NARENDRA HARJIVANDAS SANGHVI,MASJID BUNDER, MUMBAI vs. ITO WARD 16(3)(1), MUMBAI, CHURCHGATE, MUMBAI

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ITA 1755/MUM/2025Status: DisposedITAT Mumbai10 July 2025AY 2021-20227 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the adjustment of Rs.19,44,032 made by the CPC lacked legal sustainability. The Tribunal found that while Section 143(1)(a)(ii) allows adjustments for incorrect claims apparent from information in the return, this principle does not apply when the income in question has been disclosed correctly under appropriate heads elsewhere in the return, and the omission is limited to a technical misreporting in a secondary schedule like Clause 5 of 'Other Information'. The records showed that the amount of Rs.19,44,032 was indeed disclosed, partly as taxable income and partly as exempt income. The CPC had proceeded mechanically without correlating disclosures across schedules, leading to a duplication of income. The Tribunal also found the CIT(A)'s reasoning regarding the merger of the Section 143(1) intimation with rectification orders to be legally untenable, as rectification proceedings are independent and do not affect the right of appeal against the original intimation. Consequently, the Tribunal restored the matter to the Assessing Officer to verify if the sum of Rs.19,44,032 was duly offered to tax or disclosed as exempt income under appropriate heads in the original return. If confirmed, the impugned adjustment was to be deleted. The grounds of appeal were allowed for statistical purposes.

What were the facts?

The assessee, Narendra Harjivandas Sanghvi, an advocate, filed his return of income for Assessment Year 2021-22 declaring a total income of Rs.9,26,980. The Central Processing Centre (CPC) processed the return under Section 143(1) and determined the total income at Rs.28,71,010, making an adjustment of Rs.19,44,032. This adjustment was based on a perceived mismatch between the Tax Audit Report (Form 3CD) and the return of income, specifically regarding income not credited to the profit and loss account. The assessee's attempts to rectify this were unsuccessful, and the appeal before the CIT(A) also yielded no relief. The CIT(A) dismissed the appeal, treating it as infructuous and holding that the adjustment was justified due to the assessee's reporting error and the merger of the Section 143(1) intimation with subsequent orders.

What were the issues?

1. Whether the Ld. CIT(A) erred in not affording sufficient opportunity to the assessee to present the case before passing the order, rendering the order arbitrary and bad-in-law, under Section 250 of the Income-tax Act, 1961? 2. Whether the Ld. CIT(A) erred in dismissing the appeal as infructuous, treating the order dated 21.11.2020 as such? 3. Whether the Ld. CIT(A) erred in not examining the grievance that the addition of Rs.19,44,032 consisted of tax-free income of Rs.12,56,269 (Interest from Government Tax Free Bonds etc.) wrongly taxed and Rs.6,87,761 (taxable interest) already disclosed in the ITR, being taxed twice? Assessee's Contentions: - The adjustment of Rs.19,44,032 arose from an inadvertent clerical omission in filling Schedule 'Other Information' Clause 5 of the return. The income was otherwise disclosed correctly under appropriate heads. The tax audit report (Form 3CD, Clause 16) detailed this income, including Rs.6,87,765 as taxable income from 'other sources' and Rs.12,56,269 as exempt income. - The CIT(A)'s reasoning that the error was attributable to the assessee and that the CPC was justified in making the adjustment under Section 143(1)(a) is incorrect because the income was disclosed elsewhere in the return. - The CIT(A)'s reasoning that the Section 143(1) intimation merged with rectification orders is legally untenable, as rectification proceedings are independent and do not efface the original intimation unless revised. Revenue's Contentions: - The judgment records no specific contentions for the revenue on the substantive issues, but implies reliance on the CIT(A)'s order which held that the error was attributable to the assessee and the CPC was justified in making the adjustment under Section 143(1)(a).

Which sections of the Income-tax Act were involved?

Section 143(1),Section 143(1)(a),Section 250,Section 246A(1)(a),Section 154

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “J (SMC

Before: SHRI OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN

This appeal by the assessee is directed against order dated 27.02.2025 passed by the Ld. Addl./Joint Commissioner of Income- tax (Appeals) – Kochi [in short ‘the Ld. CIT(A)’] for assessment year 2021-22, raising following grounds:

Narendra Harjivandas Sanghvi Narendra Harjivandas Sanghvi 2 ITA No. 1755/MUM/2025

1.

