Limitation period for issuing scrutiny notice for defective ITR is from due date of filling original ITR

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

The Relevant Text of the Order are as follows :

13. In view of what is discussed hereinabove, the contention that the return under sub­section (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 sub­section (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. At this juncture, it may be germane to refer to the notice issued under sub­section (9) of section 139 of the Act, the relevant part whereof has been extracted in the objection raised by the petitioner to the notice under section 143(2) of the Act. In the said notice, the petitioner has been told to inter alia note the following:

“1. Please ensure no other information is changed apart from those errors listed below in Part­A, in case of any other changes in data, the return of income filed by you is liable to be treated as an invalid return.

2. While correcting the above mentioned defects, if any changes are being made, leading to change of income and/or taxation under other heads of income, you should file a revised return (and not a corrected return) as per the provisions of Income Tax Act, 1961.

3.…

4.…

5.…

6.…

7. If the above requirement is not complied within fifteen days of receipt of this notice, the return of income filed by you is liable to be treated as an invalid return.”

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 sub­section (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 sub­section (9) of section 139 of the Act.

Limitation period for issuing scrutiny notice for defective ITR is from due date of filling original ITR

16. It may be noted that there is no concept of corrected return of income under the Act. Therefore, in effect and substance, what the notice under sub­section (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 sub­section
(9) of section 139 of the Act does not mean that a fresh return of income has been filed under that sub­section. Thus, under sub­section (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 sub­section (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 sub­section (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 Principal Commissioner of Income­tax­1 v. 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.

18. Since the impugned notice has been issued under sub­section (2) of section 143 of the Act, reference may be made to the said sub­section, which reads as under:

“143. Assessment.­ (1) Where a return has been made under section 139, or in response to a notice under sub­section (1) of section 142, such return shall be processed in the following manner, namely:­

(2) Where a return has been furnished under section 139, or in response to a notice under sub­section (1) of section 142, the Assessing Officer or the prescribed income­ tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under­paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:

Provided that no notice under this sub­ section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.”

19. On a plain reading of sub­section (2) of section 143 of the Act, it is apparent that the Assessing Officer or the prescribed income­tax 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 under­paid 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 sub­section (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 sub­section (2) of section 143 of the Act that the Assessing Officer can proceed further under sub­section (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 sub­section (3) of section 143 of the Act. Consequently, if such notice is not issued within the period specified in sub­section (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.

20. In the facts of the present case, as discussed earlier, the petitioner filed its return of income under sub­section (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 present case, it is an admitted position that the impugned notice under sub­section (2) of section 143 of the Act has been issued on 09.08.2018, which is much beyond the period of limitation for issuance of such notice as envisaged under that sub­section. The impugned notice, therefore, is clearly barred by limitation and cannot be sustained.

21. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 09.08.2018 issued under sub­section (2) of section 143 of the Act and all proceedings taken pursuant thereto are hereby quashed and set aside. Rule is made absolute accordingly, with no order as to costs.

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Tags : Judgement, High Court