Delhi High Court: Limitation under Section 143(2) Determined by ITR Filing Date and Not Defect Removal Date

Delhi High Court: Limitation under Section 143(2) Determined by ITR Filing Date and Not Defect Removal Date

The Delhi High Court has ruled that if an income tax return is deemed valid but contains a defect under Section 139(9) of the Income Tax Act, interest cannot be imposed.

The division bench comprising Justices Rajiv Shakdher and Girish Kathpalia determined that considering the original filing date of the Return of Income (ROI) on October 14, 2016, the notices served on the petitioner or assessee would be time-barred. This is based on the first proviso appended to Section 143(2) of the Income Tax Act, which, at the relevant time, stipulated that the notice under the said Section could not be served on the assessee, in this case, the petitioner, after the expiry of six months from the end of the financial year in which the ROI is filed.

The petitioner or assessee challenged the validity of the notices issued under Section 143(2) and Section 142(1) of the Income-tax Act, 1961, arguing that they were barred by limitation.

On February 6, 2017, the assessee received a notice under Section 139(9) highlighting defects in their original ROI filed on October 14, 2016, which declared a loss of ₹3,85,73,772.

The assessee complied with the respondent or department's requests to rectify the defects in their ROI on February 18, 2017.

The assessee received another notice dated July 10, 2017, reiterating the presence of defects in the ROI filed for AY 2016-17 on October 14, 2016. The petitioner/assessee once again addressed the defects, this time on July 20, 2017. The Assessing Officer processed the originally filed ROI on November 22, 2017, after the defects had been rectified. An intimation to this effect was served to the petitioner under Section 143(1). Subsequently, the assessee received the first notice under Section 143(2) on August 11, 2018, and the second notice under Section 142(1) on August 31, 2018.

The petitioner maintained that the original return filed on October 14, 2016, remained unchanged and that the notice issued under Section 139(5) and the subsequent compliance should not be equated with the provisions of Section 139(9).

The return was processed under Section 143(1). The petitioner asserted that the notices were invalid and illegal as they were time-barred. The petitioner reiterated this point regarding the expiration of the limitation period in a communication dated October 11, 2018.

The petitioner/assessee received a communication on October 24, 2018, which essentially overturned their argument that the impugned notices were subject to time limitations.

The assessee contended that the notices were time-barred as they exceeded the time limit specified in the first proviso to Section 143(2). For the relevant assessment year (AY) 2016-17, effective June 1, 2016, the time limit for issuing a notice under Section 143(2) of the Act was six months from the end of the financial year in which the return was filed.

The assessee asserted that the limitation period under the proviso to Section 143(2) should be calculated from the last day of the financial year in which the original ROI was filed, which is March 31, 2017. Consequently, the limitation period would expire six months after that date, on September 30, 2017.

The department maintained that a notice under Section 143 could only be issued after the defect in the ROI was rectified, and therefore, the disputed notices were issued within the statutory time limit.

The Court observed that a defective return cannot be considered invalid per se. It only acquires the status of an invalid return if the assessee fails to rectify the defect after receiving due notice.

The Court held that it is clear that the notice issued under Section 143(2) of the Act is time-barred, rendering the subsequent notice under Section 142(1) of the Act invalid as well. Consequently, the Court ruled to quash both notices.