The Lr. Commissioner of Income Tax (Appeal) has erred in not 1. The Lr. Commissioner of Income Tax (Appeal) has erred in not 1. The Lr. Commissioner of Income Tax (Appeal) has erred in not affording sufficient opportunity affording sufficient opportunity to present the case before passing to present the case before passing the Order U/s. 250 dated 27.02.2025 rendering the said Order the Order U/s. 250 dated 27.02.2025 rendering the said Order the Order U/s. 250 dated 27.02.2025 rendering the said Order as arbitrary and ab as arbitrary and ab-initio bad-in-law.

2.

The Lr. C.I.T. (Appeal) has also grievously erred in dismissing 2. The Lr. C.I.T. (Appeal) has also grievously erred in dismissing 2. The Lr. C.I.T. (Appeal) has also grievously erred in dismissing the Appeal filed on 21.11.2020 treating the same as in the Appeal filed on 21.11.2020 treating the same as in the Appeal filed on 21.11.2020 treating the same as infructuous.

3. The Lr. C.I.T. (Appeal) has also erred in not examining the 3. The Lr. C.I.T. (Appeal) has also erred in not examining the 3. The Lr. C.I.T. (Appeal) has also erred in not examining the grievance of the Appellant that the addition of Rs. 19,44,030.00 grievance of the Appellant that the addition of Rs. 19,44,030.00 grievance of the Appellant that the addition of Rs. 19,44,030.00 consisted of Tax Free income of Rs. 12,56,269.00 being Interest consisted of Tax Free income of Rs. 12,56,269.00 being Interest consisted of Tax Free income of Rs. 12,56,269.00 being Interest from Government Tax Free Bonds etc being wrongly taxe from Government Tax Free Bonds etc being wrongly taxe from Government Tax Free Bonds etc being wrongly taxed and Rs 6,87,761.00 Taxable interest already disclosed in I.T.R. were Rs 6,87,761.00 Taxable interest already disclosed in I.T.R. were Rs 6,87,761.00 Taxable interest already disclosed in I.T.R. were taxed twice. 4. 4. 4. The The The entire entire entire Order Order Order U/s. U/s. U/s. 250 250 250 is is is otherwise otherwise otherwise unjustified and and unlawful. 2. Briefly stated facts of the case are that t Briefly stated facts of the case are that the he Assessee is an advocate by profession. advocate by profession. For the year under consideration, the er consideration, the assessee filed return of income on 27.01.2022 declaring total assessee filed return of income on 27.01.2022 declaring total assessee filed return of income on 27.01.2022 declaring total income at Rs.9,26,980/ income at Rs.9,26,980/-. The return of income filed by the assessee The return of income filed by the assessee was processed u/s 143(1) of the Income was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) wherein the Central Processin Act’) wherein the Central Processing Centre (CPC) determined the g Centre (CPC) determined the total income at Rs.28,71,010/ total income at Rs.28,71,010/- after making adjustment for after making adjustment for Rs.19,44,032/-, resulting in the enhanced total income. The resulting in the enhanced total income. The resulting in the enhanced total income. The adjustment was premised on a perceived mismatch between the Tax adjustment was premised on a perceived mismatch between the Tax adjustment was premised on a perceived mismatch between the Tax Audit Report (Form 3CD) and the return of i Audit Report (Form 3CD) and the return of income.

2.1 The assessee’s subsequent attempts to seek rectification of the The assessee’s subsequent attempts to seek rectification of the The assessee’s subsequent attempts to seek rectification of the said adjustment were unsuccessful. The appeal before the ld CIT(A) said adjustment were unsuccessful. The appeal before the ld CIT(A) said adjustment were unsuccessful. The appeal before the ld CIT(A) also met with no relief. Aggrieved, the assessee is now before us also met with no relief. Aggrieved, the assessee is now before us also met with no relief. Aggrieved, the assessee is now before us challenging the impugned order. challenging the impugned order.

Narendra Harjivandas Sanghvi Narendra Harjivandas Sanghvi 3 ITA No. 1755/MUM/2025

3.

