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Income Tax Appellate Tribunal, MUMBAI BENCH “D” MUMBAI
Before: SHRI C.N. PRASAD & SHRI S. RIFAUR RAHMAN
ORDER PER S. RIFAUR RAHMAN, A.M. The present appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-21, Mumbai [in short ‘CIT(A)’] for the assessment year 2016-17 dated 18.07.2019 and arises out of assessment completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act).
Brief facts of the case are the assessee filed its return of income for the assessment year 2016-17 declaring total income of Rs.1,55,73,780/- on Rite Developers 2 17.10.2016. The case was selected for complete scrutiny under CASS and notice u/s 143(2) and 142(1) were issued and served on the assessee.
The assessee is engaged in the business of builders and developers of various properties. During the assessment proceedings, the Assessing Officer observed that the assessee received share of profit from partnership firm of Rs.26,162/- which it claimed exempt from tax. Accordingly, he invoked provisions of section 14A r.w.r. 8D made disallowance of Rs.6,68,250/- and he also made 14A disallowance, the adjustment on the book profit u/s 115JB of the Act.
Aggrieved with the above order, the assessee preferred an appeal before the Ld. CIT(A) and raised ground of appeal and objection before Ld. CIT(A) as below :
“The Appellant has filed following grounds of appeal :- 1 The Learned Assessing Officer has erred in servicing a notice u/s. 143(2) on 10.08.2018. It is submitted that notice u/s 143(2) should have been served on or before 30.09.2017. 2 The Learned Assessing Officer has not taken into account the objections raised by your petitioner vice a letter dated 13.08.2018. 3 Without prejudice to the above the Ld. Assessing Officer has erred in adding an amount of Rs.668,250/- u/s 14A of the income Tax Act 1961. 4 The order appealed against is bad in law and is against the principle of natural justice. The order appealed against is based on conjectures and assumptions.” 5
4. After considering the detailed submissions of the assessee, the Ld. CIT(A) dismissed the appeal of the assessee with the following observations :
Rite Developers 3 “4. Decision:
I have considered the facts of the case and submissions made by the appellant. The appellant has requested to delete the impugned assessment order u/s 143(3) of the Act and submitted detailed submission. The appellant’s main contentions are that the notice u/s 143(2) was required to be served on or before 30.09.2017 but the same was served on 10.08.2018 by the AO which was time barred as per the Income Tax Act. The appellant has placed its reliance on the Hon’ble Bombay High Court in the case of Prime Securities Ltd Vs Assistant CIT 2009 317 ITR 27 (Bom.) The contentions of the appellant are considered carefully.
4.2 I have gone through the details available on record it is found that the appellant had filed original return of income for AY 2016-17 on 17.10.2016 declaring total income at Rs.1,55,73,780/-. The said return of income was declared as defective return by the CPC, Bangalore vide its order dated 28.08.2017 wherein the appellant was required to rectify the defects. Accordingly, the said defects were rectified/complied by the appellant on 04.10.2017 and hence, the said return was treated as valid only on 04.10.2017. Since the defects were complied on 04.10.2017. the time limit to issue notice u/s 143(2) of the IT Act is to be considered upto 30.09.2016 as per the provisions of Section 143(2) of the Act read as under:
Provided that no notice under this sub section shall be served on the assesses after the expiry of six months from the end of the financial year in which the return is furnished.
4.3 As the original return filed by the appellant is considered as valid only on 04.10.2017, the lime limit to issue statutory nonce u/s 143(2) of the Act is to be considered upto 30.09.2018 as discussed above the notice u/s 143(2) issued on 10.08.2018 which was duly served on the appellant is well within the time Rite Developers 4 allowed under the Act. Further, the case law relied on by the appellant is not relevant to the facts of the case. 4.4 It is evident that the notice was served within the time limit as per the provisions of the Act as discussed above In view of the above facts and judicial pronouncement no fault can be found with the action of the AO by issuing notice u/s 143(2) of the Act. Therefore, the contentions of the appellant are rejected and ground Nos 1, 2, 4 & 5 raised in appeal are dismissed.” With regard to merits of the case the Ld. CIT(A) partly allowed the appeal by restricting disallowance u/s 14A to the extent of exempt income earned by the assessee.
Aggrieved with the above order the assessee is in appeal before us raising following grounds of appeal :
1 The Ld. CIT(A) has erred in and holding that the return of income filed by the assessee-company on 17th October 2016 was not a valid return. 2 The Ld. CIT(A) has further erred in and holding that valid income tax return was filed by the assessee only on 4th October 2017 when the defects/deficiency pointed out by the department u/s 139(9) were remedied by the assessee on 4th October, 2017. 3 The Ld. CIT(A) has erred in not taking into account the fact that the original return filed by the assessee on 17th October 2016 was accepted by the Income Tax Department u/s 143(1) by an order dated 09.11.2017. 4 The Ld. CIT(A) has erred in not accepting the judgment of Hon’ble Bombay High Court in the case of Time Securities Ltd. v. Asst. Commissioner of Income Tax and Another (Reported in 371 ITR 27 (Bom).
