Beholding principal of Natural Justice before declaring ITR as invalid: ITAT (Pune)

Facts of the case:

• The assessee filed the Income Tax Return (ITR) without the report of Accountant in prescribed Form No. 3CEB as required under section 92E.
• The Assessing officer (AO) didn’t give any notice/ intimation to the assessee for removing the defect and declared the return as Invalid.
• The assessee had filed return of income along with the Audit Report in prescribed Form No. 3CB. Admittedly, the only error committed by the assessee is that report from the Accountant in Form No. 3CEB as required u/s. 92E has not been filed.

Contention of AO:

• The report in Form No. 3CEB is mandatory under provisions of section 92E of Income Tax Act, 1961 (“the Act”) where the assessee has entered into international transactions.
• As per the provisions of section 139(9) Explanation (e) of the Act, the return of income not accompanied with the copies of audit report would render the return defective. If the assessee fails to remove the defect the return would become invalid. In the present case, the assessee has not filed mandatory audit report in Form No. 3CEB within the specified time. Hence, the return of income has become invalid.

Contention of Petitioner:

• The Audit Report as required to file u/s. 139(9) and the Report from Chartered Accountant are two different reports. The report in Form No. 3CEB is not an audit report as referred to in the provisions of section 139(9) of the Act.
• As per the provisions of sub-section (9) of section 139 of the Act, before declaring any return as invalid the Assessing Officer is under obligation to issue notice to the assessee to rectify the defect within a period of 15 days from the date of such intimation. However, in the present case, no such notice was issued to the assessee by Assessing Officer for removing the defects.

Held by Pune Bench ‘A’ of ITAT:

• A bare perusal of provisions of sub-section (9) of section 139 reveal that where the return of income furnished by the assessee is defective, for whatever reasons, the Assessing Officer shall intimate the defect to assessee and give him an opportunity to rectify the defect within a period of 15 days from the date of such intimation. In case, the defect is not rectified within the aforesaid period or the extended period allowed by the Assessing Officer, the return of income would become invalid. Thus, before a return is held to be invalid by virtue of any defect, it is incumbent upon the Assessing Officer to give an opportunity to the assessee to rectify said defect within a specified time.
• No material was placed on record by the ITD which showed that a notice for removing the defects was issued by the AO. Thus, in absence of any intimation to the assessee regarding defect in the return of income, the Assessing Officer cannot declare the return invalid.

Conclusion:

Principal of natural justice shall stand strong before declaring an ITR as invalid, and opportunity to rectify any defects in the ITR shall be given to the assessee before declaring the same as invalid.

Source: Deputy Commissioner of Income-tax, Circle-9, Pune v. Husco Hydraulics (P.) Ltd.  [2019] 110 taxmann.com 388 (Pune – Trib.)