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Facts
The assessee, engaged in banking, filed its return for AY 2018-19 declaring income of Rs. 55,52,470. An intimation under section 143(1) proposed an adjustment of Rs. 23,95,712 under section 43B, leading to an assessed income of Rs. 79,48,180. Subsequently, a scrutiny assessment under section 143(3) was completed at Rs. 55,52,467, accepting the returned income, but the computation sheet still reflected the earlier adjustment.
Held
The Tribunal held that the assessment order under Section 143(3) supersedes any prior intimation under Section 143(1), and that the doctrine of merger applies. Therefore, the assessee was aggrieved by the assessment order. The CIT(A) erred in dismissing the appeal as infructuous without deciding on merit.
Key Issues
Whether the CIT(A) was justified in dismissing the appeal as infructuous when the assessment order under Section 143(3) was based on returned income, despite the computation sheet showing an earlier adjustment? Whether the doctrine of merger applies, and if so, should the appeal be decided on merit?
Sections Cited
143(1), 143(1)(a), 143(2), 142(1), 143(3), 43B, 154
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH MUMBAI
The Naval Dockyard Co- Vs. DCIT Circle1(3)(1), Aayakar Bhavan, Op Bank Limited Mumbai-400 020 Shahid Bhagat Singh Road Fort, Mumbai-400 023 PAN/GIR No. AABAT7232R (Applicant) (Respondent) Assessee by Shri Jayesh Kala, Ld. AR Revenue by Shri Leyaqat Ali Aafaqui, Sr. DR Date of Hearing 17.07.2025 Date of Pronouncement 31.07.2025 आदेश / ORDER PER RAJ KUMAR CHAUHAN, JM:
This appeal is directed against the order dated 02.07.2024 passed by the National Faceless Appeal Centre, Delhi (herein after referred as “Ld. CIT(A)” u/s 250 of the Income-tax Act, 1961 (herein after referred as “the Act”), wherein the appeal of the assessee against the assessment order dated 19.04.2021 was dismissed treating the same as infructuous um / 2024 The Naval Dockyard Co-Op Bank Limited 2. The brief facts as culled out from the proceedings before the authorities below are that the assessee is engaged in the business of banking and has e-filed return of income for the year under consideration on 20.09.2018 declaring returned income at Rs. 55,52,470/-. The CPC issued intimation order dated 17.11.2019 u/s 143(1) of the Act wherein the proposed adjustment of Rs. 23,95,712/- u/s 43B of the Act was executed and returned income was assessed at Rs. 79,48,180/- by making disallowance of Rs. 23,95,712/-. Before intimation order dated 17.11.2019, the assessee has received communication dated 29.01.2019 u/s 143(1)(a) of the Act from CPC Bangalore wherein it was proposed to adjust the returned income by disallowing Rs. 23,95,712/- u/s 43B of the Act. The assessee also received a notice u/s 143(2) of the Act dated 21.09.2019 for AY 2018-19 as the case was selected complete scrutiny assessment under E-assessment Scheme, 2019 on the following issues:- i) Claim of any other amount allowable as deduction in Schedule BP ii) Refund Claim iii) Expenses incurred for earning exempt income.
Accordingly, notice u/s 143(2) of the Act was issued on 21.09.2019 which was duly served upon the assessee through e-assessment portal of ITBA system. um / 2024 The Naval Dockyard Co-Op Bank Limited Subsequently, statutory notice u/s 142(1) of the Act alongwith questionnaire were issued and in response, the assessee submitted his reply alongwith relevant requisite documents on ITBA portal. The reply of the assessee has been considered carefully in respect of the various reasons on which the case was selected under CASS. Accordingly, the assessment order was completed u/s 143(3) of the Act on returned income of Rs.55,52,467/-.
