POWER RESEARCH AND DEVELOPMENT CONSULTANTS PVT. LTD.,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 3(1)(1), BENGALURU

The brief facts of the case are that the assessee filed its return of income on 25/12/2020 declaring a total income of Rs. 1,91,48,630/-. The said return was processed u/s. 143(1) of the Act and the CPC had determined the total income at Rs. 2,86,56,020/- by disallowing employees contribution towards PF and ESI since the said payment were made after the due dates. The CPC also invoked section 36(1)(va) of the Act and added the said amount towards the income of the assessee. Against the said intimation, the assessee filed an appeal before the Ld.CIT(A) and contended that the CPC had not followed the mandatory procedures before passing the intimation u/s. 143(1) of the Act. The assessee also contended that before making such adjustments, the CPC had not issued any opportunity by giving notice in writing or in electronic mode as prescribed under the proviso to section 143(1)(a) of the Act. The assessee also filed an application for accepting the additional grounds in respect of the legal plea of not issuing any notice before making adjustments and also raised an alternate plea that the delayed contribution of PF and ESI is liable to be allowed as business expenditure u/s. 37 of the Act. The Ld.CIT(A) had dismissed the appeal both on the legal grounds as well as the grounds on merits.

As against the said order of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

At the time of hearing, the Ld.AR filed a synopsis and also a compilation of case laws and submitted that the Ld.CIT(A) is not correct in dismissing the legal ground raised by the assessee since the statute had mandated that notice should be issued in writing or through electronic mode before making any adjustment. The assessee also raised the grounds on merits and prayed to allow the appeal filed by the assessee.

The Ld.DR relied on the orders of the Ld.CIT(A) and prayed to dismiss the appeal filed by the assessee.

We have heard the arguments of both sides and perused the materials available on record.

In the present appeal, the assessee had claimed a deduction on the payment of PF & ESI contributions received from the employees while filing the return of income u/s. 139(1) of the Act. Thereafter, the said return was processed u/s. 143(1) of the Act in which the CPC had disallowed the deduction claimed by the assessee because the payments were made belatedly and therefore as per the judgment of the Hon’ble Supreme Court, the assessee is not entitled to get any benefit of deduction. Admittedly, the CPC had made the adjustment while processing the return u/s. 143(1) of the Act but not issued any notice in writing or through electronic mode about the proposed adjustment made by it, when the assessee had specifically claimed the said deduction. In these circumstances, we have to decide whether the adjustment made u/s. 143(1) of the Act is correct or not.

We have also perused the section 143(1)(a) which reads as follows: “Assessment. 143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:— (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return;

From the bare reading of the above said provision, the Statute mandates that the computation of income or loss should be determined after making the above-mentioned adjustments. The proviso attached to the said provision explains the circumstances under which the adjustment could be made. The said proviso states that the adjustment should not be made as per section 143(1)(a) without issuing an intimation to the assessee of such adjustments either in writing or in electronic mode. The above said provision read with proviso made it clear that the CPC can make adjustments to compute the total income or loss but before making such adjustments, the CPC should issue an intimation in writing or in electronic mode. Therefore the provision is very clear that the prior intimation should be given to the assessee before making any adjustment. Therefore, any adjustment without issuing any prior intimation to the assessee is against the provisions of the Act.

We have also gone through the screenshot of the efiling portal filed by the assessee in the paper book in which there is no mention about the issuance of any notice before passing the intimation u/s. 143(1) of the Act.

Now we will consider the orders relied on by the assessee in support of its contention that notice should have been issued before making adjustment while processing the return u/s. 143(1) of the Act. The first order relied on by the assessee is of the order of the Coordinate Bench of this Tribunal in the case of ER Consulting vs. ADIT in dated 16/05/2024 in which the Tribunal had given the following findings: “7. We have heard the rival contentions of both the parties and perused the materials available on record. It has been mandated under the provisions of sec. 143(1) of the Act that no adjustment can be made to the total income of the assessee unless an opportunity of being heard is given to the assessee either in writing or in electronic form. In the present case, it is an admitted position that the return was processed u/s 143(1) of the Act after making adjustment without giving any opportunity to the assessee. This fact can be verified from the details submitted by the ld. DR, which is reproduced as under:

From the above finding it is clear that without granting an opportunity to the assessee either in writing or in electronic form, the assessment made by the AO is bad in law and deleted the additions made by the AO.

