Loading judgment…
Facts
The assessee, Smt. Kavita Gupta, filed an original income tax return under Section 139(4) and later a revised return under Section 139(5), both of which were deemed defective due to the non-payment of self-assessment tax. The Assessing Officer assessed her income based on the original return, disregarding the revised one, and this decision was upheld by the CIT(A). The assessee contended that the original return was filed by someone else without her knowledge.
Held
The tribunal found both the original and revised returns to be invalid as no self-assessment tax was paid and no defect notice under Section 139(9) was issued by the AO. Citing a CBDT directive, the tribunal held that the AO should have proceeded with a best judgment assessment under Section 144 in such circumstances. Therefore, the tribunal set aside the assessment and remanded the case to the AO for a fresh assessment under Section 144, ensuring proper opportunity for the assessee.
Key Issues
Whether income tax returns are valid without payment of self-assessment tax, and the correct procedure for assessment when defective returns are not rectified under Section 139(9).
Sections Cited
139(1), 139(4), 139(5), 139(9), 143(2), 143(3), 144, 249(4), 44AD
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA
O R D E R
PER SATBEER SINGH GODARA, JM:
This assessee’s appeal for assessment year 2015-16 arises against Commissioner of Income tax (Appeals)-12 [“CIT(A)” in short), New Delhi’s order dated 27.06.2018, in case no. 113/17-18, in proceedings u/s 143(3) of the Income- tax Act, 1961, hereinafter referred to as the ‘Act’.
Heard both the parties at length. Case file perused.
The assessee has raised the following substantive grounds in the instant appeal:
That the order is bad in law and in facts.
2. That the learned assessing authority grossly erred in framing the assessment order on the basis of Original Return filed of appellant assessee and not on the basis of Revised Return. The learned CIT (A) has also erred in confirming the assessment order framed on the basis of Original Return.
That the learned assessing authority erred in not accepting income of the assessee declared by her in Revised Return. The learned assessing authority further erred in determining the total income at Rs. 22.58,470/-. The learned CIT (A) has also erred in confirming the said income and in not accepting the income as per Revised Return.
That the appellant assessee reserves the right to add any other ground of appeal in memorandum of appeal on or before the date of hearing of appeal.
It emerges during the course of hearing that the assessee’s husband Shri Niranjan Lal Gupta had filed raising identical substantive grounds which stand restored to the Assessing Officer vide order dated 19.04.2022, as under: “2. The assessee has raised the following grounds of appeal:-
"1. That the order is bad in law and in facts.
That the learned assessing authority grossly erred in framing the assessment order on the basis of Original Return filed of appellant assessee and not on the basis of Revised Return. The learned CIT (A) has also erred in confirming the assessment order framed on the basis of Original Return.
That the learned assessing authority erred in not accepting income of the assessee declared by him in Revised Return. The learned assessing authority further erred in determining the total income at Rs.29,35,650/-. The learned CIT (A) has also erred in confirming the said income and in not accepting the income as per Revised Return. "
The facts in brief are that assessee is an Individual, who was engaged in the business of supply and making of fruits chaat and other chaat food items in the name of M/s. Modern Chaat. The readymade food product is supplied to various small vendors. As noted by the Assessing Officer, the assessee has filed his return of income under Section 139(4) of the Act for assessment year 2015- 16 on 25.02.2016 declaring total income of Rs.29,35,650/-. Thereafter, a revised return under Section 139(5) of the Act was filed on total income of Rs.6,04,520/- on 6.09.2016. None of these returns were accompanied by self-assessment tax and it was also a fact that no tax' was paid on the returned income even during the course of assessment proceedings. Accordingly, notice us/143(2) and show cause notice was issued on 8.08.2017 on the basis of original return filed under Section 139(4) of the Act. In response to the show cause notice the assessee submitted that he is small time vendor and the return of income was filed by someone else about which he had no idea what is being filed and what income is being shown. The assessee having a petty business of supply of food items of chaat, could not have earned this much of income. When he came to know about the defect, immediately he has filed the revised return on 6.09.2016 on total income of Rs.6,04,520/-. In support the assessee also filed an affidavit stating the same facts. The assessee filed list of sales items aggregating to Rs.15,64,203/- along with bills.
