TRAVEL FOOD SERVICES LIMITED ,MUMBAI vs. DCIT, CIRCLE 8(3)1, MUMBAI

At the outset, the learned counsel submitted that although several grounds have been raised in the memorandum of appeal, the principal grievance which survives for adjudication relates to the denial of deduction under section 80JJAA amounting to ₹64,16,110/-. Insofar as the disallowance made under section 36(1)(va) in respect of employees’ contribution to provident fund is concerned, it was fairly submitted that the issue now stands concluded by the judgment of the Hon’ble Supreme Court in the case of Checkmate Services Pvt. Ltd. Accordingly, no further submissions were advanced on that issue. Thus, the effective controversy before us centres around the denial of deduction claimed under section 80JJAA.

Briefly stated, the relevant facts are that the assessee company was incorporated on 12.07.2019 and the year under consideration was its first year of business operations. It is engaged in the business of operating and managing airport lounges. The return of income was filed declaring total income after claiming deduction under Chapter VI-A, including deduction under section 80JJAA amounting to ₹64,16,110/-. While processing the return under section 143(1)(a), the CPC denied the aforesaid deduction and made consequential adjustment while determining the total income.

Significantly, after considering the material so furnished, the Assessing Officer has categorically recorded in the assessment order that the issues selected for scrutiny had been duly examined on the basis of the documentary evidences furnished by the assessee and no adverse inference was drawn. However, despite such categorical finding, while computing the total income in the assessment framed under section 143(3) read with section 144B, the Assessing Officer simply adopted the very same computation which had earlier

Before the learned CIT(A), the assessee contended that every statutory requirement prescribed under section 80JJAA had been duly complied with. It was submitted that Form No.10DA had been duly obtained and furnished electronically, the computation of deduction together with complete employee-wise details had been placed on record and, more importantly, the very issue had been subjected to detailed scrutiny by the Assessing Officer during the assessment proceedings. It was, therefore, argued that once the Assessing Officer himself had examined the claim on merits and had not recorded any adverse finding, there remained no occasion to continue the adjustment originally made while processing the return under section 143(1)(a). The learned CIT(A), however, upheld the action of the Assessing Officer, thereby giving rise to the present appeal.

We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material placed on record. The issue which falls for our consideration is not merely whether the assessee was otherwise entitled to deduction under section 80JJAA, but whether, after the claim had been specifically selected for

From the assessment order itself, it is evident that the claim under section 80JJAA constituted one of the specific issues identified for limited scrutiny. Accordingly, detailed notices were issued calling upon the assessee to furnish all documents relevant for examination of the claim. The assessee duly furnished Form No.10DA, computation of deduction, employee-wise particulars, appointment letters and all supporting documentary evidences. Thus, this is not a case where the claim escaped examination. On the contrary, the issue underwent detailed verification during the scrutiny proceedings.

What assumes considerable significance is that, after such examination, the Assessing Officer has himself recorded that the issues selected for scrutiny stood duly verified on the basis of the documents produced and no adverse inference was drawn. There is no discussion anywhere in the assessment order disputing the fulfilment of any statutory condition prescribed under section 80JJAA. The Assessing

In these circumstances, we find it difficult to sustain the action of the Assessing Officer in merely perpetuating the adjustment originally made while processing the return under section 143(1)(a). An adjustment made under section 143(1)(a) is only a prima facie adjustment based upon the material then available on record. However, once the return is selected for scrutiny and the very issue which formed the basis of such adjustment becomes the subject matter of detailed enquiry under section 143(3), the Assessing Officer is required to independently adjudicate the claim on the basis of the material gathered during the assessment proceedings. The scrutiny assessment cannot be reduced to a mere reiteration of the prima facie adjustment made at the stage of processing of the return.

The legislative purpose behind selection of a case for scrutiny is to enable the Assessing Officer to verify the correctness of the claim after affording opportunity to the assessee to substantiate the same by leading evidence. Once

In the present case, the assessment order does not contain any independent reasoning or finding for denying the deduction under section 80JJAA after completion of the scrutiny proceedings. The impugned disallowance is merely a continuation of the adjustment originally made while processing the return under section 143(1)(a), notwithstanding the fact that the very issue stood specifically examined during the assessment proceedings. Such continuation of the adjustment, in the absence of any adverse finding emerging from the scrutiny, cannot be sustained.

Accordingly, in view of the foregoing discussion and having regard to the categorical findings recorded by us hereinabove, we hold that the action of the Assessing Officer in retaining, in the assessment framed under section 143(3) read with section 144B, the adjustment relating to denial of deduction under section 80JJAA, despite having examined and accepted the claim during the scrutiny proceedings, is

Insofar as the disallowance under section 36(1)(va) is concerned, the same is sustained in view of the law laid down by the Hon’ble Supreme Court in Checkmate Services Pvt. Ltd., as fairly conceded by the learned counsel.

In the result, the appeal of the assessee is partly allowed.