Belated return filed after notice under s.142(1) is valid; AO must issue s.143(2) notice or s.144 assessment invalid

ITAT held that a belated return filed in response to a notice under s.142(1) is a valid return (subject to s.234A interest) and the AO must issue a notice under s.143(2) to acquire jurisdiction for scrutiny. The AO's failure to issue s.143(2) notice rendered the assessment framed under s.144 invalid; s.292BB could not cure this defect. The s.144 assessment was quashed and the assessee's appeal was allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether an assessment framed under section 144 of the Income Tax Act, 1961 is valid where a return of income was filed belatedly in response to a notice under section 142(1) but no notice under section 143(2) was issued prior to making the assessment.

2. Whether a return filed belatedly in response to a notice under section 142(1) is a valid return for purposes of invoking the provisions of section 143(2) and related assessment provisions, and whether such belatedness renders the return invalid or only attracts interest under section 234A.

3. Whether failure to issue notice under section 143(2) before completing an assessment is curable under section 292BB or otherwise, and whether such failure affects the jurisdiction of the Assessing Officer to make the assessment.

4. Whether, having decided the threshold legal issue regarding section 143(2), other grounds relating to merits of estimation of income, application of limited scrutiny instructions, and profit percentages require adjudication.

ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: Validity of assessment under section 144 where no notice under section 143(2) was issued despite belated return filed in response to section 142(1)

Legal framework: Section 142(1) empowers the Assessing Officer to call for a return; section 143(2) mandates service of notice requiring production of evidence where a return has been furnished under section 139 or in response to section 142(1); section 144 provides for best judgment assessment where return is not furnished or where AO is unable to make regular assessment.

Precedent treatment: The Tribunal followed consistent decisions of coordinate and jurisdictional Benches which hold that when a return is filed in response to a notice under section 142(1), issuance of notice under section 143(2) is mandatory for the AO to acquire jurisdiction to make an assessment based on that return; absence of such notice renders the subsequent assessment unsustainable.

Interpretation and reasoning: The Court found it undisputed that the return was filed (albeit belatedly) in response to the section 142(1) notice and the AO had the return before framing the assessment under section 144. The statutory language of section 143(2) requires the AO to serve a notice to enable the assessee to produce evidence in support of the return; absent such notice the procedural prerequisite to a regular scrutiny assessment is missing and the AO could not lawfully proceed to make a best judgment assessment under section 144 without first issuing the 143(2) notice.

Ratio vs. Obiter: Ratio - where a return is filed in response to a section 142(1) notice, the Assessing Officer must issue notice under section 143(2) before completing an assessment; absence of such notice invalidates an assessment made under section 144. Obiter - procedural remarks on administrative discretion in setting time in a section 142(1) notice.

Conclusion: Assessment framed under section 144 without issuing notice under section 143(2), when a return was on record in response to section 142(1), is not sustainable and must be quashed.

ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: Validity of belated return filed in response to section 142(1) and applicability of section 234A

Legal framework: Section 234A imposes interest where a return required to be furnished under section 139 or in response to section 142(1) is furnished after the due date; section 139 framework governs validity of returns.

Precedent treatment: The Tribunal relied on prior Benches observing that belated filing in response to a section 142(1) notice does not render the return invalid; it remains a return for purposes of the Act but may attract interest under section 234A.

Interpretation and reasoning: The Court held that the time limit stipulated in a section 142(1) notice is administrative and not a "Laxman Rekha" making belated returns void. The statutory scheme (notably section 234A) contemplates and penalizes late filing by interest, rather than treating the return as invalid. Consequently, a belated return filed in response to section 142(1) must be treated as a return and engage the mandatory process under section 143(2).

Ratio vs. Obiter: Ratio - a return filed after the time fixed in a section 142(1) notice still qualifies as a return under the Act and attracts interest under section 234A; it must be taken on record for purposes of section 143(2). Obiter - administrative observations on variable time periods specified in section 142(1) notices.

Conclusion: Belated returns filed in response to section 142(1) are valid returns for assessment purposes and subject to interest under section 234A; they necessitate issuance of notice under section 143(2) before assessment completion.

ISSUE-WISE DETAILED ANALYSIS - ISSUE 3: Curability of failure to issue section 143(2) notice under section 292BB and effect on AO's jurisdiction

Legal framework: Section 292BB addresses curative effect for certain defects relating to notices emanating from the Department; jurisdictional principles require that the AO comply with mandatory statutory notice requirements to acquire jurisdiction to proceed with assessment.

Precedent treatment: The Tribunal applied authorities that limit the scope of section 292BB and hold that complete absence of notice cannot be cured by section 292BB, which is intended to cure infirmities in service rather than absence of statutory jurisdictional notice.

Interpretation and reasoning: The Court observed that the AO neither issued nor relied upon any 143(2) notice prior to framing the assessment and did not treat the return as invalid. Given that issuance of a 143(2) notice is a precondition to regular scrutiny when a return exists, failure to do so results in lack of jurisdiction which cannot be retrospectively validated by section 292BB.

Ratio vs. Obiter: Ratio - failure to issue mandatory notice under section 143(2) (when a return exists) is not curable by section 292BB and vitiates the assessment; Obiter - general comments on the limited scope of section 292BB.

Conclusion: The absence of a section 143(2) notice rendered the assessment without jurisdiction and not curable by section 292BB; the assessment had to be quashed.

ISSUE-WISE DETAILED ANALYSIS - ISSUE 4: Necessity of adjudicating other grounds once the section 143(2) issue is decided

Legal framework: Where a threshold legal defect invalidates an assessment, subsidiary factual or valuation issues often become academic unless remand is required for fresh adjudication.

Precedent treatment: The Tribunal followed the approach of remitting or quashing assessments where mandatory procedural prerequisites were not complied with and treating subordinate grounds as academic where outcome is governed by the threshold defect.

Interpretation and reasoning: Having held that the assessment was vitiated for failure to issue section 143(2) notice, the Tribunal treated grounds challenging profit estimation, limited scrutiny procedure, and other factual contentions as academic because the order under challenge was quashed and fresh adjudication would be required by the Assessing Officer.

Ratio vs. Obiter: Ratio - where an assessment is quashed for lack of jurisdiction/procedural non-compliance, contested factual and valuation grounds become academic and need not be decided by the appellate forum; Obiter - none significant beyond procedural consequence.

Conclusion: Other grounds raised by the assessee are dismissed as academic in view of quashing the assessment for failure to issue section 143(2) notice; matter remitted for fresh adjudication if required.

FINAL CONCLUSION

The assessment framed under section 144 without issuing mandatory notice under section 143(2), despite a belated return being on record in response to section 142(1), is quashed; belated returns in response to section 142(1) qualify as valid returns attracting interest under section 234A; failure to issue section 143(2) is not curable by section 292BB; consequentially, other grounds challenging the merits were treated as academic.

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