Fresh Section 143(2) Notice After Revised Return Mandatory: ITAT Mumbai

LIC Mutual Fund Asset Management Ltd. Vs CIT(A) (ITAT Mumbai)

Summary: The Income Tax Appellate Tribunal, Mumbai Bench “A”, in LIC Mutual Fund Asset Management Ltd. Vs CIT(A), held that an assessment completed under Section 143(3) of the Income Tax Act, 1961 without issuing a fresh notice under Section 143(2) after the filing of a valid revised return of income was without jurisdiction. The Tribunal explained that notice under Section 143(2) is specific to the return furnished by the assessee and not merely to the assessment year. Once a valid revised return is filed under Section 139(5), it substitutes the original return, and the Assessing Officer must issue the requisite scrutiny notice with reference to the revised return on which the assessment is ultimately completed. The failure to do so was held to be an incurable jurisdictional defect. Accordingly, the Tribunal allowed the assessee’s appeal for Assessment Year 2013-14.

The assessee challenged the order dated 22 June 2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi. Three issues were raised in the appeal. The first related to the disallowance of a provision for expenses amounting to Rs.2,28,58,621. The second concerned the non-adjudication of additional grounds relating to scheme-related expenditure of Rs.1,23,04,929 and the treatment of the provision for expenses while computing book profits under Section 115JB. The third ground challenged the legality of the assessment because the Assessing Officer had not issued a fresh notice under Section 143(2) following the assessee’s revised return. At the hearing, the assessee’s authorised representative, Shri Vijay Mehta, confined his submissions to this jurisdictional ground because its acceptance would invalidate the assessment itself.

The assessee originally filed its income-tax return in November 2013, and the Assessing Officer issued a scrutiny notice under Section 143(2) on 5 September 2014. Subsequently, the assessee filed a revised return on 31 March 2015. The original return disclosed a loss of Rs.14,38,57,346, while the revised return declared a higher loss of Rs.15,07,61,625. The Assessing Officer accepted the revised return as the basis for assessment but did not issue a fresh notice under Section 143(2) before completing the assessment under Section 143(3). The assessee argued that a valid revised return replaces the original return and consequently requires a separate scrutiny notice. The order contains differing dates for the original return and assessment order in paragraph 3 and the chronological table in paragraph 6; those differences have been preserved in the full judgment below.

In support of its jurisdictional challenge, the assessee relied upon the Karnataka High Court’s decision in CIT Vs IDEB Buildcon Pvt. Ltd., the Hyderabad Tribunal’s decision in Ashok Reddy Cheruvu Vs DCIT and the Chennai Tribunal’s decision in Yes & Yes Hitech Premier Homes Vs ITO. The assessee submitted that the notice under Section 143(2) must relate to the operative return and cannot be treated as a general notice covering every return filed for an assessment year. It also distinguished rectification of a defective return under Section 139(9) from the filing of a revised return under Section 139(5). Relying upon Kunal Structure India Pvt. Ltd. Vs DCIT, the assessee contended that these two statutory procedures had different legal consequences.

The Department opposed the jurisdictional objection and submitted that the Assessing Officer had already issued a valid notice under Section 143(2) following the original return. According to the Department, the statute did not require another notice merely because a revised return was subsequently furnished. The CIT(A) had accepted this position by relying upon Padmini Products Pvt. Ltd. Vs DCIT, which had taken the view that the revised return was filed for correcting omissions or wrong statements in the original return and did not require a fresh notice under Section 143(2).

The ITAT examined the language of Section 143(2), which provides for the issuance of a notice with reference to a return furnished under Section 139 or in response to a notice under Section 142(1). The Tribunal observed that a valid revised return filed under Section 139(5) substitutes the original return filed under Section 139(1). Once the revised return is accepted, the original return is deemed withdrawn for the purpose of completing the assessment. Accordingly, the revised return becomes the operative return, and the Assessing Officer must issue a scrutiny notice under Section 143(2) in respect of that return. The Tribunal specifically rejected the argument that the notice was assessment-year-specific, holding instead that it was return-specific.