Rite Developers 5 5 Your petitioner submits that original return once remedied in respect of defects pointed out u/s 139(9) should be held valid with the original date on which the return was filed. 6 Your petitioner submits that the notice issued u/s 143(2) dated 10.08.2018 and served upon the assessee on 21.08.2018 is illegal and beyond time. Your petitioner submits that notice u/s 143(2) should have been served on or before 30.09.2017. 7 The order appealed against is bad in law and is against the principle of natural justice.
At the time of hearing the Ld. AR submitted that the notice u/s 143(2) issued beyond the period of six months from the date of filing of the return of income. He submitted that defective return u/s 139(9) was issued and time period to issue the notice u/s 143(2) was expired. In response of the above contention, he filed the chronology of events and highlighted the imported date. He submitted that this issue is covered and relied on Kunal Structure (422 ITR 482) and Time Securities (371 ITR 27).
On the other hand, the Ld. DR relied on the orders passed by the Ld. CIT(A) in page 4-7 of the order.
Considered the rival submissions and material on record. We observe from the information submitted before us that the assessee had filed ROI on 17.10.2016 for the AY 2016-17. This case was selected for scrutiny under CASS. As per the provisions, the AO has to issue notice and serve on the assessee before expiry of six months from the end of the financial year in which the return was filed. That means u/s 143(2) notice cannot be issued for the AY 2016-17 beyond 30.09.2016. Since this case was selected under CASS, it is the duty of the AO to issue the notice before 30.09.2016.
Rite Developers 6 8.1 In this case, the RoI was filed on 17.10.2016 but it was found that RoI filed by the assessee is defective after processing the return u/s 143(1) of the Act. The assessee was given time to rectify the same but assessee rectified the same only on 04.10.2017. Considering the date of rectification as the date of filing the RoI u/s 139(1) of the Act, the AO issued the notice u/s 143(2) on 10.08.2018 and completed the assessment accordingly u/s 143(3) of the Act. The assessee agitated before CIT(A) by relying on the case Prime Securities Ltd. v. ACIT (2009) 317 ITR 27 (Bom.). The Ld. CIT(A) rejected the assessee’s contention and observed that the proviso to section 143(2) allows the AO to issue the notice before the expiry of six months from the end of financial year in which the return is furnished. He interpreted the words “end of financial year in which the return is furnished” to mean that the limitation period given in the Act will extend from the date of actual filing the RoI. He interpreted the provision to mean the limitation period commences from the date of the actual filing of RoI or rectified RoI. The assessment procedure laid down in the Act are based on the respective financial year and assessment year. The responsibilities of assessee as well as AO are clearly specified in the Act so that the assessment can be completed for the respective AY’s as per the time frame given in section 153(1). The words used in section 153(1) are “any time after expiry of 21 months from the end of the AY in which the income was first assessable”. 8.2 In case if we accept the proposition of Ld. CIT(A) then there will not be any finality to the assessments selected for scrutiny under CASS or any other method of selection. It will defeat the method specified in the Act. It is irrelevant Rite Developers 7 ITA No. 5849/M/2019 when the defect is cured by the assessee but what is relevant is the responsibility of the AO to follow the due procedure set out in the Act. It is his duty to issue the notice u/s 143(2) within the prescribed time limit. The Courts have held that once the AO misses the above time frame to issue the notice, the assessment will be bad in law.
With regard to rectification of defect in the RoI filed u/s 139(1) and limitation period to issue notice u/s 143(2) of the Act, the Hon’ble jurisdictional High Court held in the case of Kunal Structure (India) Private Limited v. DCIT [2020] 422 ITR 482 (Guj) as below:
“A study of the provisions of section 139 of the Income Tax Act, 1961 shows that under sub-section (1) thereof, an assessee is required to file return on or before the due date. If one looks at the language employed in sub-sections (1), (3) and (5) of section 139, 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, it 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 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.
Rite Developers 8 There is a clear distinction between a 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. There is no concept of corrected return of income under the Act. Therefore, in effect and substance, what the notice under sub-section (9) of section 139 does is to call upon the assessee 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. 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 to be 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.
Dhampur Sugar Mills Ltd. v. CIT [1973] 90 ITR 236 (All) relied on.
Held accordingly, that the assessee filed its return of income under sub-section (1) of section 139 on 10th September, 2016. Since the return was defective, the assessee was called upon to remove such defects, which came to be removed on 7th July, 2017, that is, within the time allowed by the A.O. Therefore, upon such defects being removed, the return would relate back to the date of filing of the original return, that is, 10th September, 2016 and consequently the limitation for issuance of notice under sub- section (2) of section 143 of the Act would be 30th September, 2017, viz., six months from the end of the financial year in which the return under sub-section (1) of section 139 was filed. The notice under sub-section (2) of section 143 of the Act had been issued on 9th August, 2018, which was much beyond the period of limitation for issuance of such notice as envisaged under that sub-section. The notice, therefore, was barred by limitation and could not be sustained.”