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Facts
The assessee filed its return of income for AY 2018-19. The Assessing Officer (AO) first issued a notice under Section 143(2) for scrutiny assessment. Subsequently, while the scrutiny proceedings were ongoing, the AO processed the return under Section 143(1) and issued an intimation with several upward adjustments/disallowances. The assessee challenged this Section 143(1) intimation, which was partially upheld by the CIT(A).
Held
The Tribunal held that once the AO issues a notice under Section 143(2) for scrutiny assessment, he cannot subsequently assume jurisdiction to process the return under Section 143(1) for the same assessment year. Relying on Supreme Court and ITAT precedents, the Tribunal directed the deletion of all upward adjustments made in the Section 143(1) intimation, deeming it bad in law.
Key Issues
Whether the Assessing Officer can issue an intimation under Section 143(1) with upward adjustments after having already initiated scrutiny assessment proceedings by issuing a notice under Section 143(2) for the same assessment year.
Sections Cited
139, 143(1), 143(2), 143(3), 68, 36(1)(va), 43B, 154
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
आदेश/ O R D E R
Per B.M. Biyani, AM:
Feeling aggrieved by order of first-appeal dated 11.02.2024 passed by learned Commissioner of Income-tax (Appeals)-Addl/JCIT(A)-4, Bengaluru [“CIT(A)”], which in turn arises out of intimation of assessment dated 07.12.2019 passed by CPC, Bengaluru [“AO”] u/s 143(1) of the Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2018-19, the assessee has filed this appeal.
The brief facts of case are as under:
Page 1 of 9 (i) The assessee, a partnership firm, filed its return of income of AY
2018-19 under consideration on 30.10.2018 u/s 139 declaring a total income of Rs. 18,99,830/-.
(ii) The AO selected assessee’s case for scrutiny assessment through notice bearing DIN: ITBA/AST/S/143(2)/2019-20/1018227329(1) dated 23.09.2019 u/s 143(2) which culminated into assessment- order dated 20.04.2021 at a total income of Rs. 30,61,269/- after making two additions, namely (a) addition of Rs. 6,35,000/- on account of unexplained loans u/s 68, and (b) disallowance of Rs. 5,26,439/- on account of Late GST fee (Rs. 1,000/-), Interest on VAT Tax (Rs. 53,779/-), Interest on TDS (Rs. 488/-), Penal damages (Rs. 1,27,540/-) and VAT Tax of 14-15 (Rs. 3,43,632/-).
(iii) While the scrutiny-assessment was underway, the AO processed assessee’s return u/s 143(1) vide intimation dated 07.12.2019 at a total income of Rs. 70,39,780/- after making upward adjustments, namely (a) disallowance of Rs. 1,27,540/- on account of penal damages, (b) disallowance of Rs. 4,67,537/- u/s 36(1)(va) on account of non-payment of PF/ESI contributions by due date, and (c) disallowance u/s 43B on account of non-payment of service tax of Rs. 44,77,216/- and professional tax of Rs. 67,660/- by due date.
Also, the AO did not allow full credit of TDS claimed by assessee.
Page 2 of 9 (iv) Against intimation dated 07.12.2019 u/s 143(1), the assessee carried matter in first-appeal and raised certain legal objection challenging the legality of processing done by AO u/s 143(1) and also challenged the merits of additions/disallowances made by AO and further claimed to allow full credit of TDS. The CIT(A) allowed part-relief to assessee.
(v) Being unsatisfied with the relief given by CIT(A), the assessee has come in next appeal before us.
The grounds raised by assessee are as under:
Original Grounds in Form No. 36:
“1. That, on the facts and in the circumstances of the case, the order of Ld. CIT(A) confirming the additions made by CPC is bad-in-law.
2. That, on the facts and in the circumstances of the case, the additions/disallowances made by CPC are upheld by Ld. CIT(A) are without jurisdiction and beyond the purview of section 143(1), being debatable.
3. That, on the facts and circumstances of the case and in law and without prejudice to above, the Ld. CIT(A) erred in confirming disallowance u/s 43B in respect of Service Tax amounting to Rs. 44,77,216/- and Professional Tax amounting to Rs. 67,660/- because the same was neither claimed in Profit and Loss A/c nor routed through P&L A/c and was directly shown in Balance- Sheet in the liabilities side.
That, without prejudice to above and on the basis of facts brought on record before him, the Ld. CIT(A) failed to appreciate that out of total Service Tax of Rs. 44,77,216/- unpaid Service Tax liability for impugned AY 2018-19 was only Rs. 14,83,835/- and balance liability of Rs. 29,93,381/- pertained to earlier years. Hence, in any case, thoroughly wrong disallowance would not be more than Rs. 14,83,835/-.
