KAILASH NARAYAN SHRIDHAR,VADODARA vs. DEPUTY CIT CIRCLE 4(1), VADODARA
Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI SANJAY GARG & SHRI MAKARAND V. MAHADEOKAR
PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER:
This appeal by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless
Appeal Centre, Delhi, transferred to the office of the Additional/Joint
Commissioner of Income Tax (Appeals)-1, Nashik [hereinafter referred to as "the CIT(A)"], dated 13.03.2024, passed under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2022–23. The impugned order arises from the intimation issued by the Centralized Processing Centre, Bengaluru
(“CPC”) under section 143(1) dated 06.03.2023. Kailash Narayan Shridhar vs. DCIT
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Facts of the Case
The relevant facts of the case are that the assessee, an individual resident, filed his original return of income for A.Y. 2022–23 in ITR-3 on 30.07.2022 declaring total income at Rs. 1,09,84,741/-. Thereafter, a revised return of income was filed on 10.11.2022 declaring total income of Rs. 1,09,81,920/- wherein the assessee claimed refund of Rs. 69,250/-, primarily on account of claim of relief under section 89(1) amounting to Rs. 64,857. Subsequently, the Assistant Director of Income Tax rectified the order dated 07.12.2022 suo motu under section 154 on 28.12.2022. The assessee then filed a re-revised return of income on 29.12.2022 declaring total income of Rs. 95,10,910/-, claiming exemption of Rs. 17,71,010 under section 10(10AA)(ii) of the Act on account of leave encashment received at the time of retirement from Life Insurance Corporation of India (LIC). It was the case of the assessee that the exemption was allowable in full as the receipt was at the time of superannuation and that LIC being a statutory corporation, the limit of Rs. 3,00,000 was not applicable.
The return so filed was processed by the CPC, Bengaluru, under section 143(1) of the Act vide intimation dated 06.03.2023. In the said intimation, CPC restricted the assessee’s claim of exemption under section 10(10AA)(ii) to Rs. 3,00,000/- as against Rs. 17,71,010/- claimed, thereby disallowing Rs. 14,71,010/-. Consequently, the income under the head “Salaries” was enhanced from Rs. 72,98,447/- to Rs. 87,69,457/-, resulting in increase of gross total income from Rs. 98,73,885/- to Rs. Asst.Year –2022-23 - 3–
1,13,44,895/-. After allowing deductions under Chapter VI-A of Rs.
3,62,975/-, the total income was determined at Rs. 1,09,81,920/- as against the returned income of Rs. 95,10,910/-.
On the above computation, CPC determined tax liability at Rs. 37,06,276/- as against Rs. 30,40,284/- declared in the return. Interest under sections 234B and 234C aggregating to Rs. 47,585/- was also levied as against Rs. 2,490/- shown by the assessee. Against total taxes paid of Rs. 37,55,014/- (advance tax Rs. 4,00,000/-, TDS Rs. 29,42,544/- self- assessment tax Rs. 4,12,470/-), CPC determined net refund of Rs. 1,153/- as against refund of Rs. 7,12,240/- claimed. After adjustment of Rs. 71,880 towards earlier refund, net demand of Rs. 70,730/- was raised. the assessee preferred appeal before the CIT(A), challenging the action of CPC, Bengaluru. The grounds of appeal raised before the CIT(A) broadly challenged: (i) adjustment without issuance of mandatory notice under section 143(1)(a) thereby violating natural justice, (ii) lack of juri iction of CPC to decide debatable issues, (iii) the intimation being non-speaking, (iv) wrongful restriction of exemption under section 10(10AA)(ii) to Rs. 3,00,000/- relying on CBDT Notification dated 31.05.2002, and (v) alternatively, claim for relief under section 89(1) on the taxed portion of leave encashment exceeding Rs. 3,00,000/-. The assessee also filed a detailed statement of facts and written submissions. The CIT(A), however, dismissed the appeal. In so far as the objection to non-issuance of notice u/s 143(1)(a) was concerned, it was held to be a hyper-technical plea since ample opportunity was given during Asst.Year –2022-23 - 4–
appellate proceedings, and the assessee was aware of the reasons of adjustment. On the juri ictional plea, the CIT(A) observed that section 143(1) authorises CPC to make prima facie adjustments for incorrect claims apparent from return and restriction of exemption under section 10(10AA) falls within its purview. On merits, the CIT(A) held that exemption under section 10(10AA)(i) is applicable only to employees of Central or State Government, and LIC not being such an employer, the assessee’s case was governed by clause (ii), which restricts exemption to Rs. 3,00,000 as per CBDT Notification S.O. 588(E) dated 31.05.2002. As regards the alternative claim for relief under section 89(1), no directions were issued, and the ground was dismissed. In the result, the appeal was rejected in toto.
Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal:
“1. 143 1 a The Ld Addl JCIT A grossly erred on facts and in law in dismissing the appeal without giving valid reason and relying upon inapplicable case law etc while adjudicating the preliminary issue raised regarding the violation of statutory provision of Sec 143 1 a of the Income tax Act 1961 the Act in the form of non issue and service of the notice by the AO u s 143 1 a of the Act before making the adjustment of RS 1471010
143 1 Asst.Year –2022-23 - 5– Asst.Year –2022-23 - 6–
In reply, the Learned Departmental Representative (DR) supported the orders of the lower authorities.
We have carefully considered the rival submissions, perused the material placed on record, and duly taken note of the decisions placed before us. The limited issue before us is whether the CPC, while processing the return under section 143(1), was justified in making an adjustment to the assessee’s claim of exemption under section 10(10AA)(ii) without issuing any prior intimation as contemplated under the first proviso to section 143(1)(a).
On a plain reading of the statutory provision, it is manifest that no adjustment under section 143(1)(a) shall be made unless an intimation is first given to the assessee of the proposed adjustment, and the response, if any, received from the assessee is duly considered. This requirement is not merely procedural but goes to the root of the validity of the proceedings. In the present case, it is an admitted position that no such notice or intimation was given to the assessee before restricting the exemption claim. The assessee’s grievance, therefore, is squarely covered by decisions of Co-ordinate Benches.
In case of Devendra Singh Bhaskar v. DCIT (ITA No. 431/Ahd/2022, order dated 11.10.2023), the Co-ordinate Bench held that –
“10.2. As per first proviso to section 143(1)(a), the total income or loss shall be computed after making following adjustments namely (i) arithmetical error in the return, (ii) incorrect claim which is apparent from any information in the return, then CPC is entitled to make adjustments as per 1st proviso of Section Kailash Narayan Shridhar vs. DCIT
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143(1)(a) by giving an intimation to the assessee either in writing or in electronic mode before making such adjustments. In response to first proviso, when the assessee replies the same shall be considered before making any adjustments u/s. 143(1)(a) and in case, the assessee fails to response within 30
days of issue of such intimation, the CPC is empowered to make such adjustments. Here, in this case, the assessee was not given any intimation as per 1st proviso to section 143(1)(a) of the Act and CPC straight away made adjustments in 143(1) proceedings and communicated to the assessee by reducing the refund claimed by the assessee. The assessee in his written submission also relied upon Co-ordinate Bench decision in the case of Arham
Pumps Vs. DCIT in ITA No. 206/Ahd/2021 dated 27-04-2022 wherein it is held as follows:
“….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.”
Respectfully following the above decision of ours which was again challenged by the Revenue by way of an M.A. No. 59/Ahd/2022. The same was also dismissed by this Bench vide order dated 03-05-2023. Even in the present case, we notice that the intimation passed u/s. 143(1) dated 15-07-2021 is violation of 1st proviso to section 143(1)(a) of the Act by not offering hearing to the assessee. Therefore, the entire proceedings u/s. 143(1) is vitiated and invalid in law. Consequently, the intimation passed by CPC is hereby quashed. Thus we are not adjudicating the other grounds raised on merits of the case.
In the result, the appeal filed by the Assessee is allowed.” Asst.Year –2022-23 - 8–
Similarly, in Khilav Rajendrakumar Joshi (Legal heir of Late Rajendrakumar S. Joshi) v. DCIT, CPC (ITA No. 33/SRT/2024, order dated 08.11.2024), the Co-ordiante Bench took the same view and quashed the intimation issued under section 143(1), holding that any adjustment without issuing prior intimation is contrary to the statutory mandate and violative of natural justice.
Respectfully following the aforesaid decisions of the Co-ordinate Benches, and in the absence of any contrary decision of juri ictional High Court or higher forum brought to our notice, we hold that the intimation issued by CPC under section 143(1) dated 06.03.2023 is invalid in law. Consequently, the order of the CIT(A) upholding such intimation cannot be sustained.
We make it clear that since we have invalidated the intimation itself for non-compliance with the mandatory statutory requirement, we are not adjudicating upon the merits of the claim of exemption under section 10(10AA) or the alternative plea for relief under section 89(1).
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 26/08/2025 (SANJAY GARG) JUDICIAL MEMBER Ahmedabad; Dated 26/08/2025 ManishITA No. 979/Ahd/2024 Asst.Year –2022-23 - 9–
आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to :
अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file.
आदेशानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.