ITR filed after s.148 notice treated non-est; AO must issue s.143(2) before using ITR figures

ITAT, Kolkata held that where an ITR filed in response to a s.148 notice beyond the due date is treated as non-est, its figures cannot be used as the basis for computing income. The AO framed assessment without issuing a s.143(2) notice and relied on the ITR to compute income before making additions; CIT(A)'s decision upholding that approach was unsustainable. The Tribunal allowed the assessee's appeal, noting support from a Delhi HC decision that if the ROI filed in response to s.148 is taken into account, the AO must issue a s.143(2) notice before framing assessment.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether, where a return of income is filed in response to a notice under section 148 after the prescribed time limit and is treated as "non-est" (invalid), the Assessing Officer may lawfully frame an assessment using the contents of that belated return without issuing a notice under section 143(2).

2. Whether a return treated as non-est can serve as the basis for computation of income in an assessment under section 147/148, and if reliance is placed on such return, whether issuance of notice under section 143(2) is mandatory prior to framing the assessment.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Obligation to issue notice under section 143(2) where a belated return filed in response to section 148 is considered in assessment

Legal framework: Section 148 enables reopening of assessment where income has escaped assessment; section 148A(d) requires recording satisfaction leading to issuance of the section 148 notice; section 143(2) provides for issuance of notice to the assessee before framing scrutiny assessment on a valid return; section 139(1) prescribes filing of return within specified time. The concept of a return being "non-est" refers to a return filed beyond the time specified in the section 148 notice and thereby not treated as a valid return for certain statutory purposes.

Precedent Treatment: The Tribunal relied on the reasoning in the decision of the High Court that where a belated return is filed, is not disputed, and is actually taken into account by the AO in framing the assessment, the AO ought to have issued notice under section 143(2) before framing the assessment. That High Court decision was followed by the Tribunal in the present matter.

Interpretation and reasoning: The Tribunal examined the factual matrix where a belated return filed in response to section 148 was treated by the AO as non-est, yet the AO used the income declared in that return as the basis for computation and made additions thereto. The Tribunal reasoned that if the AO relies on the contents of such a return in framing the assessment, the statutory procedure under section 143(2) must be complied with - issuance of the notice is a procedural precondition to framing a scrutiny assessment where a return (even though belated) is being acted upon. Failure to issue section 143(2) notice when the return's contents have been considered renders the assessment unsustainable in law.

Ratio vs. Obiter: Ratio - Where a belated return, filed in response to a section 148 notice and treated as non-est, is nonetheless taken into account by the AO in computing income, the AO is obliged to issue a notice under section 143(2) before framing the assessment; failure to do so vitiates the assessment. Obiter - Observations on the characterisation of "non-est" returns in general; procedural interplay commentary beyond the facts was ancillary.

Conclusion: The Tribunal concluded that the AO ought to have issued a notice under section 143(2) prior to framing the assessment since the belated return's contents were taken into account; the absence of such notice rendered the assessment invalid and required quashing of the assessment order.

Issue 2: Legitimacy of using a return treated as non-est as basis for computation of income

Legal framework: Section 139(1) prescribes valid filing timelines; section 148 prescribes time-limited compliance after reopening; the notion of a return being treated as "non-est" arises where the return is filed beyond the timeframe specified in the section 148 notice, affecting its statutory recognition. The AO's powers under section 147/148 permit assessment of escaped income, but procedural safeguards (including notices required by section 143(2)) govern how assessments based on returns are to be conducted.

Precedent Treatment: The Tribunal relied upon the High Court's decision holding that when a belated return is taken into account by the AO, issuance of section 143(2) notice is required; the Tribunal treated that precedent as directly applicable and supportive of quashing the assessment where the AO proceeded without issuing section 143(2).

Interpretation and reasoning: The Tribunal held that if a return is formally treated as non-est because it was filed beyond the prescribed time, then the AO cannot legitimately base the computation of income on such return without following the procedural step of issuing section 143(2) notice. The Tribunal emphasized the logical inconsistency in treating a return as non-est while simultaneously using its figures as the foundation for assessment - either the return is disregarded (and the AO proceeds on other material) or, if considered, the statutory process for scrutiny of a return (section 143(2)) must be followed.

Ratio vs. Obiter: Ratio - A return treated as non-est cannot be used as the basis for computation of income in an assessment unless the AO issues the notice under section 143(2) when the return's contents are in fact relied upon; using a non-est return without issuing the requisite section 143(2) notice vitiates the assessment. Obiter - Discussion on the correctness of treating belated responses to section 148 as "non-est" in varying factual permutations beyond the facts of the case.

Conclusion: The Tribunal concluded that the AO's approach of treating the return as non-est yet adopting its declared income as the starting point for assessment was legally untenable. As the AO had taken the belated return into account and no section 143(2) notice was issued, the assessment was quashed.

Cross-reference

Where the AO considers the contents of a belated return filed in response to a section 148 notice, Issues 1 and 2 converge: the procedural obligation to issue section 143(2) attaches because the return is being acted upon; failure on this procedural front invalidates an assessment founded on such return.

Final Disposition

The Tribunal quashed the assessment framed without issuance of notice under section 143(2) where the AO had taken into account the income declared in a belated return treated as non-est, and allowed the appeal.

---