V.K. Patel Securities Pvt Ltd Vs ADIT (ITAT Mumbai)

A key decision concerning the Central Processing Centre’s (CPC) faulty notice for company receipts below the threshold limit stipulated in section 44AB of the Income Tax Act has been made by the Income Tax Appellate Tribunal (ITAT) in Mumbai.

Due to the gross business receipts exceeding Rs. 1 crore without the accounts being audited, the CPC sent V.K. Patel Securities Pvt Ltd a defective notice u/s 139(9) of the Act mentioning the following as “Error Description”:- “Error Code: 331 – Tax Payer has shown gross receipts or income under the head “Profits and Gains of Business or Profession” more than Rs.1 crore, however, the books of accounts have not been audited.” Hence the CPC did not process the return of income filed by the assessee.

Aggrieved by the above said defect notice issued by CPC, the assessee filed “e-Nivaran Grievance”, against which response communication was issued on 16-02-2021 invalidating the return filed by the assessee.

The assessee challenged the above said defective notice, by filing appeal before Ld CIT(A). The first appellate authority dismissed the appeal of the assesse holding that there is no provision to file appeal against the defective notice issued u/s 139(9) of the Act. Aggrieved by the order so passed by Ld CIT(A), the assessee has filed this appeal.

The defect notice was quashed by ITAT Mumbai on the grounds that it was appealable and took the assessee’s side. They came to the conclusion that the assessee’s return should be accepted as legitimate since its gross business receipts were less than Rs. 1.00 crore and it was exempt from section 44AB’s requirement that its accounts be audited.

ITAT Mumbai relied on the judgement passed by the Pune bench of ITAT in the case of Deere & Company vs DCIT (2022)(138 taxmann.com 46)(Pune) that the defective notice issued u/s 139(9) is appealable, if the assessee denies its liability or if it would jeopardise the refund. The Ld A.R submitted that the refund of about Rs.5 lakhs was stuck due to non-processing of return of income filed by the assessee. Accordingly, it was held that the defective notice issued u/s 139(9) was an appealable one.

On merits, the Ld A.R submitted that the assessee was not liable to get its accounts audited. Referring to the Profit and Loss account, the Ld A.R submitted that the gross business receipts of the assessee was Rs.92,95,722/- and the same is below the threshold limit of Sec 44AB, i.e. Rs.1 crore. He further submitted that the assessee has shown other income of Rs.6.62 crores in the Profit and Loss account, but the said income was declared under the head Capital gains and Other Sources.

Accordingly, he reiterated that the gross business receipts of the assessee during the year under consideration was less than Rs.1.00 crore and hence it is not liable to get its accounts audited u/s 44AB of the Act. Accordingly, the Ld A.R. submitted that the return of income filed by the assesse cannot be considered as defective return. Accordingly, he prayed that the defective notice issued by CPC and the response given under E-Nivaran Scheme should be quashed and the return of income filed by the assesse should be restored and processed u/s 143(1) of the Act.

It was held by ITAT Mumbai that the defective notice issued by CPC u/s 139(9) of the Act was not in accordance with law and accordingly, quashed the said defective notice, meaning thereby, the return of income filed by the assessee is be considered as valid return. In view of the above, the response given under “E-Nivaran” would get nullified.

Accordingly, ITAT Mumbai directed the AO/CPC to treat the return of income filed by the assessee as a valid return and process the same in accordance with law.

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