2020 (10) TMI 364 - AT - Income Tax

Exemption u/s 10(23C)(iiiab) - invalid Return in terms of sec.139(9) - assessee filed its returns of income claiming exemption u/s 11 - HELD THAT - The provisions of sec.139(9) clearly states that, if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return. Since the defects pointed out by AO/CPC were not rectified by the assessee in both the years, the returns of income filed for these two years have been rightly held to invalid return in terms of sec.139(9) of the Act. Hence it should be held that the assessee has failed to furnish the returns of income for AY 2014-15 and 2015-16. AO can rectify the mistakes apparent from record u/s 154 of the Act. However, even if any rectification order is required to be passed u/s 154 of the Act, it is required to be shown that there is a mistake apparent from record in the original order - rectification of order cannot be carried out without giving notice of hearing to the assessee - even u/s 154 of the Act, entire order cannot be recalled. If any of the order so passed by an assessing authority is erroneous and prejudicial to the interests of revenue, then revision proceedings can be initiated u/s 263 by the Ld CIT. Hence the letters dated 24.3.2017 issued by the AO on his own directing the assessee to ignore its earlier orders is not in accordance with law. Hence the said letters are nullity in the eyes of law. Accordingly, we are of the view that the said letters cannot validate an invalid return. Processing of returns of income for both the years, after holding them as invalid, is not in accordance with the law. Hence the Ld CIT(A) was justified in holding that the AO is not correct in processing the returns of income. Accordingly, in terms of sec.139(9) of the Act, it should held that the assessee has not filed returns of income for AY 2014- 15 and 2015-16. Once the returns of income have been held to be invalid, there is no return of income available for making any assessment. In the absence of any returns of income, the question of claiming or allowing exemption u/s 10(23C)(iiiab) does not arise. Accordingly, we are of the view that the Ld CIT(A) was not justified in holding that the exemption u/s 10(23C)(iiiab) should be allowed to the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Validity of returns filed by the assessee for AY 2014-15 and 2015-16 under Section 139(9) of the Income-tax Act.
2. Granting of exemption under Section 10(23C)(iiiab) of the Income-tax Act.
3. Consideration of cross objections filed by the assessee regarding the assessment of gross receipts without allowing the deduction of expenditure.

Issue-wise Detailed Analysis:

1. Validity of Returns Filed by the Assessee:
The primary issue revolves around the validity of the returns filed by the assessee for the assessment years 2014-15 and 2015-16. The returns were initially treated as defective under Section 139(9) due to specific errors, including the absence of an audit flag despite income exceeding the threshold limits. The assessee failed to rectify these defects within the prescribed time, leading the Assessing Officer (AO) to treat the returns as invalid. Subsequently, an order was issued to ignore the invalidation and process the returns, which was contested by the assessee. The Tribunal upheld the invalidation, stating that the provisions of Section 139(9) were clear that unrectified defects render the returns invalid, and no provision in the Act allows the AO to unilaterally ignore such orders without following due process.

2. Granting of Exemption under Section 10(23C)(iiiab):
The second issue concerns the exemption claimed by the assessee under Section 10(23C)(iiiab). The Commissioner of Income Tax (Appeals) [CIT(A)] had allowed this exemption despite holding the returns as invalid. The Tribunal found this contradictory, emphasizing that once the returns are deemed invalid, no assessment or exemption claims can be entertained. The Tribunal ruled that the CIT(A) erred in allowing the exemption on invalid returns, setting aside the CIT(A)'s order on this matter.

3. Cross Objections Filed by the Assessee:
The assessee had filed cross objections, arguing that the AO assessed gross receipts without deducting the expenditure incurred. However, since the returns were held invalid, these cross objections were rendered infructuous. The Tribunal dismissed the cross objections on this basis.

Conclusion:
The Tribunal concluded that the returns for AY 2014-15 and 2015-16 were rightly treated as invalid under Section 139(9) due to unrectified defects. Consequently, the CIT(A)'s decision to allow exemption under Section 10(23C)(iiiab) was incorrect, as no valid returns existed to support such claims. The cross objections by the assessee were also dismissed as they became irrelevant following the invalidation of the returns. The appeals by the revenue were partly allowed, and the cross objections by the assessee were dismissed.