In a major relief to National Informatics Centre Services Inc., a division bench of the Delhi High Court held that scrutiny assessment without a notice under Section 143(2) of the Income Tax Act within the prescribed time is not valid.
In the instant case, assessee filed its income tax return for the year 2009-10 through electronic form. But it could not file ITR Form V, i.e., the verification, since there was no facility to file the same electronically. Assessee expected to send a hard copy of the same by post to the Headquarters at Central Processing Centre (CPC), Bengaluru. Later, the due date for filing of ITR-V forms for parties, who did not have digital signatures, but, had filed their returns through electronic mode under Rule 12(3)(iii) of the Income Tax Rules was extended till 31.12.2010. The assesse’s returns, in the meanwhile, were not processed and Revenue treated the documents filed as “Nil” return. Consequently, the department made assessment under Section 143(3) and also imposed penalty on the assessee.
On appeal, both the first appellate authority and the Tribunal quashed the assessment by stating 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.
Against the ITAT order, the Revenue approached the High Court contending that as per Rule 12(3) of the Income Tax Rules and 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.
Upholding the orders of the lower authorities, Justices Ravindra Bhatt and A K Chawla said that he con-joint reading of para 10 of Circular No.3 of 2009 and the circular dated 01.09.2010 makes it clear, beyond any manner of doubt, that, CBDT itself was alive 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. It 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.”
“In the present case, the assessee had filed its return electronically on 30.09.2009. It says that it availed of the filing of the ITR-V forms through post. The Revenue is not in a position to verify either way. It is precisely to cater to this circumstance that the circular of 01.09.2010 (especially para 2) 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 interpretation sought to be placed by the Revenue now that fresh returns were necessary, in the opinion of the Court, flies against the opinion of the CBDT and the circumstances, under which, both the circulars were framed and published. In other words, 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,” the bench said.
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