2021 (11) TMI 914 - AT - Income Tax

Validity of assessment - limitation period to issue notice u/s 143(2) - whether the limitation period commences from the date of the actual filing of RoI or rectified RoI. - HELD THAT - 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 21months from the end of the AY in which the income was first assessable . 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. Itwill defeat themethod specified in the Act. It is irrelevant 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) as relying on KUNAL STRUCTURE (INDIA) (P.) LTD. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-2 (1) (2) 2020 (2) TMI 725 - GUJARAT HIGH COURT we are inclined to set aside the order passed by the Ld. CIT(A) and the order passed u/s 143(3) is defective and bad in law. Accordingly, grounds raised by the assessee is allowed.

Summary

Issues:
1. Validity of notice u/s 143(2) served beyond the time limit.
2. Disallowance u/s 14A of the Income Tax Act, 1961.
3. Interpretation of the time limit for issuing notice u/s 143(2) in relation to rectification of defects in the return of income.

Issue 1: Validity of notice u/s 143(2) served beyond the time limit:

The Appellate Tribunal considered the appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2016-17. The assessee contended that the notice u/s 143(2) served on 10.08.2018 was time-barred as it should have been served on or before 30.09.2017. The Commissioner dismissed the appeal, stating that the notice was served within the time limit as per the provisions of the Act. The Tribunal, however, analyzed the case law and held that the notice issued on 10.08.2018 was beyond the limitation period, as the defects in the return were rectified on 04.10.2017. Citing the case of Kunal Structure (India) Private Limited v. DCIT, the Tribunal concluded that the notice served on 10.08.2018 was barred by limitation and could not be sustained. Consequently, the order passed by the Commissioner was deemed defective and bad in law, leading to the allowance of the grounds raised by the assessee.

Issue 2: Disallowance u/s 14A of the Income Tax Act, 1961:

The Assessing Officer made a disallowance of &8377; 6,68,250 under section 14A r.w.r. 8D, as the assessee received a share of profit from a partnership firm claimed as exempt from tax. The Commissioner partly allowed the appeal by restricting the disallowance u/s 14A to the extent of exempt income earned by the assessee. The Tribunal did not delve into this issue further, as the primary focus was on the validity of the notice u/s 143(2).

Issue 3: Interpretation of the time limit for issuing notice u/s 143(2) in relation to rectification of defects in the return of income:

The Tribunal emphasized the importance of adhering to the time frame specified in the Act for issuing notices u/s 143(2) in cases selected for scrutiny. It highlighted that the responsibility lies with the Assessing Officer to issue the notice within the prescribed time limit. The Tribunal rejected the Commissioner's interpretation that the limitation period commences from the date of actual filing or rectification of the return of income, emphasizing the need to follow the due procedure set out in the Act. Relying on the case of Kunal Structure (India) Private Limited v. DCIT, the Tribunal concluded that the notice served beyond the limitation period rendered the assessment defective and bad in law.

In conclusion, the Appellate Tribunal allowed the appeal filed by the assessee, setting aside the order passed by the Commissioner and deeming the notice u/s 143(2) as invalid due to being served beyond the prescribed time limit.