2025 (10) TMI 565 - AT - Income Tax

Assessing Officer must consider information in most recent revised return before completing assessment; rejecting it breaches duty

Income Tax Officer, Ward-16 (1), Hyderabad. Versus M/s. Lanco Hills Technology Park (P) Ltd., Hyderabad.

ITAT held that the AO must examine and take into account information filed in the most recent ROI even if it differs from the original return; rejecting ... AO not considering the information as filed with the revised Return of Income before the completion of the assessment u/s 143(3) - HELD THAT:- AO is required to examine and take into account the details provided in the most recent ROI, even if they differ from those in the original return. It follows that the rejection of claim made by the assessee in the revised ROI before the assessment is completed violates this legal requirement, which mandates that all relevant information submitted during the assessment proceedings must be considered fairly and judiciously. With this view of the matter, we hold that there is no legal infirmity in the impugned order, and consequently there are no grounds to interfere with the same. Appeal preferred by the revenue is, therefore, devoid of merits and is liable to be dismissed. Grounds are answered accordingly. ISSUES PRESENTED AND CONSIDERED 1. Whether a revised return of income filed after the statutory period under section 139(5) but before completion of assessment under section 143(3) must be considered by the Assessing Officer for adjudication of claims and computation of income. 2. Whether reduction in declared sales (price revision) constitutes an 'omission' or 'wrong statement' within the meaning of section 139(5) so as to render a subsequently filed revised return invalid or inadmissible. 3. Whether completion of assessment under section 143(3) based on an earlier return is sustainable where subsequent revised returns containing materially different facts were filed before completion of assessment and were not considered by the Assessing Officer. 4. Whether the absence of a fresh notice or procedural steps (e.g., fresh notice under section 143(2) or specific further notice) after filing of later revised returns renders the assessment invalid. ISSUE-WISE DETAILED ANALYSIS Issue 1: Consideration of revised return filed after statutory period but before completion of assessment (s.139(5) v. s.143(3)) - Legal framework Legal framework: Section 139(5) permits filing of a revised return where there is omission or wrong statement; section 143(3) governs completion of assessment. The assessment process requires the Assessing Officer to determine income on the basis of the return(s) and any material placed on record before completion. Precedent treatment: The Tribunal relied on coordinate-bench decisions such as DCIT v. Lab India Instruments Pvt. Ltd. (Pune), Lok Housing & Construction Ltd. (Mumbai Bench), and DCIT v. Kamadhenu Builders & Developers, which held that a revised return filed before completion of assessment must be considered even if filed after the statutory period under s.139(5). These decisions were followed. Interpretation and reasoning: The Court emphasized that when a valid revised return with new facts is filed before completion of assessment, the Assessing Officer is duty-bound to examine and take into account the details in the most recent return. An assessment completed by ignoring such a revised return is procedurally and legally unsustainable because it fails to adjudicate claims advanced during the assessment proceedings. Ratio vs. Obiter: Ratio - Where a revised return is filed before completion of assessment, the Assessing Officer must consider it for adjudication even if filed after the period specified in s.139(5). Obiter - General observations on the legislative intent favouring real income assessment and procedural fairness. Conclusion: The Assessing Officer erred in disregarding the revised returns filed before completion of assessment; such revised returns that comply with conditions and are filed prior to completion must be considered. Issue 2: Whether reduction in declared sales constitutes 'omission' or 'wrong statement' under s.139(5) Legal framework: Section 139(5) allows revision for omission or wrong statement. The question is whether changes in declared turnover/pricing reflecting market-driven price revisions amount to omission/wrong statement. Precedent treatment: The Tribunal accepted decisions (e.g., Lok Housing) recognizing that withdrawal or revision of previously declared income via a revised return can be valid and must be taken into account. The Court did not follow the Assessing Officer's rigid rule excluding price revision as not constituting omission/wrong statement for purposes of s.139(5). Interpretation and reasoning: The Court observed that revision of declared sales price due to commercial reasons (economic slowdown, market recession) and consequent alteration of agreements and realized turnover can represent corrected facts and adjustments of previously declared figures. Such modifications, if presented before completion of assessment and supported by particulars, qualify for consideration notwithstanding the literal timing constraints of s.139(5). Ratio vs. Obiter: Ratio - Market-driven downward revision of declared sales, when supported by contemporaneous facts and filed before completion of assessment, can be treated as valid revision for adjudication. Obiter - Comments on the impermissibility of preparing different accounts for Companies Act and Income Tax Act were not adopted as determinative. Conclusion: Reduction in declared sales arising from bona fide market price revision does not ipso facto render the revised return inadmissible; it may constitute a valid ground for revision to be considered at assessment if filed before completion and supported by evidence. Issue 3: Validity of assessment completed on earlier return where later revised returns were ignored Legal framework: Principles of fair adjudication require the Assessing Officer to consider all material presented before completion. The assessment must reflect the true income as determined after considering submissions made during proceedings. Precedent treatment: Tribunal decisions cited (Lab India; Lok Housing; Kamadhenu) support the principle that an assessment based solely on an earlier return is unsustainable if a later valid revised return was filed before completion and not considered. Interpretation and reasoning: The Court held that ignoring a later revised return filed prior to completion results in an assessment that fails to adjudicate the claims properly and is therefore invalid. The Assessing Officer's reliance on audited accounts in the earlier return does not absolve the duty to consider subsequent valid material filed before completion. Ratio vs. Obiter: Ratio - Assessment completed without considering a subsequently filed valid revised return (filed before completion) is not sustainable. Obiter - Observations on how the AO should examine evidence and reconcile with audited books were supplementary. Conclusion: Assessment based on an earlier return, when later valid revised returns were on record prior to completion and not considered, is vitiated and liable to be quashed. Issue 4: Procedural infirmity where no fresh notices were issued after later revised returns - effect on validity of assessment Legal framework: Statutory notices (e.g., under sections 142(1), 143(2)) regulate the assessment process; however, the central question was whether absence of fresh notices after filing revised returns invalidates assessment when the returns were filed before completion. Precedent treatment: The assessee relied on Tribunal authorities holding that assessments may be quashed for failure to follow statutory procedure; however, the Court's determination did not rest solely on absence of fresh notices but on the broader duty to consider revised returns filed prior to completion. Interpretation and reasoning: The Court observed submissions that AO did not issue fresh notices but framed the core issue as consideration of the revised returns during assessment. The Court found error in non-consideration of later returns and treated procedural omissions as contributing to invalid assessment. It did not predicate the decision solely on lack of a fresh 143(2) notice but on failure to adjudicate claims advanced in valid revised returns. Ratio vs. Obiter: Ratio - Failure to consider revised returns filed prior to completion constitutes a fundamental procedural infirmity; absence of fresh notice is a relevant procedural lapse but not the sole basis of quashing. Obiter - Detailed delineation of when fresh notices are mandatory was not pronounced. Conclusion: Procedural non-compliance (including failure to consider later returns and related notices) contributed to invalidity of the assessment; the impugned assessment was therefore quashed on those grounds. Overall Conclusion The Court affirmed that a revised return filed before completion of assessment, even if filed after the period specified in section 139(5), must be considered by the Assessing Officer. Reduction in declared sales for bona fide commercial reasons can constitute a legitimate revision to be adjudicated if supported and placed on record before completion. An assessment completed by disregarding such later revised returns is unsustainable; accordingly, the impugned assessment was held invalid and the appeal by Revenue was dismissed.