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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SHRI MAKARAND V. MAHADEOKAR
ORDER \nPER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER:\nThis appeal by the assessee is directed against the order of the\nLearned Commissioner of Income Tax (Appeals), National Faceless\nAppeal Centre, Delhi, transferred to the office of the Additional/Joint\nCommissioner of Income Tax (Appeals)-1, Nashik [hereinafter referred\nto as \"the CIT(A)\"], dated 13.03.2024, passed under section 250 of the\nIncome-tax Act, 1961 [hereinafter referred to as “the Act\"], for the\n Assessment Year 2022-23. The impugned order arises from the\nintimation issued by the Centralized Processing Centre, Bengaluru\n(\"CPC\") under section 143(1) dated 06.03.2023.\nITA No. 979/Ahd/2024\nKailash Narayan Shridhar vs. DCIT\nAsst. Year -2022-23\n-2-\nFacts of the Case\n2. The relevant facts of the case are that the assessee, an individual\nresident, filed his original return of income for A.Y. 2022–23 in ITR-3 on\n30.07.2022 declaring total income at Rs.1,09,84,741/-. Thereafter, a\nrevised return of income was filed on 10.11.2022 declaring total income\nof Rs.1,09,81,920/- wherein the assessee claimed refund of Rs.69,250/-,\nprimarily on account of claim of relief under section 89(1) amounting to\nRs.64,857. Subsequently, the Assistant Director of Income Tax rectified\nthe order dated 07.12.2022 suo motu under section 154 on 28.12.2022. The\nassessee then filed a re-revised return of income on 29.12.2022 declaring\ntotal income of Rs.95,10,910/-, claiming exemption of Rs.17,71,010\nunder section 10(10AA)(ii) of the Act on account of leave encashment\nreceived at the time of retirement from Life Insurance Corporation of\nIndia (LIC). It was the case of the assessee that the exemption was\nallowable in full as the receipt was at the time of superannuation and\nthat LIC being a statutory corporation, the limit of Rs.3,00,000 was not\napplicable.\n3. The return so filed was processed by the CPC, Bengaluru, under\nsection 143(1) of the Act vide intimation dated 06.03.2023. In the said\nintimation, CPC restricted the assessee's claim of exemption under\nsection 10(10AA)(ii) to Rs.3,00,000/- as against Rs.17,71,010/- claimed,\nthereby disallowing Rs.14,71,010/-. Consequently, the income under the\nhead \"Salaries” was enhanced from Rs.72,98,447/- to Rs.87,69,457/-,\nresulting in increase of gross total income from Rs.98,73,885/- to Rs.\nITA No. 979/Ahd/2024\nKailash Narayan Shridhar vs. DCIT\nAsst. Year -2022-23\n-3-\n1,13,44,895/-. After allowing deductions under Chapter VI-A of Rs.\n3,62,975/-, the total income was determined at Rs.1,09,81,920/- as\nagainst the returned income of Rs.95,10,910/-.\n4. On the above computation, CPC determined tax liability at Rs.\n37,06,276/- as against Rs.30,40,284/- declared in the return. Interest\nunder sections 234B and 234C aggregating to Rs.47,585/- was also levied\nas against Rs.2,490/- shown by the assessee. Against total taxes paid of\nRs.37,55,014/- (advance tax Rs.4,00,000/-, TDS Rs.29,42,544/- self-\nassessment tax Rs.4,12,470/-), CPC determined net refund of Rs.1,153/-\nas against refund of Rs.7,12,240/- claimed. After adjustment of Rs.\n71,880 towards earlier refund, net demand of Rs.70,730/- was raised.\nthe assessee preferred appeal before the CIT(A), challenging the action\nof CPC, Bengaluru. The grounds of appeal
raised before the CIT(A)\nbroadly challenged: (i) adjustment without issuance of mandatory notice\nunder section 143(1)(a) thereby violating natural justice, (ii) lack of\njurisdiction of CPC to decide debatable issues, (iii) the intimation being\nnon-speaking, (iv) wrongful restriction of exemption under section\n10(10AA)(ii) to Rs.3,00,000/- relying on CBDT Notification dated\n31.05.2002, and (v) alternatively, claim for relief under section 89(1) on\nthe taxed portion of leave encashment exceeding Rs.3,00,000/-. The\nassessee also filed a detailed statement of facts and written submissions.\nThe CIT(A), however, dismissed the appeal. In so far as the objection to\nnon-issuance of notice u/s 143(1)(a) was concerned, it was held to be a\nhyper-technical plea since ample opportunity was given during\nITA No. 979/Ahd/2024\nKailash Narayan Shridhar vs. DCIT\nAsst. Year -2022-23\n-4-\nappellate proceedings, and the assessee was aware of the reasons of\nadjustment. On the jurisdictional plea, the CIT(A) observed that section\n143(1) authorises CPC to make prima facie adjustments for incorrect\nclaims apparent from return and restriction of exemption under section\n10(10AA) falls within its purview. On merits, the CIT(A) held that\nexemption under section 10(10AA)(i) is applicable only to employees of\nCentral or State Government, and LIC not being such an employer, the\nassessee's case was governed by clause (ii), which restricts exemption to\nRs.3,00,000 as per CBDT Notification S.O. 588(E) dated 31.05.2002. As\nregards the alternative claim for relief under section 89(1), no directions\nwere issued, and the ground was dismissed. In the result, the appeal was\nrejected in toto.