The Tribunal placed reliance on Yes & Yes Hitech Premier Homes Vs ITO, in which a coordinate Bench had held that an assessment under Section 143(3) could not be sustained without a Section 143(2) notice concerning a valid revised return. That decision had relied upon the Supreme Court’s judgment in ACIT Vs Hotel Blue Moon, which recognised the mandatory nature of the statutory scrutiny notice, and the Orissa High Court’s decision in Orissa Rural Housing Development Corporation Ltd., concerning the effect of filing a valid revised return. The Mumbai Bench also recorded that a similar view had been taken in Ashok Reddy Cheruvu Vs DCIT.

The Tribunal expressly disagreed with the decision in Padmini Products Pvt. Ltd. Vs DCIT. It held that an original return under Section 139(1) and a revised return under Section 139(5) are furnished under separate statutory provisions and in different circumstances. A revised return cannot therefore be regarded as having no legal status. Where a revised return is validly filed within the prescribed limitation period, it replaces the original return, and scrutiny assessment must proceed in accordance with the procedural requirements applicable to the revised return.

Applying these principles, the Tribunal concluded that the Assessing Officer had completed the assessment on the basis of the revised return without issuing the mandatory notice under Section 143(2) after that return was furnished. The omission was held to be an incurable defect, rendering the assessment order without jurisdiction. Accordingly, ground No.3 of the appeal was allowed. Since the assessment itself was invalidated on the jurisdictional issue, the remaining grounds relating to disallowance of expenditure, scheme-related expenses and computation of book profits under Section 115JB became academic and were not adjudicated on merits. The assessee’s appeal was allowed.

Cases Discussed

1. Kunal Structure India Pvt. Ltd. Vs DCIT — 113 taxmann.com 577 (Gujarat High Court); Supreme Court proceedings reported at 123 taxmann.com 392. Relied upon by the assessee. The decision was cited to establish that rectification of a defective return under Section 139(9) and filing a revised return under Section 139(5) are distinct statutory procedures.

2. Ashok Reddy Cheruvu Vs DCIT — ITA No.1560/Hyd/2019; Assessment Year 2014-15; 26/03/2021 (ITAT Hyderabad). Followed. The Mumbai Tribunal recorded that the coordinate Bench had adopted a similar view concerning the validity of scrutiny assessment without a fresh notice under Section 143(2) after a revised return.

3. Yes & Yes Hitech Premier Homes Vs ITO — ITA No.22/Mds/2016; Assessment Year 2012-13; 19/06/2017 (ITAT Chennai). Relied upon and followed. The Tribunal held that notice under Section 143(2) is return-specific, and failure to issue the notice after a valid revised return renders the consequential scrutiny assessment invalid.

4. Padmini Products Pvt. Ltd. Vs DCIT — ITA No.527/Bang/2016; Assessment Year 2012-13; 03/03/2017 (ITAT Bangalore). Expressly disagreed with. The CIT(A) had relied upon this decision in rejecting the jurisdictional challenge. The Mumbai Bench declined to accept the reasoning that a revised return has no independent legal status.

5. CIT Vs IDEB Buildcon Pvt. Ltd. — ITA No.507/2014; 02/02/2016 (Karnataka High Court). Cited by the assessee. The decision was relied upon in support of the proposition concerning the mandatory nature of notice under Section 143(2).

6. Orissa Rural Housing Development Corporation Ltd. — 343 ITR 316 (Orissa High Court). Referred to through the relied-upon precedent. The case was mentioned in the extracted ruling of Yes & Yes Hitech Premier Homes concerning completion of assessment on the basis of a valid revised return.

7. ACIT Vs Hotel Blue Moon — 321 ITR 362 (Supreme Court). Applied through the quoted precedent. The decision was referred to for the mandatory nature of notice under Section 143(2) and the legal consequences of its non-issuance.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [in short ‘the CIT(A)’] dated 22/06/2023, for the Assessment Year 2013-14.

2. The assessee in appeal has raised three grounds. The gist of issues raised in appeal by the assessee is as under:

(i) Disallowance of provision of expenses Rs.2,28,58,621/-;

(ii) Non-adjudication of additional ground No.1 & 2 pertaining to addition of Rs.1,23,04,929/- in respect of scheme related expenses and non-consideration of Rs.2,28,59,621/- in respect of provision for expenses while calculating book profits u/s. 115JB of the Income Tax Act, 1961 [in short ‘the Act’]; and

(iii) Non-issuance of notice u/s. 143(2) of the Act, after revised return of income was filed by the assessee, thus making the assessment order bad in law.

