ITR-Filing Date Is Relevant For Calculating Section 143(2) Limitation And Not Defect-Removal Date: Delhi High Court

The Delhi High Court has held that once the return has been found to be valid and only a defect within the meaning of Section 139(9) of the Income Tax Act has been found, interest cannot be levied.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that if the date of the ROI originally filed on October 14, 2016 is taken into account, then the notices served on the petitioner or assessee would be time-barred, as the first proviso appended to Section 143(2) of the Income Tax Act stipulated, at the relevant point in time, that the notice under the said Section could not have been served on the assessee, in this case, the petitioner, after the expiry of six (6) months from the end of the financial year in which the Return of Income (ROI) is filed.

The petitioner's or assessee's assailed the issue under Section 143(2) and Section 142(1) of the Income-tax Act, 1961. The assessee submitted that the notices are barred by limitation.

The petitioner/assessee filed its original Return of Income (ROI) on October 14, 2016. In the ROI, the assessee declared a loss amounting to Rs. 3,85,73,772. On February 6, 2017, the assessee was served with a notice under Section 139(9). The notice stated that the ROI filed by the assessee was defective, and in this regard, it made reference to Section 139(9).

The assessee removed the defects as pointed out by the respondent or department on February 18, 2017.

The assessee was served with another notice dated July 10, 2017, wherein it was pointed out that the ROI filed for AY 2016–17, dated October 14, 2016, contained defects. The petitioner/assessee thus once again removed the defects, albeit on July 20, 2017. The ROI filed on October 14, 2016, was processed by the Assessing Officer (AO) on November 22, 2017, after which the defects were removed. An intimation to that effect was served on the petitioner under Section 143(1). Then the assessee was served with the first notice under Section 143(2) on August 11, 2018 and the second notice on August 31, 2018, under Section 142(1).

The petitioner took the stand that there was no revision of the original return filed on October 14, 2016 and that the notice under Section 139(5) and compliance cannot be treated on par with the provisions of Section 139(9). The return was processed under Section 143(1). The notices are invalid and illegal as they were barred by limitation. The point concerning the expiration of the limitation was reiterated by the petitioner/assessee via communication dated October 11, 2018.

The petitioner/assessee received a communication dated October 24, 2018, which, in sum, rejected the assessee’s stand that the impugned notices were time-barred.

The assessee submitted that the notices are time-barred since they have been issued beyond the time prescribed in the first proviso appended to Section 143(2). In the relevant AY, i.e., 2016–17, with effect from June 1, 2016, the time limit provided for serving a notice under Section 143(2) of the Act was six (6) months from the end of the financial year (FY) in which the return is furnished.

The assessee argued that the date for calculating limitation under the proviso to Section 143(2) would be six months commencing from the last date of the FY in which the original ROI was filed, i.e., March 31, 2017. Six months after that, i.e., September 30, 2017, would be the date on which the limitation expires.

The department contended that a notice under Section 143 could only have been issued after the defect was removed, and therefore, the impugned notices were within the time prescribed by the statute.

The court noted that a defective return, therefore, cannot be regarded as an invalid return ipso facto. It may assume the character of an invalid return if the defect, after due notice, has not been removed by the assessee.

“Undoubtedly, the notice issued under Section 143(2) of the Act is time-barred. Consequently, the notice under Section 142(1) of the Act will also collapse. The impugned notices are, accordingly, quashed,” the court said.

Counsel For Petitioner: Sumit Lalchandani, Salil Kapoor, Ananya Kapoor

Counsel For Respondent: Prashant Meharchandani

Case Title: SMC Comtrade Ltd. Versus ACIT

Citation: 2023 LiveLaw (Del) 1066

Case No.: W.P.(C) 11875/2018

Click Here To Read The Order