Section 139(2) : In the case of any person who, in the Income Tax Officer's opinion is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income Tax Officer may, before the end of the relevant assessment year, serve a notice upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed .."
This sub-section (2) in section 139 was omitted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01-04-1989. But since the subject matter of the present case is the assessment made on 20.3.1989 for assessment year 1986-87, we have to consider the effect of sub- section (2) of section 139 and it cannot be ignored.
Section 144 of the Act provides for best judgment assessment of tax by an assessing officer. For the subject assessment year 1986-87, Section 144(1)(a) provided for a best judgment assessment being made by the assessing officer if an assessee failed to make the return required "by any notice given under sub-section (2) of Section 139" and has not made a return or revised return under sub-section (4) of sub-section (5) of Section 139. By the Direct Tax Laws (Amendment) Act, 1987, w.e.f.1.4.1989, the words "by any notice given under sub-section (2) of Section 139" in section 144(1)(a) were substituted by the words "under sub-section (1) of s. 139". But since this amendment came into force only with effect from 01-04-1989, the pre-amended provision applied to the present case (as the subject assessment year is 1986-87). Therefore best judgment assessment can only be made under Section 144(1)(a) if an assessee fails to make the return required by any notice given under sub- section (2) of Section 139 and has not made a return or revised return under sub-section (4) or sub-section (5) of that Section.
Section 144 also provides for a best judgment assessment to be made under clause 1(b) (which is not relevant for the present case) and under clause 1(c) thereof. Section 144 (1)(c) provided that a best judgment assessment can be made by the assessing officer if the assessee having made a return, failed to comply with all the terms of a notice issued under Section 143(2) of the Act.
Shri S.R. Ashok, submits that in the present case, since a notice under Section 143(2) of the Act has been issued by the assessment officer, the circular of the C.B.D.T. had no application and the best judgment assessment can be made invoking section 144(1)(c) of the Act. We do not agree with this submission.
No doubt Section 144(1)(c) provides for a situation where a best judgment assessment can be made when the assessee having made a return fails to comply with all the terms of a notice issued under Section 143 (2). But the interplay between section 144(1)(a) and section 144(1)(c) and the proper course of action to be followed by an assessing officer before making a best judgment assessment where a return filed is defective is set out by the above circular. Accepting the contention of the Revenue would mean that one has to ignore section 139(9) (which states that where a return is filed and defects therein are intimated to the assessee and he does not rectify them, it is to be treated as an "invalid return" and provisions of the Act would apply "as if the assessee had filed to furnish the return"), section 139(2) (as it stood then) (which entitled the assessing officer to issue notice to the assessee to file a return when he is of the opinion that the assessee has taxable income) and section 144(1)(a) (as it then stood) of the Act. One has to interpret a statute by giving effect to every provision thereof and in a manner which does not render any provision otiose. Therefore, in our opinion, the said circular is not contrary to the provisions of the Act and it correctly guides the assessing officer as to what is to be done before proceeding to make best judgment assessment when a return filed suo motu by the assessee is found defective. Moreover, the circular is beneficial to the assessee as it provides him a further opportunity to give his correct income details after his earlier return is found to be defective (as he can give them atleast after receiving the notice U/S.139(2)).
12. It is settled law that said circulars which are issued under Section 119 by the Central Board of Direct Taxes have to be followed and observed by the authorities and other persons employed in the execution of the Act. The Supreme Court in Commissioner of Customs v. Indian Oil Corpn. Ltd. [2004] 136 Taxman 491 held as follows: ".......The circulars issued by the CBDT under the Income-tax Act, 1961 and CBEC under Section 37-B of the Central Excise Act, 1944 have been held to be binding primarily on the basis of the language of the statutory provisions buttressed by the need of the adjudicating officers to maintain uniformity in the levy of tax/duty throughout the country."
13. Having considered the same, we are of the view that the C.B.D.T. circular is in the nature of a clarification to the assessing authorities that when there is a default in rectifying a defect in the return as intimated by the I.T.O. by the assessee, the return of income has to be treated as an invalid return and further proceedings will have to be taken on the footing that the assessee had failed to file the return. The C.B.D.T. has rightly directed that in case where the return is furnished voluntarily under Section 139 (1), the I.T.O. cannot proceed to make ex parte assessment under Section 144 without serving notice under Section 139(2) or as the case may be under Section 148. This circular is binding on the assessing officer.
On the facts of the present case, when the assessee filed a defective return, and did not rectify the defects which were pointed out by the I.T.O., the assessing officer was bound to treat the return of income as invalid and take further proceedings on the footing that the assessee had failed to furnish the return. The assessing authority could not have proceeded to make ex parte assessment under Section 144 without serving notice under Section 139(2) or as the case may be under Section 148.
In this view of the matter and in view of the law declared by the Supreme Court in the above decision, we are of the view that the decision of the I.T.A.T. confirming the decision of the Commissioner (Appeals) does not warrant any interference by this Court. Therefore, we hold that the substantial questions of law raised in this appeal have to be decided against the Revenue.
Considering the submissions of the ld. AR and the section referred by the ld. AR we found substance in arguments of the ld. AR the assessee had filed defective return beyond the time provided of 30 days in the notice issued u/s 148 of the Act and not following the provision of section 140A of the Acct. The explanation aa of section 139(9) reproduced as above are very much applicable to the assessee and return is defective which is treated as invalid return. therefore, the assessment made on the basis of the return filed by the assessee is incorrect assessment. In view of the above view and respectfully following the judgment, we held that the defective return filed by the assessee is non-est and no assessment / reassessment can be made in the invalid/defective return. Therefore, the income assessed by the AO is not correct.
In the result, appeal filed by the assessee is allowed.