3. Shri Vijay Mehta appearing on behalf of the assessee submitted that at this stage he would be confining his submissions only on ground No.3, which is a legal issue and goes to the root of validity of assessment order. Narrating sequence of events, the ld. Authorized Representative of the assessee submitted that the assessee filed original return of income on 29/11/2013. The Assessing Officer issued notice u/s. 143(2) of the Act on 05/09/2014. Thereafter, the assessee filed revised return of income on 31/03/2015. The Assessing Officer without issuing fresh notice u/s. 143(2) of the Act completed the assessment vide order dated 18/03/2016 on revised return filed by the assessee. The assessment made u/s. 143(3) without issuing notice u/s. 143(2) of the Act after the assessee had filed revised return of income makes the assessment invalid. To support his submissions the ld. Authorized Representative of the assessee placed reliance on the following decisions:

(i) CIT vs. IDEB Buildcon Pvt. Ltd. in ITA No.507/2014 decided by Hon’ble Karnataka High Court on 02/02/2016;

(ii) Ashok Reddy Cheruvu vs. DCIT in ITA No.1560/Hyd/2019 for Assessment Year 2014-15 decided on 26/03/2021; and

(iii) M/s. Yes & Yes Hitech Premier Homes vs. ITO in ITA No.22/Mds/2016 for Assessment Year 2012-13, decided on 19/06/2017.

3.1 The ld. Authorized Representative of the assessee submits that the CIT(A) dismissed the legal ground raised by the assessee assailing validity of assessment in the absence of notice u/s. 143(2) of the Act by placing reliance on the decision in the case of Padmini Products Pvt. Ltd. vs. DCIT in ITA No.527/Bang/2016 for Assessment Year 2012-13 decided on 03/03/2017 on the ground that there is no status to revised return of income in the eye of law as it is filed merely to rectify any omission or wrong statement made in the original return of income. The ld. Authorized Representative of the assessee submits that the rectification of return and filing of revised return are two different concepts. Rectification of return is made u/s. 139(9) without filing fresh return of income, whereas revised return is filed u/s. 139(5) of the Act. In support of his submissions that rectification of return and filing of revised return are not the same, he placed reliance on the decision of Hon’ble Gujarat High Court in the case of Kunal Structure India Pvt. Ltd. vs. DCIT, 113 taxmann.com 577. He further pointed that aforesaid decision of the Hon’ble High Court has been upheld by the Hon’ble Apex Court in 123 taxmann.com 392(SC).

4. Per contra Shri Manoj Kumar Sinha representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submitted that undisputedly the Assessing Officer had issued notice u/s. 143(2) of the Act on the return filed by the assessee. There was no statutory requirement for the Assessing Officer to issue fresh notice u/s. 143(2) of the Act after filing of revised return by the assessee.

5. We have heard the submissions made by rival sides and have considered the decisions referred to by the ld. Authorized Representative of the assessee. The assessee by way of ground No.3 of appeal has raised legal issue challenging validity of assessment in absence of fresh notice u/s. 143(2) of the Act on the revised return filed by the assessee.

6. Before we proceed further to adjudicate the issue it would be relevant to note some vital dates:

The assessee filed the original return of income returning loss of Rs.14,38,57,346/-. Later, the assessee filed revised return of income declaring loss of Rs.15,07,61,625/-. No notice u/s. 143(2) of the Act was issued by the Assessing Officer after assessee filed revised return of income. The Assessing Officer completed the assessment on the revised return of income. The above narrated dates and facts are not in dispute.

7. The short issue before us for consideration is: “ Whether the Assessing Officer was under obligation to issue fresh notice u/s. 143(2) of the Act after the assessee had filed revised return of income?”

Here it would be imperative to refer to the provisions of section 143(2) of the Act.

Section 143(2).

“Where a return has been furnished under section 139, or in response to a notice under sub-section (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 under-paid 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.”

