The Income Tax Act, 1961 provides a comprehensive mechanism for dealing with the issues pertaining to the defect apparent from returns which is supposed to be rectified by the assessee within the time stipulated under section 139(9). Section 139(9) has been on the statute since 01st September, 1980 and was inserted by the Finance (No.2) Act, of 1980. Since its inception, section 139(9) has received myriad amendments with the introduction of section 139C to provide that the Central Board of Direct Taxes is empowered with retrospective effect from 01st June, 2006 to dispense with furnishing of documents and annexures etc. forming part of the return. However, the provisions of section 139C also provides that merely because the assessee is not required to furnish documents, reports, certificates which form part and parcel of return at the time of furnishing returns electronically, they can be required to be produced on demand before the assessing officer in compliance with the statutory provisions. In furtherance, Rule 12 of the Income Tax Rules also lend support by providing that return of income shall not be accompanied by any document or copy of any document or account/form/report required to be attached with the return of income under any provisions of the Act. The assessing officer is empowered to call in question the credentials corroborating the stand of the assessee through return of income filed electronically by issuing statutory notice under section 143(2) of the Act.

Issuance of notice under section 143(2) and its consequential service on the assessee is a sine qua non for falling within the footsteps of lawfully framing an assessment by the assessing officer. However, the debate as to whether the solitary expressions Rs. issue’ and Rs. service’ can be used interchangeably has acquired mammoth propositions with writ courts including the Hon’ble Supreme Court laying down diverse view points on the issue. First proviso appended to section 143(2) provides that no notice 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. A contentious issue arises where the assessee has been issued notice under section 139(9) for rectification of defect apparent in the return filed by him and the so called defect is removed within the time provided. Time period to issue notice under section 143(2) gets automatically stretched or not ? The said issue was examined recently by the Hon’ble High Court of Judicature at Bombay in the case titled Atul Projects India Private Limited v. Union of India [2019] 309 CTR (bom) 392 in context of sections 139(9) and 143(2) of the Income Tax Act, 1961.

Facts

The assessee namely Atul Projects India Private Limited is a company registered under the Companies Act being a separate artificial entity as per law. In respect of the assessment year 2016-17, the assessee filed its return of income on 17th October, 2016 declaring total income of Rs.22.15 crores. In the advent of time, the assessing officer issued notice under section 139(9) on 28th August, 2017 requesting the assessee to rectify the defects apparent from the return of income. In line with the statutory mandate, a time frame of 15 days was extended to the assessee to remove the defects so identified on perusal of the notice issued under section 139(9). The company acting in accordance with the terms of notice rectified the defect so pointed out by the assessing officer on 12th September, 2017 i.e. within the time frame of fifteen days as statutorily provided under law. As per version of the company, the defects so pointed out were technical in nature and did not had the effect of disturbing the income originally projected by the assessee while filing its return of income. So, the return filed was at the most be treated as defective return and not invalid return of income. The department issued another notice under section 139(9) dated 19th September, 2017 conveying that the return filed in response to the defect notified on 28th August, 2017 was also considered to be defective return. In response, the assessee vide its electronic representation dated 29th September, 2017 informed that there was no defect in such return as was consequentially pointed out by the department in its second notice issued on 19th September, 2017.

As there was no response to the electronic communication of assessee filed on 29th September, 2017, the department proceeded to process the return of income on 10th February, 2018 under section 143(1) which was duly communicated to the assessee company. On 10th August, 2018, the assessing officer issued a notice to the assessee company under section 143(2) thereby intimating that return has been taken in scrutiny proceedings for the relevant year. The assessee in consequence therefrom challenged the notice issued under section 143(2) as barred by limitation as no notice could have been served upon the assessee going by the mandate of proviso appended to section 143(2). The assessee in line with the statutory mandate contested that the notice in respect of return filed for the assessment year could have been issued validly by 30th September, 2017, but since the present notice has been issued on 10th August, 2018, the same is non-est in law as barred by limitation. The department however contended that for the purpose of issuing statutory notice under section 143(2), the relevant date would be the date on which the assessee rectified the defect pointed out by the assessing officer which in no case can relate back to the date of filing original return. Therefore, the department is well within time to issue notice under section 143(2) as on 10th August, 2018.

