DNYANESHWAR MORE BIGARSHETI GRAMIN PAT. PURAVATHA SAHAKARI SANSTHA LTD.,SOLAPUR vs. ITO, WARD-2, PANDHARPUR, PANDHARPUR

Aggrieved by such an order of the Ld.AO, the assessee preferred an appeal before the Ld.CIT(A)/NFAC. The assessee filed written submissions before the Ld.CIT(A)/NFAC which is reproduced in para No. 5 of the impugned order of the Ld.CIT(A)/NFAC. Before the Ld.CIT(A)/NFAC, the assessee also raised an additional ground that “the Ld.AO has erred in assessing the income as assessed u/s. 143(1) of the Act alleging that return of income filed on 16-09-2018 is outside statutory due date”. After considering the assessee‟s submissions, the Ld.CIT(A)/NFAC dismissed the appeal of the assessee by observing as under:

Aggrieved, the assessee filed an appeal before the Tribunal, raising the following grounds of appeal:

The assessee has also raised the following additional ground of appeal: "Order passed by Assessing Officer and CIT(A) has resulted as bad in law as Assessing Officer's Order is in violation to Notification issued by CBDT as to requirement of issue show cause to assessee before confirming Variation in Returned Income."

The above additional ground has not been pressed by the Ld.AR and, therefore, the same is dismissed as “not pressed”.

The Ld.AR submitted that in intimation u/s. 143(1) of the Act, the Ld.CPC/AO disallowed the assessee‟s claim of deduction u/s. 80P of the Act due to non-filing of return of income within the statutory time limit which according to the assessee could be for the reason that since the assessee-society‟s turnover does not mandate for audit u/s. 44B of the Act, therefore, due date for filing the return of income was 31-07-2018 extendable to 31-08-2018, whereas the return was filed by the assessee on 16-09-2018. The Ld.AR submitted that in fact the assessee-society is liable to statutory audit under any other law i.e., Co-operative Societies Act, 1960 and accordingly, the assessee has filed its return within due date as per Explanation 2(a)(ii) to section 139(1) of the Act. He further submitted that the assessee did not file any appeal against the intimation order u/s. 143(1) of the Act as the then tax consultant opined that order u/s. 143(1)(a) of the Act cannot be rectified u/s. 154 of the Act, after issue of notice u/s. 143(2) of the Act. Notice u/s. 143(2) of the Act was issued to the assessee on 22-09-2019 before the rectification application could be filed and the intimation u/s. 143(1) of the Act was issued on 29-06-2019. 7. 1. The Ld.AR further submitted that section 246A of the Act provides for filing of appeal against intimation u/s. 143(1) of the Act for the reason that if return is not subjected to scrutiny, then the assessee will have an option to get relief for wrong additions/disallowances and non-filing of appeal u/s. 143(1) of the Act cannot mean that the said additions/disallowances cannot be contested in 143(2) proceedings and/or any appeal against scrutiny assessment completed u/s. 143(3) of the Act.

Relying on the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Coventry Spring & Co. Ltd. [2003] 129 Taxman 863

Further relying on the decision of the Bangalore Bench of the Tribunal in the case of Toyota Boshoku Automotive India P. Ltd. vs. DCIT [2025] 126 ITR (Trib) 298 (Bangalore), the Ld.AR submitted that once the order u/s. 143(3) of the Act is passed, intimation u/s. 143(1) of the Act merges with order u/s. 143(3) of the Act and intimation order u/s. 143(1) of the Act loses its existence and hence, disallowance made u/s. 143(1) of the Act is appealable in 143(3) proceedings.

Without prejudice, the Ld.AR also argued that before passing the assessment order u/s. 143(3) of the Act, the Ld.AO has not issued any show cause notice to the assessee and not passed draft order before completing the assessment and completed the proceedings u/s. 143(3) of the Act, assessing the income of the assessee at Rs. 32,76,603/- as per intimation u/s. 143(1) of the Act as against the NIL income declared by the assessee in its return of income for the relevant AY. 2018-19. He has, however, not presented any arguments on this contention.

