El plazo de prescripción conforme al art. 143(2) se calculará desde la fecha de la declaración original, no desde la fecha de subsanación del defecto.

Held by Hon’ble ITAT in the matter of

Aark Infosoft Private Limited Vs The ACIT, Circle-1(1)(1), Ahmedabad (ITA No. 681/Ahd/2023)

The Assessee filed the Income Tax return on 28.07.2017. Notice for defective return was issued to the Assessee on 06.07.2018 and such defect was rectified on 19.08.2018. Therefore, the return got processed under Section 143(1)(a) of Income Tax Act and corresponding refund was also issued. Later, notice was issued under section 143(2) of the act on 22nd September, 2019. The Assessee challenged the validity of Assessment framed under Section 143(2) contended that notice was issued beyond period of limitation. The Assessee contended that The limitation for issuance of notice u/s 143(2) of the Act was not to be determined from the date/end of the financial year in which the defect was rectified. Rather the same should be determined from the date/end of financial year when the original return of income was filed. 

Hon’ble ITAT held that Proviso to Section 139(9) clearly specifies that assessment proceedings can be initiated even if defect, issued under section 139(9) of the act, is not removed. Therefore, removal of defect is no bar to the Assessing Officer from proceeding with his assessment proceedings. Accordingly, the Assessing Officer can proceed with the assessment without waiting for the removal of defects. Since, the assessment proceedings can be initiated even with defective returns, therefore, the limitation for issuing notice u/s 143(2) of the Act will logically run from the year in which return is filed and not when the defect is removed by the assessee. 

1. Resumen de los hechos del caso

1. M/s Aark Infosoft Private Limited (“The Assessee”) filed income tax return for A.Y. 2017-18 under section 139(1) of Income Tax Act on 28th october, 2017.
2. Notice of defective return was issued to the Assessee on 6th June, 2018.
3. After subsequent reminders, the Assessee ultimately rectified the defect on 19th August, 2018.
4. After filing, preliminary assessment of the return got completed on 30th March, 2019 under section 143(1)(a) of the Act.
5. Refund was issued to the Assessee on 9th April, 2019.
6. Further, Notice u/s 143(2) of the Act was issued to the Assessee on 22nd September, 2019.
7. The Assessee raised a legal ground challenging validity of assessment framed on account of jurisdiction notice under Section 143(2) on account that notice is issued beyond the period of limitation specified under the section.

2. Issue under Litigation

The Issue for litigation is whether the jurisdictional notice issued for framing assessment under Section 143(2) of the Act, was issued within the time limit prescribed under the Act for doing so?

3. Relevant Legal Extract

Relevant legal extract is reiterated below for ready reference:

a. Relevant Extract of Section 143(2) of Income Tax Act, 1961:

““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.

..”

b. Proviso to Section 139(9) of Income Tax Act:

“139…. 

(9) Where the Assessing Officer….

Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the return as a valid return.” 

4. Contention of the Assessee

The Assessee contended that:

• After filing of return of Income of relevant assessment year, defect notice u/s 139(9) of the Act was sent to the assessee.
• Such defect notice was cured by the Assessee on 19.08.2018.
• Thereafter, notice was issued to the Assessee u/s 143(2) of the Act on 22.09.2019 assuming jurisdiction to initiate assessment proceedings, on 22.09.2019.
• The limitation for issuance of notice u/s 143(2) of the Act was not to be determined from the date/end of the financial year in which the defect was rectified. Rather the same should be determined from the date/end of financial year when the original return of income was filed.
• In the given case, the return of income was filed on 28.10.2017.
• Therefore, as per Section 143(2) of the act, notice was to be issued by 30.09.2018.
• However, in the given case, it was issued on 22.09.2019, i.e. more than a year after the prescribed date. Therefore, the assessment framed was not sustainable and liable to be quashed.
• Date of rectification of defect in the return is of no relevance under Section 143(2).