The second order relied on by the assessee is the order of the Hon’ble Ahmedabad Tribunal in the case of Devendra Singh Bhaskar vs. DCIT in dated 11/10/2023 in which similar issue came up for consideration and the Tribunal had given the following finding:

Another order relied on by the assessee is that of the Hon’ble Kolkata Tribunal in case of ITO(E) vs. Camellia Educare Trust reported in (2023) 152 taxmann.com 304 in which the Tribunal held as under: “7.2. Further, in respect of any adjustment which is proposed to be made, a prior intimation is required to be served on the assessee, either in writing or electronically, as contained in 1st proviso to section 143(1)(a) of the Act. Ld. Counsel has evidently demonstrated before us, the failure on the part of CPC to issue such prior intimation to the assessee before making an adjustment by way of disallowing the claim of exemption u/s. 11 of the Act. Thus, there are two aspects which emerges on this issue as to whether the disallowance made is a permissible adjustment contained in sec. 143(1)(a) and whether this adjustment, if permissible, has been made in compliance to 1st proviso to sec. 143(1)(a) of the Act. 8. Considering the facts on record and the perusal of the provisions contained in sec. 143(1)(a) of the Act, we find that on both the aspects, the revenue fails. This position has not been controverted by Ld. Sr. DR also. Even if we assume for a moment that such an intimation was given to the assessee in accordance with the 1st proviso, then the second proviso stipulates that if any response is received from the assessee then, the same should be considered before making any adjustment or disallowance. In case, where there is no response received from the assessee then, within thirty days of the issue of such intimation, department is free to make such adjustment or disallowance. The documentary evidence placed on record and the e-proceedings downloaded from the Income Tax portal, no where suggests that such a process has been followed. Thus, we find that the impugned intimation

The assessee also relied on another order of the Hon’ble Ahmedabad Tribunal in case of Arham Pumps vs. DCIT reported in (2022) 140 taxmann.com 204 in which it was held as under: “8. On going through the above intimation made under section 143(1), CPC has not followed the above provisos by giving proper opportunity to the assessee to defend its case as per the first proviso to section 143(1)(a) . Further, the NFAC order is also silent about the intimation to the assessee. Therefore, we find that intimation issued under section 143(1) dated 19.10.2019 is against first proviso to section 143(1)(a), and therefore, the entire 143(1) proceedings is invalid in law. 9. We also observe that the ld.NAFC has not looked into this fundamental principle of "audi alterm partem", which has not been provided to the assessee as per the 1st proviso of section 143(1) of the Act, but proceeded with the case on merits and also confirmed the addition made by the CPC. The ld.NAFC is thus erred in conducting the faceless appeal proceedings in a more mechanical manner without application of mind. We therefore hereby quash the intimation issued by the CPC and allow the appeal filed by the assessee.”

In another order passed by the Hon’ble Delhi Tribunal in case of Vinod Malik vs. ADIT reported in (2023) 146 taxmann.com 583, the Tribunal had, in similar facts and circumstances of the present case had held as follows: “6. From the above, we find that the disallowance made by the CPC was in accordance with provisions of Section 143(1)(iv). The act mandates, before making an adjustment, an intimation has to be given to the assessee of such adjustment in writing or in electronic mode. The revenue could not produce evidence of sending the intimation to the assessee with regard to the proposed adjustment. 7. Failure to adhere to the mandatory procedure prescribed in statute has domino effect on the order passed u/s 143(1)(a) culminating in treating the order legally unsustainable.”

The assessee also relied on the order of Hon’ble Kolkata Tribunal in the case of Onkar Society for Engineering and Technological Research and Development vs. ITO(E) reported in (2024) 161 taxmann.com 773 held as under: “8. In the instant case also, the adjustment has been made by the ld. Assessing Officer, CPC to the income of the assessee without even giving any intimation in terms of proviso to section 143(1)(a) of the Act and, therefore, the said order is quashed as invalid and nullity in the eyes of law. In the result, the additional ground is allowed.”

From the findings given by the various Tribunals including the coordinated Bench, in respect of the legal plea raised by the assessee it was consistently held that the intimation issued u/s. 143(1) could not be sustained when the CPC had made the adjustments by disallowing any claim made in the return of income, without sending any prior intimation to the assessee in writing or in electronic mode.

The Ld.CIT(A) relied on the order of the Hon’ble Mumbai Tribunal in the case of Nissan Enterprise Ltd. vs. DCIT-CPC in dated 17/02/2023 for rejecting the submission made by the assessee. No doubt the assessee had deposited the ESI and PF amounts after the due date prescribed under the respective acts and therefore they are not entitled for deduction. But the Statute mandates that before making any such adjustment, necessary intimation should be given to the assessee in writing or in electronic mode. Further, the several orders relied on by the assessee would support the case of the assessee. In such circumstances, we are of the view that the intimation issued u/s. 143(1) of the Act without giving a prior intimation is against the proviso to section 143(1)(a) of the Act and therefore we are setting aside the intimation dated 24/12/2021 issued by the CPC as well as the order of the Ld CIT(A). Since we are deciding the issue based on the legal ground raised by the assessee, we are not adjudicating the other grounds raised by the assessee on merits.

In the result, the appeal filed by the assessee is allowed.