2017 (1) TMI 855 - HC - Income Tax

High Court clarifies authority on defective tax return notices and limits on rectification review

The High Court clarified that the Assessing Authority was not obligated to issue a notice for a defective return under Section 139(9) of the Income Tax ... Obligation on the part of Assessing Authority to issue a notice to the assessee inviting attention towards defect in the return under Section 139 (9) - Held that:- The first question with regard to Section 139(9) of Act 1961, does not arise, for the reason that Assessing Authority has not rejected Return for any defect therein and in fact the revised Return filed by Assessee on 21.01.1993 was taken and thereafter Returning Authority proceeded to make assessment by means of order dated 13.12.1994. Hence Section 139(9) has no application. Therefore, as agreed by learned counsel for both parties, we find that question 1 does not arise from impugned judgment. Rectification of mistake - assessed loss and unabsorbed depreciation to be carried forward and treat return as a valid return in absence of Section 139(9) - Held that:- CIT(A) in fact, considering various submissions advanced by Assessee on merits, has virtually changed earlier order and now allowed appeal and directed Assessing Officer to allow assessed loss and unabsorbed depreciation to be carried forward and treat return as a valid return in absence of Section 139(9) of Act 1961 and thereby has virtually reviewed earlier assessment. This approach of CIT(A) in passing order dated 21.09.2000 under Section 154 is found patently illegal and without jurisdiction. Since in the garb of rectification of mistake, CIT(A) could not have reviewed its earlier order. Therefore, in the appeal preferred by Revenue, Tribunal has rightly allowed appeal and set aside order passed by CIT(A). As in the garb of rectification of mistake, no authority has jurisdiction to review an earlier order and pass fresh order having effect of changing order in its result and on various other aspects. This cannot be said to be a mistake apparent on the face of record. We therefore, answer question against appellant-Assessee and in favour of Revenue. Issues:1. Obligation of Assessing Authority to issue notice for defective return under Section 139(9) of the Income Tax Act.2. Jurisdiction of appellate authority to set aside a rectification application under Section 154 of the Income Tax Act.Analysis:Issue 1:The first issue pertained to the obligation of the Assessing Authority to issue a notice for a defective return under Section 139(9) of the Income Tax Act. The High Court found that this question did not apply in the case at hand as the Assessing Authority had not rejected the return for any defect. The revised return filed by the Assessee was accepted, and the assessment was carried out accordingly. Therefore, the court concluded that Section 139(9) had no relevance to the situation, and this issue did not arise from the judgment.Issue 2:The second issue revolved around the jurisdiction of the appellate authority to set aside a rectification application under Section 154 of the Income Tax Act. The Assessee had filed an application under Section 154, contending that the Commissioner Income Tax (Appeal) had overlooked certain provisions of the Act and had essentially passed a fresh order in the guise of rectification. The Commissioner had allowed the appeal, leading to a change in the earlier order. The High Court held that the Commissioner had overstepped by reviewing the earlier assessment under the pretext of rectification. Citing the case of Honda Siel Power Products Ltd. Vs Commissioner of Income Tax, Delhi, the court emphasized that the purpose of rectification was not to enable a review of an earlier order but to correct mistakes apparent from the record to prevent prejudice to any party. Consequently, the court ruled in favor of the Revenue, stating that rectification cannot be used to alter the substance of an order. The High Court dismissed the appeal, affirming the decision of the Tribunal to set aside the order passed by the Commissioner.In conclusion, the High Court's judgment clarified the limitations of rectification under Section 154 of the Income Tax Act, emphasizing that it cannot be utilized as a tool to review or alter an earlier order substantially. The decision underscored the importance of rectification in correcting mistakes without prejudicing any party involved in the proceedings.