2019 (10) TMI 1583 - HC - Income Tax

Scrutiny assessment - Validity of notice u/s 143(2) - period of limitation - defects in return of income removed - HELD THAT - The notice u/s 143(2) is a statutory notice upon issuance of which the AO assumes jurisdiction to frame the scrutiny assessment under subsection (3) of section 143 - Consequently if such notice is not issued within the period specified in subsection (2) of section 143 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 AO to proceed further with the assessment. In the facts of the present case petitioner filed its return of income u/s 139(1) on 29.11.2016. Since the return was defective the petitioner was called upon to remove such defects which came to be removed on 19.07.2017 that is within the time allowed by the AO. Therefore upon such defects being removed the return would relate back to the date of filing of the original return that is 29.11.2016 and consequently the limitation for issuance of notice under subsection (2) of section 143 would be 30.09.2017 viz. six months from the end of the financial year in which the return under subsection (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 11.08.2018 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. Assessee appeal allowed.

Issues Involved:
1. Validity of the notice issued under subsection (2) of section 143 of the Income Tax Act, 1961.
2. Determination of the date for computing the period of limitation for the issuance of notice under section 143(2) of the Act.
3. Interpretation of the provisions of section 139(9) of the Act concerning defective returns.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued under Subsection (2) of Section 143 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 11.08.2018 issued under subsection (2) of section 143 of the Act, arguing it was barred by limitation. The petitioner contended that the original return filed on 29.11.2016 should be considered for computing the limitation period, making the notice issued on 11.08.2018 beyond the permissible time limit. The respondent countered this by asserting that the return filed on 19.07.2017, after rectifying defects, was the valid return, and hence, the notice was within the limitation period.

2. Determination of the Date for Computing the Period of Limitation for the Issuance of Notice under Section 143(2) of the Act:
The court had to decide whether the date of the original return (29.11.2016) or the date of defect removal (19.07.2017) should be used for computing the limitation period for issuing a notice under section 143(2). The court noted that if the original return date was considered, the notice would be barred by limitation. However, if the defect removal date was considered, the notice would be within the limitation period.

3. Interpretation of the Provisions of Section 139(9) of the Act Concerning Defective Returns:
The petitioner argued that a defective return, once rectified, relates back to the original filing date. The respondent argued that a defective return is not valid until corrected, and the limitation period should be computed from the date of defect removal. The court examined the language of section 139(9), which does not require filing a new return but only rectifying defects in the original return. The court concluded that once defects are removed, the original return is considered valid from the date it was initially filed.

Court's Findings:
The court held that the original return filed on 29.11.2016, once rectified, should be considered for computing the limitation period. The removal of defects relates back to the original filing date. Thus, the notice under section 143(2) issued on 11.08.2018 was beyond the limitation period, rendering it invalid.

Conclusion:
The court allowed the petition, quashing the impugned notice dated 11.08.2018 and all proceedings initiated pursuant thereto, as it was barred by limitation. The court emphasized that the notice under section 143(2) is a statutory requirement for assuming jurisdiction for assessment, and if not issued within the prescribed time limit, the entire assessment proceedings would be rendered without jurisdiction.

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