Because of the intimation order u/s 143(1) of the Act wherein proposed adjustment of Rs. 23,95,712/- was executed, the assessee is aggrieved by the assessment order, which though has not made any addition but has taken the computation of income as proposed by the CPC and the assessee challenged the assessment order before the Ld. CIT(A) on the ground that Ld. AO has erred on facts and law in assessing the income at Rs. 79,48,179/- as against Rs. 55,52,467/- declared by the assessee in the return of income. It was further alleged that the disallowance of Rs. 23,95,712/- made u/s 43B of the Act was wrong and contrary to the provisions of the Act. It was further alleged that the AO has erred in completing the assessment u/s 143(3) of the Act based on income assessed u/s 143(1) of the Act and has not assessed returned income filed by the assessee. Ld. CIT(A) dismissed the appeal of the assessee on the ground that the grievance of the assessee does not emanate from the order u/s 143(3) um / 2024 The Naval Dockyard Co-Op Bank Limited of the Act and no appeal lies against the said order as no fresh addition has been made, therefore the appeal against the said order u/s 143(3) of the Act was treated as infructuous and dismissed.
Thus aggrieved by the order of Ld. CIT(A) the present appeal has been filed and following ground has been raised by the appellant / assessee.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in dismissing the appeal as infructuous by holding that the issue does not emanate from the assessment order u/s 143(3) of the Act dated 19.04.2021 against which the appeal being filed before the Id. CIT(A). The appellant prays that the Id. CIT(A) ought to have admitted appeal and decided on merit the issue in appeal raised before him.
On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in not deciding the issue on merit and not deleting the disallowance of Rs. 23,95,912/- wrongly made by the Id. AO while computing tax liability in the computation sheet issued alongwith the assessment order and not doing so is wrong and contrary to the provisions of the Act. The appellant prays that the same may kindly be heard on merit and allowed.
The appellant craves leave to add, amend, alter, modify and/or delete any of the above grounds of appeal on or before the date of hearing.
We have heard Ld. AR and Ld. DR and examined the 6. record. Both the parties have filed their written arguments. In the written arguments, Ld. AR on behalf of the assessee um / 2024 The Naval Dockyard Co-Op Bank Limited stated that para 6 of the assessment order categorically reflects that the assessment for the AY 2018-19 is completed u/s 143(3) of the Act on returned income of Rs. 55,52,467/-. However, despite the assessment order clearly accepting the returned income, the computation sheet accompanying the assessment order reflects the total income as Rs. 79,48,179/- by erroneously carrying forward the adjustment of Rs. 23,95,712/- made earlier under Section 143(1). It is therefore argued that the assessment order under Section 143(3) supersedes and overrides the earlier intimation under Section 143(1) of the Act and since the regular assessment is completed under Section 143(3) of the Act, any earlier adjustment made under Section 143(1) stands merged in the assessment order u/s 143(3) of the Act.
In support of his arguments, Ld. AR placed reliance on the decision of Hon’ble ITAT in the case of DCIT vs. Aditya Birla Housing Finance Limited, (ITA Nos. 4609, 4610 & 4611/Mum/2024) wherein the AO has accepted the returned income as assessed income. However, the computation sheet had considered the income as per 143(1) of the Act. On appeal before the Hon'ble ITAT, it was held that since the computation sheet had considered the income as per 143(1), the grievance raised by the assessee raised from the assessment order only. Therefore, it held that the doctrine of merger applies, and the grievance um / 2024 The Naval Dockyard Co-Op Bank Limited arises from the AO under section 143(3) of the Act and therefore, it was held that Ld. CIT(A) was right in adjudicating the assessee's appeal. The relevant portion of the order of ITAT Mumbai Tribunal is reproduced as under:-
15. On perusal of above it can be seen that the returned income of INR. 218,41,70,860/- filed by the Assessee has been accepted as assessed income. At the same time the Assessing Officer has, while concluding, has stated that the assessment of income is done as per computation sheet. A perusal of the Computation Sheet shows that the adjustment made while processing return of income under Section 143(1) of the Act have been incorporated. Therefore, in the facts of the present case, it cannot be said that the grievance raised by the Assessee in appeal before the CIT(A) does not rise from the Assessment Order, dated 25/10/2022, passed under Section 143(3) read with Section 144B of the Act. Accordingly, we accept the contention of the Assessee that in the facts and circumstances of the present case the doctrine of merger would apply. Therefore, we reject the contention of the Revenue that the CIT(A) erred in entertaining and adjudicating the grounds raised by the Assessee in appeal before the CIT(A) challenging the adjustments made while issuing intimation under Section 143(1) of the Act. Accordingly, Ground No. 1 raised by the Revenue is dismissed.