The Ld.DR, on the other hand, relied on the order of the Ld.CIT(A)/NFAC.

We have heard the Ld. Representatives of the Parties and perused the material available on record and Paper Book filed by the Ld.AR on behalf of the assessee. We have also perused the judicial precedents cited by the Ld.AR. The facts of the case are not in dispute. Admittedly, the return of the assessee was initially processed u/s. 143(1) of the Act vide intimation order dt. 29-06-2019, wherein the assessee‟s claim of deduction u/s. 80P of the Act amounting to Rs. 32,76,603/- was disallowed for the reason that the assessee‟s return was filed belatedly beyond the statutory time limit prescribed u/s. 139(1) of the Act. However, the Ld.AR has contended that the return of income was filed well within the due date which is 31-10-2018 as per Explanation 2(a)(ii) to section 139(1) of the Act. We find that before the assessee could have filed rectification order application u/s. 154 of the Act, notice u/s. 143(2) of the Act was issued to the assessee dt. 22-09-2019 initiating scrutiny assessment proceedings in the case of the assessee. The Ld.AO thereafter issued notice(s) u/s. 142(1) of the Act along with questionnaire to the assessee, seeking details regarding the assessee‟s eligibility of claiming deduction u/s. 80P of the Act in response to which, the assessee filed its submissions in support of the said claim. After considering the same, the Ld.AO completed the assessment proceedings u/s. 143(3) of the Act, vide his order dt. 04-03- 2021, assessing the total income at Rs. 32,76,600/-, thereby taking the total income as per the return processed u/s. 143(1) of the Act of Rs. 32,76,600/- as the initiating point. The Ld.CIT(A)/NFAC has dismissed the appeal of the assessee observing that the assessee should have filed the appeal against the intimation order passed u/s. 143(1) of the Act, wherein the impugned disallowance u/s. 80P of the Act has been made by the Ld.CPC but the present appeal has been filed by the assessee against the order passed u/s. 143(3) of the Act. Hence, the grounds raised by the assessee regarding addition made by the Ld.AO cannot be adjudicated in 7

We find some force in the aforesaid contention raised by the Ld.AR. We find that Bangalore Bench of the Tribunal in the case of Toyota Boshoku Automotive India P. Ltd. vs. DCIT (supra) under the similar set of facts as that of the assessee in the present case involving the similar issue, held as under:

Further we observe that the statutory notice under section 143(2) was issued on September 22, 2019. Further notices under section 142(1) were issued in order to proceed with the regular assessment. Accordingly, the assessment under section 143(3) was d completed. When regular assessment was completed and the relevant intimation issued under section 143(1) will automatically merges with the assessment passed under section 143(3). Therefore, it loses its relevance once the regular assessment is processed, and it is only an intimation towards the accuracy of the information submitted by the assessee. In the given case, the assessee has claimed deduction under section 11 and failed to file form 10B along with the return of income. Based on the above observation, the claim of the assessee was denied by the Assessing Officer in section 143(1) proceedings. Therefore, there is no denial of fact that the Assessing Officer can make the f above disallowance, however, the validity of the intimation issued under section 143(1) is limited to mere intimation of correctness and accuracy of the income declared in return of income and its accuracy based on the information submitted along with the return of income. It does not carry the legitimacy of an assessment. When the assess-ment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the findings of the learned Commissioner of Income-tax (Appeals) that the intimation under section 143(1) merges with the order passed under section 143(3) of the Act and the appeal h against the above intimation becomes infructuous. In our view, he should have stopped with the above findings and should not have proceeded to decide the issue on the merits, because it is brought to his knowledge that the assessee has filed appeal against the regular assessment order. Therefore, he has travelled beyond the mandate. The issue of allowability of section 11 is already considered in the regular assessment and that issue is already in appeal before the first appellate authority. Therefore, reviewing the same is uncalled for.

