INFOSOFT GLOBAL P LTD.,KOLKATA vs. DCIT, CIR. 1(1), KOLKATA

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the record and the submissions made have been examined. During the course of appeal before the Tribunal the Ld. AR submitted that in the intimation issued u/s 143(1) of the Act the contingent liability was added but no appeal was filed against the intimation issued u/s 143(1) of the Act. In the assessment order the Ld. AO had made no discussion on the issue of contingent liability but the computation of income has started with “Total income as per 143(1) as per ITBA profile view” at Rs. 36,05,13,647/- and total income at Sl. No. 1 of the computation has been mentioned at Rs.34,83,49,050/-. Our attention was drawn to page 21 of the paper book which is the copy of audited financial statement for the year ended 2020-21 in which contingent liabilities being claims against the company not acknowledged as debt for income tax matter is shown at Rs.120.00 lakh as at 31.03.2020 which was Rs.72.5 lakhs as at 31.03.2019. the Ld. AR also referred to page 35 of the paper book item I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. No. 21.(g) which refers to particulars of any liability of a contingent nature and the details are at annexure no. 7 on page 42 and are the same as is mentioned earlier. The Ld. AR also drew our attention to page 62 of the paper book which is the computation of total income in support of the claim that no deduction against such contingent liabilities were claimed either in this or in the succeeding assessment year. It was also submitted that in respect of similar adjustment in the succeeding assessment year the appeal was allowed by the Ld. CIT(A). However, it may be mentioned that the order referred to in the paper book at page 77 to 82 is an appeal order dated 20.12.2022 for A.Y. 2021- 22 which is against the intimation u/s 143(1) of the Act dated 26.10.2022 while the appeal in the impugned assessment year relates to the assessment u/s 143(3) of the Act and not against the intimation u/s 143(1) of the Act. The Ld. AR also relied upon the judicial pronouncements in the cases of M.P. Madhyam vs. DCIT in ITA No. 424 & 426/IND/2022 order dated 30.08.2023, National Stock Exchange of India Limited vs. DCIT in ITA No. 732/MUM/2023 order dated 22.09.2023 and CESC Ltd. and Another vs. DCIT reported in 134 Taxmann 647. The case laws relied upon by the Ld. AR have been examined. It is observed that in the case of M.P. Madhyam (supra) the issue related to the intimation issued u/s 143(1) of the Act after the notice u/s 143(2) of the Act was issued. In the case of National Stock Exchange of India Limited (supra) the issue related to adjustment u/s 143(1)(a)(iv) of the Act being debatable and related to the appeal against the intimation u/s 143(1) of the Act. Similarly, in the case of CESC Ltd. (supra) the issue related to the rectification u/s 154 of the Act with respect to the intimation u/s 143(1) of the Act for which a detailed I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd.

However, in this context, it is relevant to examine the doctrine of merger. The intimation u/s 143(1)(a) of the Act is separately appealable to the Ld. CIT(A) under section 246A(1)(a) of the Act. The same is also rectifiable u/s 154(1)(b) of the Act by the Ld. AO. The assessee has availed both the remedies, once by filing an appeal before the Ld. CIT(A) and another by filing two rectification applications. All three are pending and the impugned appeal before the Ld. CIT(A) was in respect of the subsequent scrutiny assessment order u/s 143(3) of Act and neither against the intimation nor against the rectification order.

The right of appeal is a statutory right and the appeal before the Tribunal relates to the order of the Ld. CIT(A) passed u/s 250 of the Act against the scrutiny assessment of the Ld. AO. The assessee has relied upon the following two decisions in support of the claim that once the scrutiny assessment was made, the intimation was subsumed in the order under section 143(3) of the Act and the Ld. CIT(A) ought to have decided the issue I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 No. 354/Del/2024 ITAT Delhi Bench ‘G’ order dated 22.05.2024 relied upon by the assessee, though it is mentioned that the intimation order u/s 143(1) merged with the regular assessment passed u/s 143(3) of the Act but the issue was denial of registration under section 12A of the Act and the order is distinguishable on facts as is extracted below:

Considered the rival submissions and material placed on record. We observe that the issue raised by the assessee that the order passed u/s 143(1) of the Act, otherwise called as intimation, in which the CPC has denied the benefit claimed u/s 11 of the Act with the observation that the audit report in form 10B was not filed on time. This is fact on record that the assessee has not filed the form 10B along with the return of income due to the fact that it did not had the registration u/s 12A, and the assessee was claiming the benefits under the concept of mutuality. We observe that the assessee has applied for registration before filing the return of income for the current assessment year on 27.03.2019 and subsequently filed the ROI on 30.03.2019. The ROI was processed u/s 143(1) of the Act on 10.11.201 9 and denied the benefit u/s 11 on the basis of not filing the Form 10B on time.