We have heard rival submissions of the parties and perused heard rival submissions of the parties and perused heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. The issue in dispute is in respect . The issue in dispute is in respect of adjustment of Rs.19,44,032/ of adjustment of Rs.19,44,032/- made by the Assessing Officer of made by the Assessing Officer of the CPC. It is the contention of the assessee that the adjustment It is the contention of the assessee that the adjustment It is the contention of the assessee that the adjustment stems from an inadvertent clerical omission while filling from an inadvertent clerical omission while filling Schedule from an inadvertent clerical omission while filling Other Information – Clause 5 in the return of income in the return of income. The Ld. counsel submitted that assessee maintained books of accounts and counsel submitted that assessee maintained books of accounts and counsel submitted that assessee maintained books of accounts and the income earned from the profession is the income earned from the profession is accounted accounted in the profit and loss account, whereas , whereas income from ‘other sources other sources’ was recorded in balance sheet under the head ‘capital account’. The Ld. balance sheet under the head ‘capital account’. The Ld. balance sheet under the head ‘capital account’. The Ld. counsel submitted that both the categories of the income were counsel submitted that both the categories of the income were counsel submitted that both the categories of the income were disclosed to the computation income under appropriate heads and disclosed to the computation income under appropriate heads disclosed to the computation income under appropriate heads in turn were disclosed in the I n were disclosed in the Income-tax return.

3.1 However, he submitted that in the tax audit report in Form No. However, he submitted that in the tax audit report in Form No. However, he submitted that in the tax audit report in Form No. 3CD uploaded on the income 3CD uploaded on the income-tax system in relevant clause No. 16 tax system in relevant clause No. 16 amount not credited to the profit and loss account being any other to the profit and loss account being any other item of income was reported at Rs.19,44,032/ was reported at Rs.19,44,032/- as per Schedule as per Schedule 16B. The relevant detail of the tax audit report is reproduced for 16B. The relevant detail of the tax audit report is reproduced for 16B. The relevant detail of the tax audit report is reproduced for ready reference: Amount 1 Dividend 18,067 2 Interets FD 3,86,059 3 Interest NSS 1,42,070 4 Interest PPF 1,46,812 5 Interest SB Acc Interest SB Acc 77,265 6 Interest Scss Interest Scss 86,372 7 Interest Tax Free Interest Tax Free 9,67,387

Narendra Harjivandas Sanghvi Narendra Harjivandas Sanghvi 4 ITA No. 1755/MUM/2025

8 Interest LIC 1,20,000 Total 19,44,032 19,44,032 3.1 In the return of income under the relevant Schedule of n the return of income under the relevant Schedule of ‘other n the return of income under the relevant Schedule of information’ in clause 5 inadvertently said amount of any other item in clause 5 inadvertently said amount of any other item in clause 5 inadvertently said amount of any other item of income not credited ed to the profit and loss account was reported to the profit and loss account was reported at Rs. Nil. But the said income of Rs.19,44,032/ at Rs. Nil. But the said income of Rs.19,44,032/- was reported by was reported by the assessee in return of income return of income two parts. The The amount of Rs.6,87,765/- which was chargeable to tax which was chargeable to tax was reported under the reported under the head ‘income from other sources’ (PB 46) and the balance amount head ‘income from other sources’ (PB 46) and the balance amount head ‘income from other sources’ (PB 46) and the balance amount of Rs.12,56,269/- was reported under the head ‘exempted income’ was reported under the head ‘exempted income’ was reported under the head ‘exempted income’ (PB 48). Thus, in this manner the other income was already in this manner the other income was already in this manner the other income was already declared in the return of income. the return of income.

3.2 The CPC, in processing the return, appears to have relied The CPC, in processing the return, appears to have relied The CPC, in processing the return, appears to have relied solely on the absence of declaration under Clause 5 of “Other solely on the absence of declaration under Clause 5 of “Other solely on the absence of declaration under Clause 5 of “Other Information” to make the adjustment, without verifying the actual Information” to make the adjustment, without verifying the actual Information” to make the adjustment, without verifying the actual disclosure of the same income under the disclosure of the same income under the relevant heads elsewhere relevant heads elsewhere in the return. The CIT(A), in upholding the adjustment, assigned The CIT(A), in upholding the adjustment, assigned The CIT(A), in upholding the adjustment, assigned two principal reasons. First, that the error in reporting was two principal reasons. First, that the error in reporting was two principal reasons. First, that the error in reporting was attributable to the assessee and in the absence of a revised return, attributable to the assessee and in the absence of a revised return, attributable to the assessee and in the absence of a revised return, the CPC was justified in making the the CPC was justified in making the adjustment under Section adjustment under Section 143(1)(a). Second, that the intimation under Section 143(1) stood 143(1)(a). Second, that the intimation under Section 143(1) stood 143(1)(a). Second, that the intimation under Section 143(1) stood merged with the subsequent rectification orders, and hence was no merged with the subsequent rectification orders, and hence was no merged with the subsequent rectification orders, and hence was no longer amenable to challenge. longer amenable to challenge.