Coming to the submissions of the learned authorised representative, the assessee also not disputing the fact that the intimation merges with the regular assessment when the proceedings are initiated under section 143(3) of the Act. Therefore, the admitted fact that the appeal against the intimation is infructuous. The grievance of the assessee is that the learned Commissioner of Income-tax (Appeals) has not stopped with the findings but gave findings on the merits. After considering the submissions, we are also of the view that the findings on allowability under section 11 is uncalled. Particularly when the issue under consideration is under challenge before another appellate authority."

4 The hon'ble Calcutta High Court in CIT v. Coventry Spring and Co. Ltd. had taken the view that "initial intimation merges into regular assessment and once proceedings for regular assessment under section 143(3) are commenced, there cannot be any recourse to bring into 9 existence any order under section 143(1)(a) whether originally or by rectification". In the instant case, the Assessing Officer, while finalising the assessment under section 143(3) of the Act, adopted the total income computed in the intimation issued under section 143(1) of the Act. By f doing so, the Assessing Officer has effectively incorporated the disallowance into the assessment order. Therefore, the assessee is justified in raising the ground of appeal against the said disallowance before the appellate authority, including the Dispute Resolution Panel if the assessment route involved section 144C of the Act.

5 Moreover, the disallowance of gratuity expenses was factually and legally flawed. Section 43B allows deduction for gratuity expenses paid before the due date of filing return under section 139(1) of the Act. The assessee has provided evidence that the payment was made on September 15, 2020, i. e., before the due date, and the same is duly reported in the tax h audit report. The failure to consider this evidence, coupled with the absence of a show-cause notice or opportunity of hearing, amounts to a breach of natural justice. The Centralised Processing Centre as well as the Assessing Officer should have taken into account this compliance before. disallowing the expense.

6 We further note that identical issue was recently examined by this Tribunal in the case of Ariba Technologies India P. Ltd. v. Dy. CIT. The Tribunal after examination of detailed decided the issue in favour of the assessee. The finding of the Tribunal is extracted as under ( ITR (Trib)):

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the controversy before us relates whether the adjustment made in the intimation order under section 143(1) of the c Act can be agitated in the proceedings under section 143(3) of the Act or in the appeal proceeding arising out of assessment order under section 143(3) of the Act. In this regard, let us understand the scope of the provisions of section 143(1) of the Act. Section 143(1) of the Act deals with prima facie adjustments made during the processing of an d income-tax return before assessment. The adjustments that can be made under this section include:

1 The taxpayer is notified of any adjustments, via, an intimation h under section 143(1) of the Act, and they are given an opportunity to respond before any demand is raised.

2 However, an intimation under section 143(1) is not an assessment. It is merely a preliminary check of the return filed by the taxpayer and is done through an automated process.

3 In contrast, the scrutiny assessment under section 143(3) is a detailed examination of the income-tax return ('ITR') by the Assessing Officer to verify its correctness and ensure there is no under-statement of income, overstatement of deductions, or tax evasion. To assess the correctness of income, deductions, exemptions, and tax liability, the Assessing Officer issues several notices to the assessee in the form of questionnaire, show cause, etc. The assessee is required to provide supporting documents, explanations, and evidence as demanded by the Assessing Officer. This may include books of account, bank statements, invoices, agreements, etc. After examining all details, the Assessing Officer may either accept the return as filed, or make additions/disallowances, leading to higher tax liability.

4 From the above, there remains no ambiguity to the fact that the intimation under section 143(1) of the Act is not an assessment order. But any adjustment made under section 143(1) of the Act can be challenged either by filing a rectification application under section 154 of the Act or by way of filing appeal before the learned Commissioner of Income-tax (Appeals) under section 246 of the Act. Thus, as per the provisions of law the right course of action for the assessee is either to file a rectification application under section 154 of the Act or appeal under section 246 of the Act. The assessee is required to choose the right course of action diligently which depends upon different facts and circumstances.

