Assessment made without notice u/s 143(2) where ITR-V not received within 30 days invalid-High Court

Assessment made without notice u/s 143(2) where ITR-V not received within 30 days can not be sustained. The extended period of 120 days for sending ITR-V validated the returns originally filed-High Court

Prelude:

Under the Income Tax Act, 1961 (the Act) section 139D empowers the CBDT to make rules providing for class/classes of persons who are required to furnish the return of income electronically. Section 139C also empowers CBDT to make Rules to dispense with furnishing documents etc. with return of income. Accordingly, Rule 12(3) of the Income Tax Rules, 1962 (the Rules) specify the persons who are required to furnish return of income electronically under digital signature or transmitting the data in return electronically and thereafter submitting verification of return in Form ITR-V.

Originally, 30 days time limit was prescribed for sending the Form ITR-V by ordinary email to CPC Bangalore which has subsequently been extended to 120 days with option of sending it through Speed Post.

In the instant case a controversy arose as to the validity of the assessment made by the Income Tax Department treating the return as not filed on account of not furnishing of Form ITR-V within prescribed 30 days time period

ABCAUS Case Law Citation:
ABCAUS 2160 (2018) (01) HC

The Challenge/Grievance:

This income tax appeal was filed under Section 260-A of the Income Tax Act, 1961 (the Act) by the Income Tax Department (ITD/Revenue) against the order passed by the Income Tax Appellate Tribunal (Tribunal/ITAT) holding that the notice under Section 143(2) of the Income Tax Act, 1961 (‘the Act,) was barred by time.

Brief Facts of the Case:
The assessee had filed its returns for A.Y. 2009-10 on 01.09.2010 opting for the electronic mode, in accordance with the Rule 12(3) of the Income Tax Rules read with sections 139C and 139D of the Income Tax Act. The assessee claimed that he had through post filed the ITR-V form i.e. the ITR Acknowledgement within stipulated time of 30 days.  

It is to be kept in mind that for the relevant AY there was no facility for filing of ITR-V forms electronically and the assessee was expected to send by post the ITR-V forms in hard copy to the Headquarters at Central Processing Centre (CPC), Bengaluru.  

CBDT Circular No. 3 of 2009 provided that  an assessee not using a digital signature for electronically transmitting the data, was required to follow-up the electronic transmission of the data by submitting the Form ITR-V with the Income-tax Department as verification of the electronic filing of the return and the date of filing of return of income would be the date of furnishing the return electronically only if the Form ITR-V is furnished within thirty days after the date of transmitting the data electronically. The Circular further provided that in case, Form ITR-V, is furnished after 30 days period as above, the return of income shall be deemed to have never been furnished.

However, CBDT by Circular of 01.09.2010, extended the period of filing of ITR-V forms in such cases till 31.12.2010. The assessee filed its ITR-V form on 01.12.2010. The assesse’s returns, in the meanwhile, were not processed and Revenue treated the documents filed as “Nil” return.

An order was thereafter made under Section 143(3) of the Act completing the assessment was with huge demand. Penalty proceedings were also initiated. The assessee appealed successfully to the Commissioner(Appeals), who accepted his plea and the contention that in the absence of a notice under Section 143(2) of the Act within the time stipulated, scrutiny assessment under Section 143(3) of the Act could not have been completed. CIT(A) opined that the furnishing of the ITR-V form on 01.12.2010 was in accordance with the Circular of 01.09.2010 which had provided for an extended period up to 31.12.2010.

The Income Tax Appellate Tribunal (‘ITAT’) upheld the order of CIT(A).

The Substantial Questions of Law framed/pressed for determination:

Did the Income Tax Appellate Tribunal (ITAT) fall into error in holding that the notice under Section 143(2) of the Income Tax Act, 1961 (‘the Act,) was barred by time, in the facts and circumstances of the case?

Contention made on behalf of the Appellant Revenue:

Relying upon Rule 12(3) of the Income Tax Rules it was contended that a combined reading of Sections 139C and 139D leads to the conclusion that in the absence of an ITR-V Form, i.e. the verification, no return is deemed valid, and, till such time, a valid return comes on record, which, in the present case occurred after 01.12.2010, the question of issuing any notice under Section 143(3) of the Act did not arise.

It was further argued by the Revenue that in the present case, the assessee had, in fact, participated in the proceedings through its representatives and the plain textual interpretation work against the assessee, who was aware of the Circular No.3 of 2009, which had enabled the parties to furnish the ITR-V form within 30 days of the furnishing the return electronically. In his submissions therefore, when the assessee did not do so, the Authorities were within their rights in treating whatever was filed as a “nil” return.

Contentions made on behalf of the Respondent Assessees:

It was contended that the circular of 01.09.2010 was in fact formulated precisely, to cater to the exigencies in the present case. It is pointed out that CBDT was aware of the chaos and confusion, which prevailed after its earlier circular of 2009.

It was also contended that the assessee had in fact furnished the ITR-V forms within the period of 30 days through post and the Circular No.3 of 2009 had not formulated any specific procedure i.e. furnishing of such form under registered post or any other stable form, to enable due verification. In the circumstances, the assessee cannot be placed at a disadvantage for having filed the ITR-V forms again within the extended time on 01.12.2010. Since the statutory period under Section 143(2) of the Act had gone past, the assessment completed under Section 143(3) could not be treated as valid and was correctly invalidated by the Appellate Commissioner and the ITAT.

Observations made by the High Court:

The Hon’ble High Court observed that the Circular No. 3 of 2009 provided that the e-returns were not to be accompanied by attachment or annexures. Hard copies of ITR-V were to be sent by post to CPC Bangalore through a Post Box. Para 10 specifically provided that no Form ITR-V shall not be received in any other office of the Income-tax Department or in any other manner.

The Hon’ble High Court observed that the con-joint reading of para 10 of Circular No.3 of 2009 and the circular dated 01.09.2010 showed that CBDT itself was aware to the difficulties faced in implementation of Section 139C, having regard to the phraseology in Section 295B. In the event of assessee choosing to file without digital signatures as per Rule 12(3) of the Income Tax Rules, there was a gap in the Statute – even a conflict. The Rule was, in essence, at war with the express provision of the Statute, which required assessees not to attach annexures or documents. Thus, the assessee could not attach the ITR-V form or provision or even send any scanned form. To mitigate the hardship, the CBDT felt that it was imperative to provide 30 days’ period as it did through Circular No.3 of 2009. However, CBDT later realised that more confusion arose on account of limited period and the procedure provided, and therefore, it extended the period on 01.09.2010 upto 31.12.2010 or 120 days from the filing of the return, whichever was later.

The Hon’ble High Court noted that in the present case, the assessee had filed its return electronically on 30.09.2009 and claims that it availed of the filing of the ITR-V forms through post. The Revenue was not in a position to verify either way. It was precisely to cater to this circumstance that the circular of 01.09.2010 extended the period. The extension of this period necessarily meant that ITR-V forms received during such extended period validated the returns originally filed.

The Hon’ble High Court opined that the interpretation sought to be placed by the Revenue that fresh returns were necessary flies against the opinion of the CBDT and the circumstances, under which, both the circulars were framed and published. These circulars were necessitated on account of the legislative gap – even conflict between the Rules on the one hand, which mandated electronic filing and other provisions of the Statute, which prohibited the attachment of annexures along with returns, which resulted in ITR-V form, as were in the present case.

Decision/ Conclusion/Held:

The question of law framed was answered in favour of the assessee and against the Revenue. The appeal was dismissed.

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