5. Contention of the Department

The Department Representative contended that:

• Limitation for issuance of notice u/s 143(2) of the Act was to be determined from the date when the defect was removed by the assessee, i.e., 19.08.2018. Therefore, notice is issued within the limitation prescribed under the Act.  
• The Assessee had cured the defect beyond the time period prescribed u/s 139(9) of the Act dealing with defective returns.
• Further, reliance was placed on decisions of Hon’ble Supreme Court in the case of Deputy Commissioner of Income-tax (Exemption) Vs. Kalinga Institute of Industrial Technology, wherein it was held that where the assessee do not challenge the defect in the notice and participated in the proceedings, subsequently, he shall be debarred from challenging jurisdiction of the Assessing Officer.

6. Análisis y conclusiones del Tribunal de Apelaciones del Impuesto sobre la Renta

El Tribunal de Apelaciones del Impuesto sobre la Renta (ITAT) ha analizado lo siguiente:

• La disposición del artículo 139(9) de la Ley especifica claramente que la subsanación de un defecto no impide que el funcionario evaluador continúe con sus procedimientos de evaluación.
• Según el artículo 139(9) de la Ley, los contribuyentes deben subsanar los defectos en la declaración de impuestos tras recibir la notificación correspondiente dentro del plazo establecido. Sin embargo, según la disposición, si el defecto se subsana después de vencido el plazo, pero antes de que se realice la evaluación, el funcionario evaluador puede condonar la demora y considerar la declaración como válida.
• Esto significa claramente que el contribuyente puede subsanar los defectos hasta el momento en que se formula la evaluación.
• En consecuencia, el funcionario evaluador puede proceder con la evaluación sin esperar a que se subsanen los defectos.
• Dado que los procedimientos de evaluación pueden iniciarse incluso con declaraciones defectuosas, el plazo para emitir la notificación conforme al artículo 143(2) de la Ley contará lógicamente desde el año en que se presentó la declaración y no desde que el contribuyente subsanó el defecto.
• Además, el Tribunal Superior jurisdiccional en el caso de Kunal Structure (India) (P.) Ltd. (supra) sostuvo que:
  • Un defecto en una declaración no requiere presentar una nueva, sino solo subsanar el defecto. El acto de subsanación se retrotraerá a la fecha de presentación de la declaración de la renta.
  • Asimismo, el plazo prescrito para emitir la notificación conforme al artículo 143(2) de la Ley corre desde la fecha de presentación de la declaración de la renta según el artículo 139 o el artículo 142(1) de la Ley.
  • Por lo tanto, la notificación conforme al artículo 143(2) de la Ley debía emitirse dentro del plazo prescrito desde la fecha de presentación de la declaración de la renta y no desde la fecha de subsanación del defecto conforme al artículo 139(9) de la Ley.

• Asimismo, con respecto a la aplicabilidad de la decisión del Tribunal Supremo en el caso del Kalinga Institute of Industrial Technology (supra), se ha cuestionado la jurisdicción de los funcionarios evaluadores bajo el artículo 124 de la Ley, lo cual no tiene relación con el plazo prescrito en el artículo 143(2) de la Ley.
• La Administración ha sostenido que el contribuyente no subsanó el defecto dentro del plazo prescrito y, por tanto, la declaración original se considera inválida. En consecuencia, el plazo conforme al artículo 143(2) de la Ley debe determinarse a partir de la fecha de subsanación del defecto. Sin embargo, si la declaración original debe considerarse inválida, entonces se consideraría que no se ha presentado ninguna declaración. En tal caso, ¿cómo podría emitirse una notificación conforme al artículo 143(2) en ausencia de una declaración de la renta válida?
• Además, al aceptar el defecto subsanado por el contribuyente y procesar posteriormente la declaración conforme al artículo 143(1) de la Ley, parece que el funcionario evaluador ha condonado la demora en la subsanación del defecto.

7. Orden

El Tribunal de Apelaciones del Impuesto sobre la Renta ha dictaminado la anulación de la orden de evaluación al considerar que la notificación jurisdiccional conforme al artículo 143(2) de la Ley se emitió fuera del plazo prescrito por la misma.