Ld. AR further relied on the decision of Mumbai Tribunal in the case of GEBBS Healthcare Solutions Pvt. Ltd. vs. DCIT in order dated 31.12.2024 wherein it was held as under:- um / 2024 The Naval Dockyard Co-Op Bank Limited “4. After hearing both the parties we find that, first of all, deferred tax was never the subject matter of proposed adjustment either in the first intimation dated 16/02/2019 or in second intimation issued on 10/05/2019. This adjustment has been made in the final intimation and that too without giving any opportunity of hearing or show-cause notice to the assessee. Apart from that, it is seen that the assessee’s case was selected for complete scrutiny and in the assessment order passed u/s. 143(3), the returned income has been accepted. From the perusal of the assessment order, it is seen that ld. AO has computed the income as per return of income and not as per the adjustment made u/s. 143(1). The returned income of Rs.18,60,67,160/- has been assessed at the same income of Rs.18,60,67,160/-. Thus, any adjustment made in Section 143(1) does not survive and it becomes infructuous. Accordingly, adjustments made u/s. 143(1) stands deleted.”
Ld. AR further argued that the Ld. CIT(A) has erred in not adjudicating the issue on merits and failed to delete the disallowance of Rs. 23,95,912/-, which was wrongly made by the Ld. Assessing Officer while computing the tax liability in the computation sheet issued along with the assessment order despite the assessment order did not specify any such addition and assessed the income on returned income. Ld. AR further submitted that as held in multiple judicial precedents, once an assessment is completed under Section 143(3), the earlier intimation issued under Section 143(1) merges with the final assessment order. Hence, the intimation under section 143(1) cannot be relied upon to sustain any addition not reflected in the final order. um / 2024 The Naval Dockyard Co-Op Bank Limited 10. Thus, Ld. AR submitted that there was sufficient material on record before the AO and after considering the same, the assessment was done on the returned income of Rs. 55,52,470, but the computation sheet is carrying forward the adjustment of Rs. 23,95,712/- u/s 143(1) of the Act. Therefore, the intimation u/s 143(1) of the Act is necessarily merged with the assessment order u/s 143(3) of the Act, if the ultimate consequence of complete scrutiny assessment u/s 143(3) of the Act has to be looked into. It is therefore argued that the grounds raised by the assessee be considered and allowed by directing the Ld. CIT(A) to decide the issue raised before him on merit.
11. On the other hand, Ld. DR also filed written argument wherein he has rebutted the arguments of Ld. AR and submitted that the assessment order u/s 143(3) supersedes any prior intimation under Section 143(1) of the Act and relied on the decision of Hon'ble Calcutta High Court in C.E.S.C. Ltd. v. DCIT where it is held that when a regular assessment is made under Section 143(3) of the Act, the intimation under Section 143(1) ceases to be operative, as the doctrine of merger applies. Despite agreeing that the doctrine of merger applies and the intimation u/s 143(1) ceased to be operative after passing the order u/s 143(3) of the Act, Ld. DR however submitted that Ld. CIT(A) has rightly dismissed the appeal having “Why the Appeal is Infructuous The CIT (A)'s dismissal of the appeal as infructuous is justified because the assessment order under Section 143(3) did not result in any additional tax liability for the appellant. The AO's acceptance of the returned income of Rs. 55,52,467 means there is no tax effect or adverse impact, rendering the appeal moot. The appellant's grievances primarily relate to the Section 143(1) intimation, which was superseded by the Section 143(3) order. As noted in the ITAT's decision, the appellant failed to avail remedies such as filing a rectification application under Section 154 or an appeal against the Section 143(1) intimation. The following table summarizes the key financial figures and their implications:
Description Amount (Rs.) Remarks Returned Income 55,52,467 Declared by the appellant in the filed return. Section 143(1) Adjusted 79,48,179 Includes disallowance of Rs. Income 23,56,712 under Section 43B by СРС. Section 143(3) Assessed 55,52,467 No additions made; aligns Income with returned income, nullifying Section 143(1). Disallowance Under 23,56,712 Made in Section 143(1) Section 43B intimation; not upheld in Section 143(3) assessment.