8. A bare reading of provisions of sub-section (2) to Section 143 would show that the notice u/s. 143(2) the Act is with reference to the return furnished u/s. 139 of the Act. In the instant case the Assessing Officer had issued notice u/s. 143(2) on 05/09/2014 with reference to original return of income filed by the assessee on 19/11/2013. Subsequently, the assessee filed revised return of income on 31/03/2015, which was accepted by the Assessing Officer and the assessment was framed on the revised return of income. Once a valid revised return of income is filed, the original return is deemed to be withdrawn. In other words, a valid revised return of income filed u/s. 139(5) of the Act substitutes the original return filed u/s. 139(1) of the Act. Thus, it is considered as assessee’s final return of income. The Assessing Officer is under obligation to issue notice u/s. 143(2) of the Act in respect of return of income which he accepts for completing the assessment. As pointed earlier, notice u/s. 143(2) of the Act is specific to the return of income, not the Assessment Year. Therefore, we are of considered view that non-issuance of notice u/s. 143(2) of the Act after the assessee had filed revised return of income is an incurable defect and is fatal to the assessment order passed without the said notice.

9. The Tribunal in the case of Yes & Yes Hitech Premier Homes vs. ITO (supra) under similar set of facts held the assessment bad in law in the absence of notice u/s. 143(2) of the Act. The relevant extract of the findings of the Tribunal on the issue are as under:

“5. We have considered the rival submissions. Admittedly, the last revised return filed by the assessee on 26.02.2014. This was admittedly a valid revised return. The AO has also not rejected the revised return. The assessee has also given his Explanation for filing the said revised return. In fact, after the said revised return was filed, notice u/s.142(1) has been issued on 10.12.2014 and show cause notice have been issued on 23.12.2014 and on 12.03.2015. In response to the show cause notice issued by the AO on 23.03.2015, intimating the assessee to provide his response by 27.03.2015, the assessee has intimated that the notice u/s.143(2) has not been issued on the assessee within the prescribed time. In fact, before the show cause notice being issued by the AO, the assessee never had an opportunity to intimate the AO that notice u/s.143(2) had not been issued. A perusal of the provisions of Sec.143(2) shows that the said notice is not assessment year specific but it is return specific. Its time limit is computed from the end of the financial year in which the return is furnished. It is mandatory for the issuance of notice u/s.143(2) in the event that the AO proposes to make assessment u/s.143(3). In the present case, the AO having not issued notice u/s.143(2) in respect of a valid revised return filed on 26.02.2014 and more so, the said return have not been treated as invalid, the consequential assessment is bad in law, in view of the principles laid down in the Hon’ble Supreme Court in the case of ACIT vs. Hotel Blue Moon reported in 321 ITR 362 (SC). Further, in view of the position in law that if a revised return is filed u/s.139(5) and if such return is a valid return then the assessment can be completed only on the basis of such revised return as has been held by the Hon’ble High Court of Orissa in the case of Orissa Rural Housing Development Corporation Ltd. reported in 343 ITR 316, the assessment is liable to be annulled.

6. In these circumstances, as notice u/s.143(2) has not been issued in respect of the valid revised return filed by the assessee u/s.139(5) on 26.02.2014, the consequential Assessment Order u/s.143(3) dated 30.03.2014 for the AY 2012-13, in the case of the assessee is bad in law and stands annulled.”

Similar view has been taken by the Co-ordinate Bench in the case of Ashok Reddy Cheruvu vs. DCIT (supra). In so far as the decision rendered in the case of Padmini Products Pvt. Ltd. vs. DCIT (supra) we are not in agreement with the same. The original return of income u/s. 139(1) and the revised return of income u/s. 139(5) of the Act are returns under different provisions filed under different circumstances. Therefore, it cannot be said that the revised return has no status in the eye of law. The statute provides for filing of revised return under specific circumstances. The revised return of income filedu/s. 139(5) of the Act substitutes the return filed u/s. 139(1) of the Act, if, filed within the period of limitation.

10. Thus, in facts of the case discussed above and in light of the provisions of section 143(2) r.w.s. 139 of the Act, we hold the impugned assessment order is without jurisdiction in the absence of notice u/s. 143(2) of the Act after revised return of income was filed by the assessee. The question in para-7 above, is thus, answered in affirmative. In the result, ground No.3 of appeal is allowed.

11. Since, we have allowed relief to the assessee on the jurisdictional issue, ground No.1 & 2 assailing addition on merits have become academic, hence, not deliberated upon.

12. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on Monday the 26th day of February, 2023.