Observations of the Court

The contentious issue before the court was whether the statutory notice issued under section 143(2) of the Act dated 10th August, 2018 for the assessment year 2016-17 was within the time stipulated by law or not. In the governing circumstances, the court was confronted with the question as to which of the two dates i.e. 17th October, 2016 i.e. date of filing the original return of income or 12th September, 2017 i.e. date of rectifying the defect pointed out by the assessing officer would be a deciding factor in ascertaining the fate of section 143(2) notice. The Hon’ble Court in its wisdom considered the pronouncement of its own seat in case of Prime Securities Limited v. Varinder Mehta, Assistant CIT [2009] 226 CTR (Bom) 247 : [2009] 317 ITR 27 (Bom) to decide the debatable issue under consideration. The Hon’ble Bombay High Court in Prime Securities case (supra) settled in context of section 139(9) of the Income Tax Act that once the defects are removed within the time permitted by the department, the same would relate back to the original date of filing the return of income. The court took note of the pronouncement of the Hon’ble Supreme Court of India in Commissioner of Income Tax v. Hindustan Electro Graphites Limited [2000] 160 CTR (SC) 8 : [2000] 243 ITR 48 (SC) to observe that once the return of income is valid and in conformity with the intended purpose of the act, the said return cannot be ignored. The Hon’ble Court observed in Prime Securities case (supra) vide Para No.11 of its pronouncement as under:-

11. In the instant case, when the petitioner filed its return for the previous year 1990-91 the petitioner was a fully owned subsidiary of Great Eastern Shipping Company Ltd. The petitioner ceased to be fully owned subsidiary only after March, 1992. The defect in signature was removed on 15-10-1992 but in respect of the same assessment year 1991-92. In our opinion, the subsequent event cannot result in holding that the return as originally filed was not in substance and effect in conformity with or according to the intent or purpose of the Act on the date the return was filed. The test to be applied is whether on the date the original return was filed was the return in conformity with or according to the purpose of the Act. On the date the return was filed the petitioner was admittedly a wholly owned subsidiary of Great Eastern Shipping. It is true that the return was invalid as originally filed because of a defect in the person signing the returns. But by virtue of section 139(9) that defect could be cured and was in fact cured. Though the defect was cured on 15-10-1992 it would relate back to 31-12-1991 the date of original filing of the return. Once the return is valid and in conformity with the intended purpose of the Act, in our opinion, therefore, on this count also, the petition will have to be allowed.

The department in its level of contest before the Hon’ble Court in Atul Projects India (supra) further contented that ratio of Prime Securities case (supra) is not applicable to the facts of the assessee under reference as in Prime Securities it was claiming a benefit of section 47(5) of the Income Tax Act, 1961. However, the Hon’ble Court guided by the ratio of Prime Securities case categorically settled that in case of filing of defective return by assessee (which may not be confused with filing of the invalid return) upon removal of defects within time stipulated, such action would relate back to the time of filing original return of income. It was further observed that in light of the circumstances, the date of filing return would be the date of which it was initially presented and not the date on which defects were removed. The Hon’ble High Court in Atul Projects (supra) also took note of the pronouncement of Hon’ble Punjab & Haryana High Court in Commissioner of Income Tax v. Sohan Lal Chhajan Mal [2009] 222 CTR (P&HHC) 190 : [2008] 307 ITR 53 (P&HHC) wherein identical question in context of section 139(9) arose. The Hon’ble Punjab & Haryana High Court also settled in context of removal of defects apparent and notified by the assessing officer under section 139(9) that upon removal of defects, the rectified return would relate back to the date of filing of original return and will consequently disturb the legality of notice issued under section 143(2) in terms of limitation. The relevant portion of the pronouncement in Sohan Lal Chhajan (supra) is produced below for reference purposes:-

“139. Return of income.-(1) to (8)…..

(9) Where the Assessing Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect Within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and 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 :….

Explanation.-For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely :-…

(b)		the return is accompanied by a statement showing the computation of the tax payable on the basis of the return ;…
(d)		where regular books of account are maintained by the asses see, the return is accompanied by copies of-

(i)		manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance-sheet;
(ii)		in the case of a proprietary business or profession, the personal account of the proprietor ; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members ; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals ;

(e)

where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance-sheet and the auditor’s report and, where an audit of cost accounts of the assessee has been conducted, under section 233B of the Companies Act, 1956 (1 of 1956), also the report under that section ; “

