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Facts
The assessee's return for AY 2020-21 was processed by CPC under Section 143(1), resulting in disallowances of brought forward loss, dividend exemption, and an addition for employees' contribution. The assessee appealed to the First Appellate Authority (FAA) and simultaneously applied for rectification under Section 154, which was rejected by the CPC. The FAA dismissed the appeal on the technical ground that the Section 143(1) order merged with the Section 154 rectification order, without adjudicating the merits.
Held
The Tribunal held that genuine claims should not be rejected on mere technicalities, finding the FAA's dismissal based on technical merger unjustified. It determined that the assessee's claims regarding brought forward losses, dividend exemption, and employee contribution disallowance pertain to the merits and require factual verification. Consequently, the Tribunal set aside the FAA's order and restored the matter to the Assessing Officer (AO) for de novo adjudication on merits after affording the assessee a reasonable opportunity of being heard.
Key Issues
Whether the First Appellate Authority erred in dismissing the appeal on technical grounds of merger with a rectification order under Section 154, thereby failing to adjudicate the merits of claims regarding brought forward loss, dividend exemption, and employees' contribution disallowance.
Sections Cited
143(1), 154, 36(1)(va), 36(1)(iv)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. Capital Fortunes Pvt. Ltd. (“the assessee”), feeling aggrieved by the order passed by the Learned ADDL/JCIT (A), Kochi, (“Ld. First Appellate Authority”), dated 27.02.2025 for the A.Y. 2020-21.
The assessee has raised the following grounds of appeal :
1. 3. The brief facts of the case are that, the assessee is a company which filed its return of income on 15.02.2021 for A.Y. 2020-21 declaring a total income of Rs.4,07,82,230/-. The return of the assessee was processed by CPC under section 143(1) of the Income Tax Act, 1961 (“the Act”) on 24.12.2021 determining the total income at Rs.5,53,67,690/-. While processing the return of the assessee, the CPC did not allow the set-off of brought forward loss of Rs.1,42,70,219/-, did not allow the exemption of Rs.2,58,564/- on account of dividend income and made addition of Rs.56,673/- on account of employees’ contribution to provident fund.
Aggrieved with the order of CPC, the assessee filed an appeal before the Ld. First Appellate Authority. Simultaneously, the assessee also filed an application for rectification under section 154 of the Act before CPC against the intimation under section 143(1) of the Act.
The said application was rejected by CPC. The Ld. First Appellate Authority, without adjudicating on merits, dismissed the appeal of the assessee on the technical ground that since the assessee had filed a rectification petition under section 154 of the Act, the order under section 143(1) of the Act merged with the rectification order and therefore, the appeal filed against intimation under section 143(1) of the Act was not maintainable.
Aggrieved with the order of Ld. First Appellate Authority, the assessee is in further appeal before us. The Learned Authorised Representative (Ld. AR) submitted that the main grievance of the assessee is against the denial of set-off of brought forward loss of Rs.1,42,70,219/-, exemption of Rs.2,58,564/- on account of dividend and incorrect addition of Rs.56,673/- towards employees’ contribution to provident fund. With regard to the set-off of brought forward losses, it was submitted that the assessee is duly eligible and the same has been correctly carried forward in earlier years. The CPC, however, while processing the return under section 143(1) of the Act, wrongly didn’t allow the set-off. On the issue of dividend exemption, it was submitted that due to an inadvertent clerical error while filling the ITR form, the exemption was not properly reflected in some columns of the return, though in computation it was correctly shown. As regards the disallowance of Rs.56,673/- towards employees’ contribution, the Ld. AR submitted that the assessee had already disallowed the said amount in the computation. Again, there was some inadvertent error in filing of the ITR form with regard to disclosure of employees’ contribution to provident fund.
Accordingly, CPC again added the same, resulting in double disallowance. It was submitted that these issues were also raised before CPC by way of rectification under section 154 of the Act, but CPC rejected the application. The Ld. AR contended that the Ld. First Appellate Authority, instead of examining the merits of the claims, dismissed the appeal only on technical ground of merger. The Ld. AR pleaded that the assessee has genuine claims which cannot be denied merely on technicalities, and the matter may be restored to the Ld. AO for fresh verification on merits.
Per contra, the Learned Departmental Representative (Ld. DR) relied on the order of the Ld. First Appellate Authority and submitted that since the assessee had already sought rectification under section 154 of the Act, the order under section 143(1) of the Act merged with the rectification order, and therefore the Ld. First Appellate Authority was justified in dismissing the appeal.
We have considered the rival submissions and perused the material available on record. It is noted that the Ld. First Appellate Authority dismissed the appeal of the assessee on the ground that the order under section 143(1) of the Act merged with the rectification order under section 154 of the Act. We find that the approach of the Ld. First Appellate Authority is not in accordance with the settled principle that genuine claims of the assessee should not be rejected merely on technicalities. The assessee had raised issues relating to eligibility of set-off of brought forward losses, exemption of dividend income, and disallowance of employees’ contribution. These go to the merits of computation of income and require verification of facts. In our considered view, these claims of the assessee deserve to be adjudicated on merits. The denial of relief solely on the ground of technical merger is not justified. Therefore, in the interest of substantial justice, we deem it fit to restore the matter to the file of the Ld. AO. The Ld. AO shall verify the claim of the assessee regarding eligibility of set-off of brought forward loss of Rs.1,42,70,219/-, exemption of Rs.2,58,564/- towards dividend income and correctness of disallowance of Rs.56,673/- towards employees’ contribution. The Ld. AO shall call for necessary evidences and explanations from the assessee and decide the issues afresh in accordance with law after affording reasonable opportunity of being heard. In view of the above, we set aside the order of the Ld. First Appellate Authority and restore the matter to the file of the Ld. AO for de novo adjudication on merits.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 19th Sept., 2025.