5 Nevertheless, the object of making the adjustment in the intimation under section 143(1) of the Act or framing the assessment under section 143(3) of the Act is to determine the income and tax liability correctly as per the provisions of law.

6 It is also important to note that in the present case the adjustment made under section 143(1) of the Act has been incorporated in the assessment framed under section 143(3) read with section 144C of the Act. Thus, a question arises whether there is double demand in the records of the Department for the adjustment made under the provisions of section 143(1) of the Act as well as in the assessment framed under section 143(3) of the Act. Certainly, there cannot be a double demand for the same item of the disallowance or the addition.

7 Admittedly the adjustments are made by the Centralised Processing Centre under section 143(1) of the Act whereas the assessment is framed by the National Faceless Assessment Centre. However, the National Faceless Assessment Centre is not unknown to the adjustment made by the Centralised Processing Centre, i. e., automated process under section 143(1) of the Act. Therefore, we are of the view that the National Faceless Assessment Centre should have taken into cognisance of the adjustment made by the Centralised Processing Centre in the intimation generated under section 143(1) of the Act, especially in the circumstances where the assessee has brought to the notice to the National Faceless Assessment Centre about such adjustment. By doing so, the multiple proceedings can be avoided which are certainly cumbersome for the assessee.

8 As regards the principles laid down by the Bangalore Tribunal in the case of Areca Trust, we note that the assessee in the said case has preferred an appeal before the learned Commissioner of Income-tax (Appeals) against the adjustment made under section 143(1) of the Act which was subsequently withdrawn by the assessee as the case of the assessee was picked-up under scrutiny. In this background the Tribunal, has denied accepting the issue raised in the intimation under section 143(1) of the Act. It is because, once the assessee has withdrawn the appeal filed before the learned Commissioner of Income-tax (Appeals), the issue arises from the intimation under section 143(1) of the Act reached to 11 the finality. However, the facts of the case on hand are different inasmuch as the assessee has not filed any appeal before the learned Commissioner of Income-tax (Appeals) under the bona fide belief that the matter may picked-up under scrutiny. Furthermore, the assessee has brought to the notice of the National Faceless Assessment Centre about the adjustment made under section 143(1) of the Act which can be verified from the details available on page Nos. 367 to 371 of the appeal set.

9 We further find that the Jodhpur Tribunal in the case of Akbar Mohammad v. Asst. CIT (I. T. A. Nos. 108 and 109/Jodhpur/2021, dated January 31, 2022) in identical facts and circumstances held as under: '

We have considered the submission of both the parties and perused the material available on record. In the present cases, it is not in dispute that the assessee deposited the contribution of provident h fund and employees' State insurance belatedly in terms of section 36(1) (va) of the Act. However, the said deposits were made prior to filing of return of income under section 139(1) of the Act.

1 Of course, it is a case in point that the assessee did not file any appeal against the intimations passed under section 143(1) of the Act and the learned senior Departmental representative is right to the extent that the assessee cannot be given relief for that reason. How-ever, it is also a settled law that the assessee cannot be taxed on an amount on which tax is not legally imposable, Although, the assessee might have chosen a wrong channel for redressal of his grievance, all the same, it is incumbent upon the tax authorities to burden the assessee only with correct amount of tax and not to unjustly benefit at the cost of tax payer. Therefore, in the interest of substantial justice, we deem it expedient to restore the issue to the file of the Assessing Officer with a direction to pass appropriate orders deleting the addition/disallowance after duly considering the settled judicial position in this regard, which have been decided in the three cases as enumerated above in para.'

10 In view of the above, we are not inclined to encourage the assessee not to prefer a separate appeal against the intimation generated under section 143(1) of the Act but in the interest of justice and fair play we accept the issue arising from intimation under section 143(1) of the Act in the proceedings arising under the provisions of section 143(3) read with section 144C of the Act."

