2023 (5) TMI 54 - AT - Income Tax

Appeal delay condoned, interest contested under section 234A, rectification order challenged, tribunal upholds former return validity.

Shri Nakul Machindra Mhaske Versus The Income Tax Officer, Ward – 7 (3), Income Tax Office, Pune. Maharashtra.

Shri Nakul Machindra Mhaske Versus The Income Tax Officer, Ward – 7 (3), Income Tax Office, Pune. Maharashtra. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether delay of 37 days in filing the appeal should be condoned given explanations of communication gaps and the requirement of substantial justice. 2. Whether a return filed on 08.02.2013 (after the due date) without payment of self-assessment tax could be treated as a 'defective' or 'invalid' return under section 139(9) read with the relevant Explanation, thereby attracting interest under section 234A via a rectification under section 154. 3. Whether a section 154 rectification can be validly invoked to enhance or levy interest under section 234A where the underlying reassessment/order itself is challenged as void or where the question of defect in the earlier return is debatable. 4. Consequential question: If the earlier return is treated as valid, whether there was any occasion to initiate reassessment under section 147 and, relatedly, whether interest under section 234A can be levied only up to the date of filing the original return or up to the date of filing the return in response to notice under section 148. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay Legal framework: Courts grant condonation of delay where sufficient cause is shown and in accordance with the principle that technicalities should yield to substantial justice. Precedent treatment: The Court applied established authority favoring substantial justice over rigid technicality; the Revenue did not rebut the factual averments explaining delay. Interpretation and reasoning: The affidavit attributed delay to communication gaps at various levels; absence of rebuttal by Revenue and the controlling principle of doing substantial justice supported condonation. Ratio vs. Obiter: Ratio - delay condoned; Obiter - none relevant beyond affirmation of settled principle. Conclusion: Delay of 37 days in filing the appeal is condoned. Issue 2 - Validity of the 08.02.2013 Return: Whether it was 'defective/invalid' under section 139(9) and Explanation Legal framework: Section 139(9) provides that certain returns can be treated as defective if specified documents (including proof of advance tax/self-assessment tax where claimed) are not attached, with the Explanation specifying 'tax, if any' claimed to have been paid. Precedent treatment: The Tribunal relied on coordinate-bench authority distinguishing cases where the return merely omitted tax payment (i.e., no claim of payment) from cases where the return claims payment but fails to attach proof; that authority was followed and applied to the facts. Interpretation and reasoning: The Court emphasized that the Explanation to section 139(9) requires proof attachment only when the return claims payment (tax at source, advance tax or self-assessment). If the assessee did not claim to have paid such tax, omission of payment does not make the return defective under section 139(9). The factual matrix showed the 08.02.2013 return was filed without claiming payment of self-assessment tax; hence the statutory machinery to declare it defective under section 139(9) was not triggered. The Court further observed that other provisions (e.g., section 140A consequences, section 221 penalty, restriction on appeals) address non-payment, indicating that construing section 139(9) to require prior payment would render those provisions redundant. Ratio vs. Obiter: Ratio - a return filed without claiming payment of tax cannot be held to be defective under section 139(9) for want of payment challans; Obiter - references to purposive interpretation to avoid nullifying other provisions. Conclusion: The 08.02.2013 return was not a defective/invalid return under section 139(9) and its Explanation; it was a valid return for statutory purposes. Issue 3 - Validity of section 154 rectification to levy interest under section 234A where the return's validity is debatable or the re-assessment is challenged as void Legal framework: Section 154 permits rectification of mistakes apparent from the record; it cannot be used to decide substantial or debatable questions of fact or law; interest under section 234A arises on default in furnishing return. Precedent treatment: The Court considered authorities relied upon by both sides - those supporting rectification to levy interest and those cautioning against using section 154 to decide debatable questions - and sided with the line holding that section 139(9) is a self-contained code and that section 154 cannot be used to retroactively convert a valid return into a defective one where the statutory preconditions were absent. Interpretation and reasoning: The Court found the question of defect in the return was not a mere 'mistake apparent from record' but a substantive and debatable legal question requiring application of section 139(9) and its Explanation. Since the return did not claim tax payment, there was no missing attachment that would make it defective under the specific provisions. Therefore, rectification under section 154 to raise interest under section 234A was not legally sustainable. The Court rejected Revenue's contention that section 154 could be employed to levy section 234A interest by treating the earlier return as defective in the absence of any intimation under section 139(9) or follow-up procedure contemplated by that provision. Ratio vs. Obiter: Ratio - section 154 cannot be used to levy section 234A interest by re-characterizing a return as defective where statutory conditions for declaring defect under section 139(9) are not met; Obiter - discussion of interplay between sections 139(9), 140A, 221 and limitation of rectification power. Conclusion: The section 154 rectification levying interest under section 234A is not valid on these facts; the action of lower authorities in this respect is reversed. Issue 4 - Consequential question on period of levy of interest under section 234A and the necessity of reassessment under section 147 Legal framework: Interest under section 234A relates to default in furnishing return; valid filing of return negates default for the original-return period; reassessment under section 147 requires reasons to believe income has escaped assessment. Precedent treatment: The Court noted that if the original return is valid and declared income is accepted, there is no occasion for issuing section 148 notice or levying interest retrospectively; revenue could not show any intimation under section 139(9) that would have permitted treating the earlier return as defective. Interpretation and reasoning: Because the 08.02.2013 return was valid, there was no default attracting section 234A for the intervening period up to re-assessment; consequently, interest could not be levied by rectification up to a later date merely because a re-assessment was later framed. The Court observed that the Assessing Officer's separate notices or demands (e.g., demand for self-assessment tax) did not constitute intimation under section 139(9) and thus could not be used to trigger defect provisions. Ratio vs. Obiter: Ratio - where an original return is valid, interest under section 234A cannot be levied beyond the scope allowed by the statute by use of section 154 rectification; Obiter - clarification that procedural notices short of statutory intimation under section 139(9) do not suffice to convert a return into a defective one. Conclusion: There was no occasion to levy section 234A interest by rectification to extend liability up to the date of reassessment; the reassessment could not be used to cure absence of statutory preconditions for declaring the return defective. Overall Disposition The Court allowed the appeal on the substantive ground that the 08.02.2013 return was not defective under section 139(9), held that section 154 could not be lawfully invoked to levy section 234A interest in the circumstances, reversed the impugned rectification order charging interest, and affirmed condonation of the institutional delay in filing the appeal.