CPC Cannot Process Invalid Return Under Section 143(1) When Valid Belated Return Available

ITAT Indore held that where assessee filed first return but failed to submit ITR-V within 120 days, making it invalid and deemed never filed, the CPC erred in processing this invalid return under section 143(1) and denying exemption under section 10(23C)(iiiad). Since assessee had filed valid second belated return under section 139(4) available in departmental database at time of processing, CPC should have considered the valid return. Orders under sections 154 and 143(1) set aside, matter remanded to AO for fresh examination of exemption claim with proper hearing opportunity. Appeal allowed.

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Issues involved:
The judgment involves the validity of the return filed by the assessee, the processing of the return by the CPC, and the entitlement of the assessee for exemption under section 10(23C)(iiiad) of the Income-tax Act, 1961 for Assessment Year 2015-16.

Validity of Return:
The assessee filed a return on 08.02.2016, referred to as the "1st Return," but failed to submit the ITR-V within the prescribed 120 days, rendering the return invalid. Consequently, a new return, the "2nd Return," was filed on 04.03.2017. The CPC processed the invalid 1st return and issued an intimation under section 143(1) on 27.03.2017, which was deemed invalid. The AR argued that the 2nd return should have been processed instead, citing a similar decision by ITAT Cuttack.

Errors in 2nd Return:
The AR acknowledged two errors in the 2nd return. Firstly, the assessee mistakenly selected "revised return u/s 139(5)" instead of a belated return u/s 139(4), which was permissible until 31.03.2017. Secondly, the assessee incorrectly indicated "No" against eligibility for exemption u/s 10(23C)(iiiad) in the "OTHER DETAILS" section. The AR contended that these errors were inadvertent and should not deprive the assessee of the entitled exemption.

Revenue's Response and Tribunal's Decision:
The Revenue did not contest the AR's submissions, leaving the matter for the Tribunal's decision. The Tribunal found the 1st return invalid due to non-compliance with ITR-V submission within the stipulated time, making the subsequent intimation also invalid. As the 2nd return was valid and available during processing, the Tribunal directed a reexamination by the AO for the assessee's entitlement to exemption under section 10(23C)(iiiad), ensuring a fair hearing for the assessee. Consequently, the appeal was allowed, and the matter was remanded for further consideration.

Conclusion:
The Tribunal ruled in favor of the assessee, emphasizing the importance of processing the valid 2nd return and considering the assessee's eligibility for exemption under section 10(23C)(iiiad). The decision highlighted the need for procedural compliance and fair treatment of the assessee's claims, ultimately setting aside the previous orders and providing an opportunity for a thorough review.

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