Procedural Context The assessment process began with the filing of the return, followed by a preliminary intimation under Section 143(1) on 17/11/2019, which adjusted the income due to a disallowance under Section 43B. The case was selected for scrutiny under the Computer-Assisted Scrutiny Selection (CASS) process, leading to a um / 2024 The Naval Dockyard Co-Op Bank Limited detailed assessment under Section 143(3) finalized on 19/04/2021. The AO reviewed the Profit and Loss account and other documents submitted on the ITBA portal, finding no discrepancies requiring additions. The appellant's appeal to the ITAT, filed on 18/05/2021 and later migrated to the National Faceless Appeals Centre, was dismissed as infructuous due to the lack of additions in the final order.
Implications for the Appellant The dismissal of the appeal as infructuous is favorable to the appellant, as it confirms that their tax liability remains as per the filed return, with no additional tax demand. If the appellant believes the Section 143(1) intimation's disallowance is still an issue, they may pursue rectification under Section 154 or other legal remedies, but these are separate from the Section 143(3) order. The Revenue submits that the CIT (A)'s decision is legally sound and should be upheld.
Conclusion The appeal is correctly dismissed as infructuous by the CIT (A), as there are no additions or disallowances in the assessment order under Section 143(3) that affect the appellant's tax liability. The assessment under Section 143(3) supersedes the earlier intimation under Section 143(1), as established by judicial precedents such as C.E.S.C. Ltd. v. DCIT (Calcutta High Court). The Revenue respectfully submits that the CIT (A)'s order be upheld, and no further relief is warranted for the appellant.”
We have considered the rival submissions and perused the written arguments advanced on behalf of the parties. It transpires that on the one hand Ld. DR has accepted that the doctrine of merger shall apply in the case of the assessee and after passing the assessment order u/s um / 2024 The Naval Dockyard Co-Op Bank Limited 143(3) of the Act, the intimation u/s 143(1) stands redundant. Subsequently, it has been argued that since no addition u/s 143(3) was made, therefore the assessee cannot be said to be aggrieved by the scrutiny assessment u/s 143(3) of the Act and the appeal has been rightly dismissed as having been infructuous. Since the assessment order is accompanying by the computation sheet where the returned income is shown at Rs. 79,48,179/- and it is admitted case of the assessee and revenue that the doctrine of merger will apply, therefore we are unable to accept the contentions of the revenue that the assessee does not have any grievance against the scrutiny assessment order carried out by the AO.
The case of the assessee /appellant is also that the doctrine of merger shall apply in the case of the assessee and the assessee was aggrieved by the assessment order because the computation sheet is part of it which is carrying forward adjustment made in the intimation u/s 143(1) of the Act, hence it was submitted that the intimation u/s 143(1) has merged into the order u/s 143(3) of the Act. Therefore, Ld. CIT(A) should have decided the appeal on merit 14. On perusal of the written arguments and reliance placed by the Ld. AR on the case of Mumbai Tribunal in 4610 & 4611/Mum/2024 (supra), we are of the considered opinion that in the present case, the um / 2024 The Naval Dockyard Co-Op Bank Limited doctrine of merger would apply and Ld. CIT(A) should have decided the appeal on merit on the grounds raised before him. For that reasons, we are of the considered opinion that the assessee is rightly aggrieved by the scrutiny assessment order u/s 143(3) of the Act dated 19.04.2021 and has rightly filed the appeal before the Ld. CIT(A) which was required to be decided on merit. Accordingly, we set aside the impugned order of Ld. CIT(A) and remit the matter to the file of Ld. CIT(A) with the direction to decide the appeal on merit. Hence, both the grounds raised in this appeal are allowed for statistical purposes in above terms.
In the result, the appeal is accordingly allowed for statistical purposes in the above terms.
Order pronounced in the open court on 31.07.2025.