7 It is also pertinent to highlights that the statute does not permit the collection of tax beyond what is legitimately due from the assessee. Taxation must be based on liability established under the law, and merely because of a procedural lapse, an assessee cannot be compelled to pay tax that it is not legally required to pay. In this case, the assessee has provided documentary evidence showing that the gratuity payment was made before the due date of return filing, making it allowable under section 43B of the Act. Therefore, in our considered opinion merely the fact that the impugned disallowance was made in the intimation order under section 143(1) of the Act and the assessee has not preferred appeal against the said intimation does means that the assessee should be charged with taxes which he is not liable.

8 In view of the above detailed discussion and following the judicial precedence we hold that the disallowance made under section 143(1) of the Act, having been adopted and merged into the regular assessment under section 143(3) of the Act, is very much appealable in the context of the present proceedings. The disallowance of gratuity expenses is unjustified, both on the merits and on procedural grounds.

9 Accordingly, we direct the Assessing Officer to delete the disallowance of Rs. 5,13,01,761 made under section 43B of the Act

In the above case of Toyota Boshoku Automotive India P. Ltd. (supra), the Bangalore Bench of the Tribunal by placing reliance on various other order(s) of the Co-ordinate Bench(es) of the Tribunal, wherein the similar issue has been considered, has taken a view that disallowance made u/s. 143(1) of the Act having been adopted and merged in regular assessment u/s. 143(3) of the Act is very much appealable in the context of the present proceedings i.e. scrutiny u/s. 143(3) of the Act.

We also find that the Hon'ble Calcutta High Court in the case of CIT vs. Coventry Spring & Co. Ltd. (supra), which is considered by the Bangalore Bench of the Tribunal in the above case of Toyota Boshoku Automotive India P. Ltd. (supra) has taken a view that intimation order merges with the assessment order once proceedings for regular assessment u/s. 143(3) of the Act are commenced and there cannot be any recourse to bring into existence any order u/s. 143(1)(a) of the Act, whether originally or by rectification.

The Ld.AR has also argued that the assessee‟s return was filed within the prescribed due date and hence, the disallowance made by the Ld.CPC/AO in intimation order itself for the said reason is unjustified. We find that the Ld.AO in the scrutiny assessment has adopted the total income as per the return processed us 143(1) of the Act amounting to Rs. 32,76,600/- and assessed the income of the assessee u/s. 143(3) of the Act at Rs. 32,76,600/-. The order of the Ld.AO is a non-speaking order so far as rejection of the assessee‟s claim of deduction u/s. 80P of the Act is concerned. The Ld.CIT(A)/NFAC has dismissed the appeal of the assessee for the reason that section 143(3) order is not appealable before him and 13

In view of the factual matrix of the case and the legal position set out above, in our considered view, the Ld.AO is not correct in its approach in adopting the total income as per the return processed u/s. 143(1) of the Act and assessing the income for AY. 2018-19 at Rs. 32,76,600/- u/s. 143(3) of the Act without providing any justification/reasoning for rejecting the assessee‟s NIL income returned by him for the relevant AY. Further, the Ld.CIT(A)/NFAC is also not justified in rejecting the appeal of the assessee for the reason that the order passed u/s. 143(3) of the Act by the AO is not an appealable order before him and the assessee should have filed the appeal against the intimation order passed u/s. 143(1) of the Act. We, therefore, set aside the impugned order of the Ld.CIT(A)/NFAC and direct him to adjudicate the assessee‟s appeal on merits as per fact and law, after affording a reasonable opportunity of hearing to the assessee. The grounds raised by the assessee are accordingly allowed for statistical purposes.

In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.

The concerned Pr.CIT, Pune

DR, ITAT, „A‟ Bench, Pune 5. ग र्ड फ ईल / Guard file. आदेशानुसार/ BY ORDER, ////