2001 (10) TMI 272 - AT - Income Tax

Summary

Issues:
1. Validity of assessment under section 143(3) based on a return declaring income below taxable limit.
2. Interpretation of provisions under section 139(10) and section 144 of the Income Tax Act.
3. Applicability of CBDT Circular No. 493, dated 21st Aug., 1987.

The judgment pertains to an appeal by the assessee against the order of the Dy. CIT(A) for the assessment year 1990-91. The primary issue raised in Ground No. 1 was the validity of the assessment under section 143(3) based on a return showing income below the taxable limit. The authorized representative argued that the CBDT Circular No. 493 clarified that returns below the taxable limit should not be acted upon unless falling under the exception in section 139(10). It was contended that the assessment made on such a return was void ab initio and should have been annulled instead of directing the AO to proceed under section 144(1). The contention was supported by reference to case law highlighting that an assessment cannot be made on an invalid return. The Departmental Representative, however, argued that the AO was obligated to proceed under section 143(2) based on the directions of the Dy. CIT(A).

The tribunal analyzed the contentions and relevant legal provisions. It observed that a return declaring income below the taxable limit, as per section 139(10), should be considered as not filed at all. Citing a Calcutta High Court judgment, the tribunal held that assessments based on such invalid returns are void ab initio and cannot be treated as best judgment assessments under section 144. Consequently, the assessment made under section 143(3) on the basis of the non-taxable income return was deemed invalid and liable to be annulled.

The tribunal, after considering all facts and legal precedents, concluded that the return of income filed by the assessee, showing non-taxable income, was non est, and therefore, the assessment under section 143(3) was invalid and void ab initio. Consequently, the appeal of the assessee was allowed.

This judgment clarifies the significance of filing a valid return under the Income Tax Act, the implications of declaring income below the taxable limit, and the consequences of making assessments based on such returns. It emphasizes the importance of adhering to legal provisions and precedents in conducting income tax assessments.