A perusal of the aforementioned provision makes it evident that when the return of income furnished by the assessee is defective then the Assessing Officer is to intimate the defect to the assessee, afford him an opportunity to rectify the defect within a period of 15 days from the date of such intimation or within such further period which the Assessing Officer may in his discretion allow. If the defect is rectified then the return is to be considered as valid. The Explanation appended to sub-section (9) of section 139 of the Act clarifies that a return of income would be regarded as defective if the annexures, statements and columns in the return concerning computation of income, etc., are not fulfilled or copies of the audited or otherwise profit or loss account have not been attached as required by clauses (e) and (f) of the Explanation. In other words, the statutory provision clearly envisages that in cases where profit and loss account and balance-sheet are not accompanying the return of income, it would be regarded as defective in contradistinction to invalid return. A defective return, therefore, cannot be regarded as invalid return ipso facto. It may assume the character of invalid return if the defect after due notice has not been removed by the assessee. The question is not res integra and fell for consideration of a Division Bench of the Calcutta High Court in the case of CIT v. Bharat Refineries Ltd. [1986] 162 ITR 652. In that case, the profit and loss account and balance-sheet were not enclosed with the return as is the position in the instant case. The assessee in response to the notice had produced and filed its profit and loss account as well as the balance-sheet. The Assessing Officer completed the assessment. On appeal, the Commissioner of Income-tax (Appeals) held that the return was invalid and he set aside the assessment so far as the charging of interest was concerned and directed the Assessing Officer to charge interest on the return from the date of the return till the date of furnishing the profit and loss account and balance-sheet. On further appeal, the Tribunal found that the return filed by the assessee was accepted by the Assessing Officer as a legally valid return and he had acted upon the same. The Tribunal set aside the order of the Commissioner of Income-tax (Appeals). On a reference made to the High Court, it was held that once the return has been found to be valid and only a defect within the meaning of section 139(9) of the Act was found then the Commissioner of Income-tax (Appeals) was not justified in levying interest.

We are in respectful agreement with the view taken by the Division Bench of the Calcutta High Court in the case of Bharat Refineries Ltd. [1986] 162 ITR 652, which has been correctly followed and applied by the Tribunal. The finding recorded by the Tribunal in the instant case that the return was defective in contradistinction to be invalid must be regarded as a question of fact. Moreover, the absence of profit and loss account and balance-sheet from the return is itself has been considered by clause (e) of the Explanation appended to sub-section (9) of section 139 of the Act. Therefore, it cannot be concluded that the return, in fact, was filed on the day when the defect was removed, i.e., on January 3, 1992. The date of filing the return would not change a fortiori. It follows that the period of limitation for issuance of notice under section 143(2) of the Act could be issued only within a period of six months (as prevailing at the relevant time, i.e., the assessment year 1989-90).

Conclusion

In view of rising litigation attributable to section 139(9), it can safely be concluded that in the event of defect being pointed out by the assessing officer and/or by the Centralized Processing Cell, the assessee in terms of provisions of section 139(9) is required to rectify the defect within fifteen days. Upon removal of defect within the time allowed, the rectified return would relate back to the filing of original return and the time limit stipulated in the proviso appended to section 143(2) will have to be adhered and followed in letter and spirit. The assessee will have to be on the vigil to ensure that the defect pointed out is duly rectified within the time allowed subject to any extension so granted by the concerned authority. In the event, the assessee fails to rectify the defect so pointed out by notice issued under section 139(9), it may be in the discretion of the quasi-judicial authority to treat the return as invalid and all consequences will apply as if the return was not filed. At the same time, it is undisputed that the department must intimate the assessee as to any defect apparent thereby enabling it to rectify the same within the time allowed. Recently, a very significant issue in context of section 139(9) arose before the Hon’ble Income Tax Appellate Tribunal, Pune Rs. A’ Bench in a case titled Deputy Commissioner of Income Tax v. Husco Hydraulics Private Limited, ITA No.506/Pune/2017 reported at [2019] 110 Taxman.com 388/[2019] 179 ITD 559/[2020] 187 DTR (Pune)(Trib) 99, wherein the moot issue was as to whether absence of intimation of defect by the assessing officer could invalidate his action under section 139(9) to treat the return as non-est thereby paving way for section 148 action. Hon’ble ITAT has rightly observed that in absence of any intimation as to any defect in return under section 139(9), action of the assessing authority in treating the return as invalid is non-est and without any lawful action. Thus, thereby providing no ground to the department to invoke the measures provided under section 148. In light of the statutory provisions, it is imperative on the part of assessing authority or CPC to intimate the assessee as to any defect apparent in the return so filed and upon rectification of defect, the rectified return will relate back to the filing of original return thereby leading to the lawful conclusion that time to issue statutory notice under section 143(2) cannot be stretched by taking recourse to rectified return.