However, the contention of the assessee was rejected by the Assessing Officer that how anyone can file the return by someone else. He also noted that assessee had filed ITRs for assessment years 2013-14, 2014-15 and 2015-16 for Rs.24,33,880/-, Rs.25,88,430/- and Rs.59,35,650/- respectively. The assessee had also not filed any complaint, who had filed the return. The Assessing Officer accordingly, assessed the income at Rs.29,35,650/-, which was shown in the original return of income, after observing and holding as under:-
"Further, the List of sales along with a few bills filed by the assessee vide letter dated 27.11.2017, does not give true picture of his real income as the assessee has filed his ITR u/s 44AD, in which the assessee has shown gross receipt Rs. 99,65,485/- in original return and gross receipt of Rs. 15,64,202/- as per revised return, there is huge difference gross receipts of the assessee's turnover. In the absence of books of accounts and documentary evidences, it is not possible determine assessee's real income. The contention of the assessee that someone has filed his ITR is also found to be incorrect as the same cannot be filed without 'Income Tax Portal' ID & Password which means that the same has been provided by the assess.ee to someone who filed the ITR. In view of the facts and circumstances of the case, contention of the assessee is not acceptable, the assessee has not filed his ITR within the meaning of sub-section 1 of section139 of the I. T. Act, 1961, thus, the assessee is not eligible for filing Revised ITR within the meaning of sub-section 5 of section 139 of the I. T. Act, 1961. Hence, the income of the assessee in original return is being treated as original income of the assessee.
Assessed at an income of Rs.29,35,650/-. Issue Demand Notice and challan. Give credit for prepaid taxes."
The Id. CIT (Appeals) has confirmed the said addition, after observing as under:- "7.1 I have gone through the facts of the case, the assessment order and the written submission filed by the appellant during the course of appeal proceeding before me. The assessee had filed the original return of income at Rs.29,35,650/- on 25.02.2016. The appellant later on revised his return of income on 06.09.2016 declaring an income of Rs.6,04,520/. The Income has been assessed by the assessing officer at the original sum of Rs. 29,35,650/-. The appellant has submitted before the assessing officer during the course of assessment proceedings that the original return was not filed by him and moreover the same was not accompanied with payment of self- assessment tax and was therefore an invalid return. The appellant has filed revised return of income also without payment of self-assessment tax. The appellant has pleaded before the AO not to consider the return filed by the appellant while passing the assessment order and instead treat the original and revised returns as non- est.
7.2 The Assessing Officer has passed an assessment order assessing the income of the assessee at Rs.29,35,650/- by holding that the original return having been filed late could not be revised and finalized the assessment on the basis of original return of income.
7.3 I have gone through the facts of the case as also the case law relied upon by the appellant to state that both the returns had become non-est and that the AO could not assess income at Rs.29,35,650/-on the basis of original return of income.
7.4 The Assessee cannot be permitted to take advantage of its own mistakes and defaults. The Assessing Officer has rightly pointed out that if the original return was filed by somebody else, he should have filed an FIR for the fraudulent activity. Income of the Assessee has rightly by the AO at the figure of original return. I do not consider it necessary to go into further details as the original return had been filed u/s 44AD voluntarily by the assessee declaring an income of Rs. 29,35,650/-. The AO made an assessment by restricting the income to the amount declared by the assessee. The income arises on accrual of income and as per the presumptive scheme of taxation u/s 44AD the income is deemed to accrue on the basis of turnover declared by the assessee. The assessee is not required in such cases to maintain the books of accounts. The income in the original return filed by the assessee been adopted as the basis of accrual of income by the AO.
7.5 I draw support from two decisions of the Supreme Court in the case of M/s Pooranmal vs. Director of Inspection & Others [1974] 93 ITR 505, ITQ vs. Sheth Bros. [1969] 74 ITR 836. The Supreme Gold held in these cases though the search action may be illegal the evidence collected thereby was liable to be used against the person from whose custody it was seized. In the circumstances the assessment of income made by the AO is upheld and the grounds taken by the Appellant are dismissed. "
After hearing both the parties and on perusal of the material placed on record, I find that the assessee had filed original return of income under Section 139(4) of the Act on 25.02.2016 at an income of Rs.29,35,650/-. The said return was also accompanied by total income declared under Section 44AD of the Act and it was also a mentioned in the return of income that taxes have been paid of Rs.8,69,741/-. However, as pointed out by the Id. Counsel, in fact no pre-paid tax was filed by the assessee nor any tax was deposited. This fact has been noted by the Id. CIT (Appeals) also as return of income was not accompanied by payment of self-assessment tax. Even the revised return of income was not accompanied by any pre- paid taxes. Thus, both original return and so called revised return were defective as per the provision of Section 139(9) of the Act and, therefore, Assessing Officer should have directed the assessee to rectify the defect till the time of passing of the order. Here in this case no such defect notice under Section 139(9) of the Act has been issued by the Assessing Officer and no taxes were paid by the assessee, as per return of income till the passing of the assessment order. Even the ld. CIT(Appeals) could not have entertained the appeal, if the assessee has not paid due tax on the return of income as per sub-section (4) to section 249 of the Act.