Further we observe that the statutory notice u/s 143(2) was issued on 22.09.2019. Further notices u/s 142(1) were issued in order to proceed with the regular assessment. Accordingly, the assessment u/s 143(3) was completed. When regular assessment was completed and the relevant intimation issued u/s 143(1) will automatically merges with the assessment passed u/s 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 u/s 11 and failed to file the form 1 OB along with the ROI. Based on the above observation, the claim of the assessee was denied by the AO in sec. 143(1) proceedings. Therefore, there is no denial of fact that AO can make the above disallowance, however, the validity of the intimation issued u/s 143(1) is limited to mere intimation of correctness and accuracy of the income declared in ROI and its accuracy based on the information submitted along with the ROI. It does not carry the legitimacy of an assessment. When the assessment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the findings of Ld CIT(A) that I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. the intimation u/s 143(1) merges with the order passed u/s 143(3) of the Act and the appeal 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 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 FAA. Therefore, reviewing the same is uncalled for.

Coming to the submissions of the Ld AR, the assessee also not disputing the fact that the intimation merges with the regular assessment when the proceedings are initiated u/s 143(3) of the Act. Therefore, the admitted fact that the appeal against the intimation is infructuous. The grievance of the assessee is that Ld CIT(A) 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 u/s 11 is uncalled. Particularly when the issue under consideration is under challenge before another Appellate Authority.

The next issue raised by the Ld AR is, the assessee was granted the 12A registration on 5.1.2021 and the notice u/s 143(2) was issued on 22.09.2019. At the time of grant of registration, the assessment was pending and the same was passed only on 8.2.2021. That is subsequent to grant of registration i.e., on 5.1.2021. He submitted that the assessee is eligible to claim exemption u/s 11 for the impugned assessment year also. This is accepted fact on record that the assessee is eligible to claim exemption after the introduction of first proviso to sec. 12A(2) of the Act with the applicable conditions in Finance Act 2018. Since there is no change in the objects and activities in the case of the assessee, there is no doubt that the assessee is eligible to claim the benefit. However, in our view, this issue has to be raised before the FAA in the appeal against regular assessment passed u/s 143(3) of the Act. Since the issue is still under appeal before FAA, this issue can be decided by the FAA without taking any clue from the appeal decided u/s 143(1) of the Act by the present CIT(A). Therefore, the issue raised against the intimation order is decided in favour of the assessee and hold that the order passed u/s 143(1) is merged with the regular assessment passed u/s 143(3) and it does not have legs to stand on its own once the regular assessment proceedings are initiated. At the same time, we are also hold that the findings of the Ld CIT(A) on the I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. maintenance of the appeal as infructuous, hence, the demand raised in the 143(1) intimation does not survive.

Further, in the case of C.E.S.C. Ltd. v. Deputy Commissioner of Income- tax [2004] 134 TAXMAN 647 (CAL.) relied upon by the assessee, it has been held as under: Admittedly, in case of all the four assessment years, notices under section 143(2) were issued and consequent thereto regular assessment in respect of the assessment years 1990-91 and 1992- 93 had been completed. [Para 9] If the department cannot, after issuing a notice under section 143(2) for regular assessment, resort to the summary procedure under section 143(1)(a), can it be said that the rectification of an intimation issued under the aforesaid section is also not permissible because in either case it would amount to activating section 143(1)(a) which according to the judgment of the Apex Court in the case of CIT v. Gujarat Electricity Board [2003] 260 ITR 84/ 129 Taxman 65 , is not permissible after issuance of a notice under section 143(2). [Para 11] Regular assessment for the assessment years 1990-91 and 1992-93 under section 143(3) had been completed disallowing appropriation to contingency reserve as a business expenditure and appeals therefrom were pending. What was accepted in the intimation had been reversed in the regular assessment and the assessee had preferred an appeal which was pending. The instant case was a case where the theory of merger was bound to apply because the intimation issued under section 143(1)(a) was no longer operative in respect of the assessment years 1990-91 and 1992-93. The only order which was effective and operative was the one passed under section 143(3). The order passed under section 143(1)(a) ceased to be operative and merged in the final order. [Para 12] {emphasis supplied} In the case of Hindustan Aeronautics Ltd. v. CIT [2000] 243 ITR 808 / 110 Taxman 311, the Apex Court opined that where the Legislature intended to make a distinction as to where there will be no merger, the Legislature has made express provision therefor. There is no provision in section 143 that notwithstanding an order having been passed under section 143(3), an order passed under section 143(1) shall continue to subsist. [Para 15] Section 154(1A) provides that the rectification has to remain restricted to the matter which has not been considered and decided I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. either in appeal or revision. There is no reason why the same restriction would not apply to a summary assessment and regular assessment particularly when the appropriation to contingency reserve was allowed under section 143(1)(a ) but disallowed under section 143(3). [Para 16] It followed that the effective and operative order was the one under section 143(3) and, therefore, the question of seeking rectification of the order under section 143(1)(a) could never arise. [Para 18] For the aforesaid reasons, the notices under section 154 seeking to rectify the intimation under section 143(1)(a) for the assessment years 1990-91, 1992-93, 1993-94 and 1994-95 were to be quashed. [Para 21]