\n5. Aggrieved by the order of CIT(A), the assessee is in appeal before\nus raising following grounds of appeal:\n\"1. 143 1 a\nThe Ld Addl JCIT A grossly erred on facts and in law in dismissing the appeal\nwithout giving valid reason and relying upon inapplicable case law etc while\nadjudicating the preliminary issue raised regarding the violation of statutory\nprovision of Sec 143 1 a of the Income tax Act 1961 the Act in the form of non\nissue and service of the notice by the AO u s 143 1 a of the Act before making\nthe adjustment of RS 1471010\n2. 143 1\nThe Ld Addl JCIT A grossly erred on facts and in law in dismissing the ground\nno 2 raised in the appeal as regards jurisdiction of Ld AO to pass the order u s\n143 1 making the addition to the declared income.\n3. 143 1\nITA No. 979/Ahd/2024\nKailash Narayan Shridhar vs. DCIT\nAsst. Year -2022-23\n-5-\nThe Ld Addi JCIT A grossly erred on facts and in law in dismissing the ground\nno 3 that the order of the Ld AO appealed against is not a speaking order.\n4. Sec 10 10AA ii wrongly disallowed\nThe Ld Addl JCIT A has grossly erred in law and is not justified in confirming\nthe addition made by the Ld AO without deciding the involved question of law\nand not allowing the exemption exceeding RS 3 lakhs u s 10
10. AA ii of the Act\nconsidering the invalid Gazette Notification No 50588 E dated 31 05 2002\nissued by CBDT effective 01.04.1998\n5. Sec 89 1\nThe Ld Addl JCIT A grossly erred in not adjudicating the raised ground in\nappeal to the effect that alternatively the taxed Leave Encashment amount\nexceeding RS 3 lakhs qualifies for relief u s 89 1 of the Act.\n6. Sec Addition alteration of ground of appeal\nYour appellant craves leave to add amend alter withdraw any ground of appeal.\nDuring the course of hearing before us, the Learned Authorised\nRepresentative (AR) of the assessee contended that the adjustment made\nby CPC in the intimation under section 143(1) is in gross violation of the\nstatutory mandate and the principles of natural justice. It was submitted\nthat the CPC, while restricting the claim of exemption under section\n10(10AA)(ii), failed to issue any prior notice as required under the first\nproviso to section 143(1)(a) of the Act, thereby depriving the assessee of\nan effective opportunity to furnish explanation or evidence in support of\nhis claim. The Learned AR further submitted that in the interest of\njustice, and in order to provide the assessee an effective opportunity of\nbeing heard, the matter may be restored back to the file of the Assessing\nOfficer for fresh adjudication on merits.\nITA No. 979/Ahd/2024\nKailash Narayan Shridhar vs. DCIT\nAsst. Year -2022-23\n-6-\n7. In reply, the Learned Departmental Representative (DR)\nsupported the orders of the lower authorities.\n8. We have carefully considered the rival submissions, perused the\nmaterial placed on record, and duly taken note of the decisions placed\nbefore us. The limited issue before us is whether the CPC, while\nprocessing the return under section 143(1), was justified in making an\nadjustment to the assessee's claim of exemption under section\n10(10AA)(ii) without issuing any prior intimation as contemplated under\nthe first proviso to section 143(1)(a).\n9. On a plain reading of the statutory provision, it is manifest that no\nadjustment under section 143(1)(a) shall be made unless an intimation is\nfirst given to the assessee of the proposed adjustment, and the response, if any, received from the assessee is duly considered. This requirement\nis not merely procedural but goes to the root of the validity of the\nproceedings. In the present case, it is an admitted position that no such\nnotice or intimation was given to the assessee before restricting the\nexemption claim. The assessee's grievance, therefore, is squarely covered\nby decisions of Co-ordinate Benches.\n10. In case of Devendra Singh Bhaskar v. DCIT (ITA No. 431/Ahd/2022,\norder dated 11.10.2023), the Co-ordinate Bench held that –\n“10.
As per first proviso to section 143(1)(a), the total income or loss shall be\ncomputed after making following adjustments namely (i) arithmetical error in\nthe return, (ii) incorrect claim which is apparent from any information in the\nreturn, then CPC is entitled to make adjustments as per 1st proviso of Section\n Narayan Shridhar vs. DCIT\nAsst. Year -2022-23\n-7-\n143(1)(a) by giving an intimation to the assessee either in writing or in\nelectronic mode before making such adjustments. In response to first proviso,\nwhen the assessee replies the same shall be considered before making any\nadjustments u/s.143(1)(a) and in case, the assessee fails to response within 30\ndays of issue of such intimation, the CPC is empowered to make such\nadjustments. Here, in this case, the assessee was not given any intimation as\nper 1st proviso to section 143(1)(a) of the Act and CPC straight away made\nadjustments in 143(1) proceedings and communicated to the assessee by\nreducing the refund claimed by the assessee. The assessee in his written\nsubmission also relied upon Co-ordinate Bench decision in the case of Arham\nPumps Vs. DCIT in dated 27-04-2022 wherein it is\nheld as follows:\n\"....