Thus, the original return of income filed by the assessee cannot be treated as a valid return as the same was not accompanied by pre-paid/ self assessment taxes. In such a situation and without issuing any defect notice u/s 139(9), the Assessing Officer was bound to proceed with the assessment under Section 144 of the Act, as if it is a case of no return and would have passed best judgement assessment for computing the income based on material on record. The C.B.D.T. vide Directive dated 12.12.2017 has directed the Assessing Officers, a detailed procedure to deal with the defective return in the context of Section 139(9) of the Act, which reads as under:- "F. No. System/ITBA/CASS/Defective returns/17-18/ To The Assessing Officers concerned Sir/Madam. Dated: 12.12.2017 Subject: Defective returns selected under CASS- Passing of assessment order - reg. During CASS Cycle 2016, some of the returns of income which earlier were treated as defective as per provision of section 139(9) of Income Tax Act. 1061 (Actl either for the reason that the taxes as per the return were not paid or for any other reason specified therein were also selected for scrutiny.
The proviso to section 139(9) of the Act states that –
“Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period al/owed, but before the assessment is made, the Assessing Officer man condone the delay and treat the return as a valid return.
As per proviso to section 139(9), an assessee can rectify the defects till the time assessment order is passed provided the delay in complying with notice under section 139(9) of the Act is condoned by AO. Therefore, to regularize proceedings in scrutiny cases where assessee has already removed the defects as specified u/s 139(9L in such cases under scrutiny, before passing the assessment order u/s 143(3) AO shall condone the delay in removing the defects by the assessee u/s 139(9) and consider such returns as valid.
In pending cases as on date, where the defect specified u/s 139(9) of the Act. has not been rectified by the assessee, the AO would be required to immediately initiate proceedings under section 144 of the Act by issuing a show-cause as per the first proviso to that section after taking a view that assessee has failed to make a return under section(s) 139(1)/139(4)/139(5) of the Act. However, if assessee, till the date of passing assessment order by the AO, rectifies the defect u/s 139(9) in the return, such cases would also be dealt with in the manner specified in para 2 above and AO would also proceed to pass order u/s 143(3) of the Act in those cases. However, in returns, where defect is not removed by the assessee till the time of passing assessment order, proceeding in those cases would be concluded by passing order u/s 144 of the Act.
In view of the above decision. AO is required to take following steps where assessee has not get responded to defective return notice u/s 139(9) of the Act -
(i) The AO will intimate the assessee about the defective status of return and ask him to rectify the defects through the E-filing portal or communicate it to the AO. Simultaneously proceedings under section 144 of the Act would also be initiated in these cases.
(ii) If the defects as specified are removed, the AO will treat the return as valid and proceed accordingly.
(iii) If the defects are not removed and return remains invalid, the AO will proceed to pass order u/s 144 of the I. T. Act as if no return was filed by the assessee. However all the steps pre-requisite for passing order u/s 144 of the Act are required to be followed scrupulously by him.
5. This is issued with the prior approval of Member (IT&C), CBDT. " 8. Thus, entire assessment is set aside and the matter is remanded back to the file of the Assessing Officer to pass a fresh assessment order under Section 144 of the Act in accordance with law, after giving adequate opportunity of hearing to the assessee while computing the correct income as per law and facts.”
The department is very fair in not raising any specific objection on facts or law, as the case may be. I therefore adopt judicial consistency and restore all these issues raised herein to the file of Assessing Officer for his afresh appropriate adjudication in very terms.
This assessee’s appeal is allowed for statistical purposes.
Order pronounced in open court on 16.12.2024.