Narendra Harjivandas Sanghvi Narendra Harjivandas Sanghvi 5 3.3 We have perused the order of the Ld. CIT(A) on the issue in We have perused the order of the Ld. CIT(A) on the issue in We have perused the order of the Ld. CIT(A) on the issue in dispute. In our considered view, both findings warrant careful In our considered view, both findings warrant careful In our considered view, both findings warrant careful scrutiny. 3.4 As regards the first, it is no doubt true that under Section As regards the first, it is no doubt true that under Section As regards the first, it is no doubt true that under Section 143(1)(a)(ii), adjustments can be made for incorrect claims apparent 143(1)(a)(ii), adjustments can be made for incorrect claims apparent 143(1)(a)(ii), adjustments can be made for incorrect claims apparent from information in the return. However, where the income in from information in the return. However, where the income in from information in the return. However, where the income in question has otherwise been question has otherwise been disclosed correctly under the disclosed correctly under the appropriate heads in the return, and the perceived omission is appropriate heads in the return and the perceived omission is limited to a technical misreporting in a secondary schedule (in this limited to a technical misreporting in a secondary schedule (in this limited to a technical misreporting in a secondary schedule (in this case, Clause 5 of “Other Information”), such an adjustment may not case, Clause 5 of “Other Information”), such an adjustment may no case, Clause 5 of “Other Information”), such an adjustment may no satisfy the rigour of “incorrect claim apparent from any information satisfy the rigour of “incorrect claim apparent from any information satisfy the rigour of “incorrect claim apparent from any information in the return. The records demonstrate that the amount of in the return. The records demonstrate that the amount of in the return. The records demonstrate that the amount of in fact disclosed— in part as taxable income and ₹19,44,032/- was in fact disclosed in part as taxable income and in part as exempt income. The CPC appears to have proceeded in part as exempt income. The CPC appears to have proceeded in part as exempt income. The CPC appears to have proceeded mechanically, without correlating disclosures across the schedules, echanically, without correlating disclosures across the schedules, echanically, without correlating disclosures across the schedules, thereby resulting in duplication of income. thereby resulting in duplication of income.

3.5 Insofar as the second limb of the CIT(A)’s reasoning is Insofar as the second limb of the CIT(A)’s reasoning is Insofar as the second limb of the CIT(A)’s reasoning is concerned—that the intimation merged with the rectification that the intimation merged with the rectification that the intimation merged with the rectification orders—this, too, is lega this, too, is legally untenable. Rectification proceedings lly untenable. Rectification proceedings under Section 154 are independent and do not efface the original under Section 154 are independent and do not efface the original under Section 154 are independent and do not efface the original intimation unless specifically revised. The right of appeal under intimation unless specifically revised. The right of appeal under intimation unless specifically revised. The right of appeal under Section 246A(1)(a) against the intimation under Section 143(1) Section 246A(1)(a) against the intimation under Section 143(1) Section 246A(1)(a) against the intimation under Section 143(1) remains unaffected.

Narendra Harjivandas Sanghvi Narendra Harjivandas Sanghvi 6 3.6 In the circumstances, we are of the view that the addition of In the circumstances, we are of the view that the addition of In the circumstances, we are of the view that the addition of ₹19,44,032/- lacks lacks lacks legal legal legal sustainability sustainability sustainability and and and arises arises arises from from from a a a mechanical and incomplete processing of the return. However, since mechanical and incomplete processing of the return. However, since mechanical and incomplete processing of the return. However, since the matter involves questions of factual correlation between the matter involves questions of factual correlation between the matter involves questions of factual correlation between schedules and heads of income, ules and heads of income, it would be appropriate to restore it would be appropriate to restore the matter to the file of the Assessing Officer the matter to the file of the Assessing Officer, who shall verify , who shall verify whether the sum of ₹ ₹19,44,032/- was in fact duly offered to tax (or was in fact duly offered to tax (or disclosed as exempt income) under appropriate heads in the disclosed as exempt income) under appropriate heads in the disclosed as exempt income) under appropriate heads in the original return filed, and if so, delete the impugned adjustment and original return filed, and if so, delete the impugned adjustment original return filed, and if so, delete the impugned adjustment pass a reasoned order in accordance with law. a reasoned order in accordance with law. The grounds of The grounds of appeal of the assessee appeal of the assessee are accordingly allowed for statistical are accordingly allowed for statistical purposes.

4.

In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.

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