The doctrine of merger is a common law doctrine that is rooted in the idea of maintenance of the decorum of hierarchy of courts and tribunals, the doctrine is based on the simple reasoning that there cannot be, at the same time, more than one operative order governing the same subject matter as held in the case of Gojer Bros. (P) Ltd. v. Ratan Lal Singh, (1974) 2 SCC 453. The same was aptly summed up by the Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 113 Taxman 470 (SC) when it described the doctrine so. To sum up, the conclusions were: (i) Where an appeal or revision is provided against an order passed by a Court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. (ii) The juri iction conferred by article 136 is divisible into two stages. First stage is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal. (iii) The doctrine of merger is not a doctrine of universal or un-limited application. It will depend on the nature of juri iction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior juri iction should be capable of reversing, modifying or affirming the order put in issue before it. Under article 136, the Supreme Court may reverse, modify or affirm the Judgment, decree or order appealed against while exercising its appellate I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. Juri iction and not while exercising the discretionary juri iction disposing of petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter. (iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case, it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of article

Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in the subsequent proceedings between the parties. (vi) Once leave to appeal has been granted and appellate juri iction of the Supreme Court has been invoked, the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation. (vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court, the juri iction of the High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of rule (1) of order 47 of the Code. Thus, for the doctrine of merger to be applicable there must be a decision of a subordinate court/forum, in respect of which there exists a right of appeal/ revision which is duly exercised, and the superior forum before whom such appeal/ revision is preferred must modify, reverse, and/or affirm the decision of the subordinate court/forum. The consequence of such modification, reversal, and/or affirmation is that the decision of the subordinate forum would merge I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. with the decision of the superior forum, which in turn would be operative and capable of being enforced.

Since, in the instant case, the addition made in the intimation u/s 143(1)(a) of the Act by the CPC have not been reversed by the Ld. AO in the order u/s 143(3) passed subsequently and the income as per the intimation has only been retained, therefore, the doctrine of merger does not apply. The Ld. AO has accepted the returned income, thereby implying that no addition was made on account of the reasons for which the case was selected under scrutiny but the adjustment made to the income vide intimation issued by the CPC had been retained. Hence, all the grounds of appeal in this regard are dismissed and the appeal of the assessee is liable to be dismissed. The assessee may pursue the other modes of relief in respect of the addition made in the intimation under section 143(1)(a) of the Act.

As regards the retention of the addition made in the intimation u/s 143(1)(a) of the Act, since both the rectification as well as the appeal proceedings are pending, therefore, there does not arise any occasion for adjudication on the issue in this appeal against the scrutiny assessment order and the appeal is hereby dismissed and all other grounds of appeal are dismissed.

In the result, the appeal of the assessee is dismissed.”

In view of the finding made in the case of MSTC Ltd. (supra), since the adjustment made in the intimation u/s 143(1) of the Act have neither been reversed by the Ld. AO nor any adjudication has been made in the assessment order therefore, the Ld. CIT(A) was justified in dismissing the appeal of the assessee on the ground that the impugned intimation was not contested in appeal. Hence, we find no error in the order of the Ld. CIT(A) which is hereby upheld in view of the order of the Hon'ble Juri ictional High Court and the doctrine of merger discussed in the case of MSTC Ltd. (supra). Hence, ground nos. 1, 2 & 3 are dismissed.

As regards ground no. 4 relating to addition of Rs. 1,64,597/-, neither the Ld. AR pressed this issue nor the same emanates from the order of the Ld. CIT(A) nor any such addition has been made by the Ld. I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. AO while computing the income of the assessee. Hence, this ground of appeal is also dismissed.

In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open Court on 21st March, 2025. [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 21.03.2025 Bidhan (P.S.) I.T.A. No.: 501/KOL/2024 Assessment Year: 2012-13 Infosoft Global (P) Ltd. Copy of the order forwarded to:

CIT(A)-NFAC, Delhi.

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order