Facts of the Case

The assessee, Apex Recycling Pvt. Ltd., filed its return of income for Assessment Year 2008-09 declaring regular income of ₹7,45,029. Tax payable under normal provisions was computed at ₹2,23,505, while tax liability under Minimum Alternate Tax (MAT) provisions was computed at ₹1,19,38,034 under Section 115JB of the Income-tax Act.

Under the Act, the assessee was required to pay the higher of the tax payable under normal provisions or under Section 115JB. However, in the return of income, the assessee entered the lower amount of ₹2,23,505 as gross tax payable, resulting in nil tax liability after adjustment of prepaid taxes.

The Central Processing Centre later raised demand while processing the return under Section 143(1). The assessee claimed that the intimation under Section 143(1) had never been served and therefore filed a rectification application under Section 154.

The Assessing Officer rejected the application alleging that the assessee had made a fraudulent claim by wrongly entering the tax payable figure, thereby avoiding substantial tax liability.

The CIT(A) allowed the assessee’s appeal and held that since the intimation under Section 143(1) had not been served within the prescribed period, the demand was invalid.

Aggrieved by the order of the CIT(A), the Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi Bench. 

Issues Involved

  1. Whether the demand raised through processing of return under Section 143(1) can be treated as invalid if the intimation was not served upon the assessee within the prescribed period.
  2. Whether an incorrect entry of tax liability in the return, resulting in substantial reduction of tax payable, can be treated as a fraudulent or bogus claim falling within the exception laid down by judicial precedents. 

Petitioner’s Arguments (Revenue)

The Revenue contended that the assessee had incorrectly entered the lower tax amount in the return, despite the fact that tax under MAT provisions under Section 115JB was significantly higher.

It was argued that the assessee, being a private limited company assisted by tax professionals, could not have committed such an error innocently.

According to the Revenue, this act amounted to a bogus claim intended to avoid payment of substantial tax, and therefore the case fell within the exception recognized by the Delhi High Court, allowing the Department to enforce the demand despite issues of communication.

Respondent’s Arguments (Assessee)

The assessee argued that no fraudulent claim had been made, and that the computation of income and tax liability filed along with the return was correct.

It was further contended that the intimation under Section 143(1) had never been served upon the assessee within the stipulated period, and therefore the demand raised on the basis of such uncommunicated intimation was legally unsustainable.

The assessee relied upon the judgment of the Delhi High Court in Court on its Own Motion vs Union of India, which held that uncommunicated intimations under Section 143(1) cannot be enforced. 

Court Order / Findings

The Income Tax Appellate Tribunal (ITAT), Delhi allowed the appeal of the Revenue and set aside the order of the CIT(A).

The Tribunal observed that:

  • The assessee was required to pay the higher of tax computed under normal provisions or under Section 115JB.
  • The assessee entered the lower tax figure in the return, which was clearly incorrect.
  • Even a basic examination of the figures would reveal that the higher amount should have been declared as tax payable.

The Tribunal held that such a claim could not be treated as a mere technical error, particularly when the difference in tax liability exceeded ₹1 crore.

Accordingly, the Tribunal concluded that the case fell within the exception recognized by the Delhi High Court, permitting the Department to deny fraudulent or bogus claims and enforce the demand.

Thus, the Tribunal upheld the findings of the Assessing Officer and restored the tax demand, allowing the appeal of the Revenue. 

Important Clarification

The Tribunal clarified that although uncommunicated intimations under Section 143(1) are generally treated as invalid, the exception applies where the assessee makes a fraudulent or clearly incorrect claim in the return of income.

In such circumstances, the Revenue is entitled to deny the claim and recover the tax liability, even if procedural issues regarding communication arise.

Link to download the order - https://itat.gov.in/public/files/upload/1703155256-4736.Apex%20Recycling...pdf 

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