5. That, without further prejudice to above, if the disallowance on account of Service Tax is required to be confirmed, the same should be allowed in subsequent years being Rs. 5,97,097/- in AY 2019-20 and Rs. 60,42,613/- in Page 3 of 9
AY 2021-22 on the basis of payments, as these were never claimed as expenditure. Similarly, Professional Tax of Rs. 67,660/- should be allowed in the subsequent years in the year of payments. 6. That the appellant craves your leave to add or amend any ground of appeal on or before the date of hearing.” Additional Ground through Application dated 26.08.2025:
“That, on the facts and in the circumstances of the case and in law, the assumption of jurisdiction u/s 143(1) after issuance of Notice u/s 143(2) is bad in law, ab-initio void and is a nullity.” 4. The Additional Ground raised by assessee challenges the legality of intimation passed by AO u/s 143(1). The assessee claims that the same has been done by AO without jurisdiction and therefore bad in law.
5. So far as the admissibility of Additional Ground is concerned, learned Representatives of both sides are ad idem that the ground raised by assessee is legal in nature; goes to the root of the matter; does not call for any new evidence; and can be decided on the basis of material already held on record. Therefore, in view of the decision in National Thermal Power Co.
Ltd. Vs. CIT (1998) 229 ITR 383 (SC), the additional ground is admitted and taken for adjudication. We proceed to adjudicate the same.
6. Ld. AR for assessee at first submitted that the assessee filed return of income u/s 139 on 30.10.2018 declaring a total income of Rs. 18,99,830/- and on the basis of such return filed by assessee, the AO issued notice u/s 143(2) dated 23.09.2019 for scrutiny-assessment. Subsequently and thereafter, the AO assumed jurisdiction of processing u/s 143(1) and passed intimation dated 07.12.2019 determining total income of assessee at Rs.
Page 4 of 9 70,39,780/- after making certain upward adjustments therein. According to Ld. AR, once the AO has issued notice u/s 143(2), thereafter the AO cannot assume jurisdiction u/s 143(1) as per the position of law decided in judicial rulings.
7. Ld. AR drew our attention to the following decision of Hon’ble Supreme Court in CIT Vs. Gujrat Electricity Board (2003) 129 Taxman 65 (SC) dated 12.11.2002 holding the proposition stated by him; the relevant paras of order are re-produced below:
“4. Learned counsel appearing for the respondents have pointed out that in a number of judgments several High Courts have consistently taken the view that once regular assessment proceedings have commenced under Section 143(2) of the Income-tax Act, 1961, it is a limitation on the jurisdiction of the Assessing Officer to commence proceedings under Section 143(1)(a) of the Act.
Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that Section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under Section 154. Apart therefrom, the provisions of Section 143(1)(a)(i) indicate that the intimation sent under Section 143(1)(a) shall be without prejudice to the provisions of Sub-section (2). The Legislature, therefore, intended that, where the summary procedure under Sub-section (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under Sub- section (2) of Section 143. The converse is not available; a regular assessment proceeding having been commenced under Section 143(2), there is no need for a summary proceeding under Section 143(1)(a),
In the result, we see no infirmity in the judgment of the High Court. The appeals are dismissed. There shall be no order as to costs.”
8. He also relied upon a recent order of ITAT, Delhi bench in The India Thermit Corp. Vs. DCIT, for AY 2018-19, order
Page 5 of 9 dated 12.03.2025 wherein the above decision of Hon’ble Supreme Court has been followed; the relevant paras of order are re-produced below:
“6. The assessee vide ground no 2 and the additional ground has raised the issue that as the assessee was issued as notice u/s 143(2) of the Income-tax Act, 1961 [the Act, for short] for scrutiny assessment, the AO subsequently cannot process the return u/s 143(1) of the Act for making adjustment of income.
The assessee vehemently argued that two proceedings cannot be initiated simultaneously and once proceedings u/s 143(2) has been initiated, proceedings u/s 143(1) cannot be undertaken. For this proposition, the ld. counsel for the assessee relied upon the decision of the Hon'ble Supreme Court in the case of Gujarat Electricity Board order dated 12.11.2002 reported in 260 ITR 84 (SC).
Per contra, the ld. DR relied upon the orders of the authorities below.
We have heard the rival submissions and have perused the relevant material on record. We find force in the contentions of the ld. counsel for the assessee. We find that the assessee company filed its return on 29.11.2018. The Assessing Officer issued notice on 22.09.2019 u/s 143(2) of the Act to verify the issue under CASS with regard to claim of amounts allowable as deduction in Schedule BP and defaults in TDS as well as duty draw back. The DCIT, CPC-Bangalore, subsequent to the issue of notice u/s 143(2), has processed the return of income and has issued intimation u/s 143(1)(a) of the Act dated 25.12.2019. The issue for adjudication is whether once the scrutiny assessment u/s 143(3) has commenced vide notice u/s 143(2), can the AO conduct processing of the return u/s We find that the Hon'ble Supreme Court in the case of Gujarat Electricity Board [supra] has decided this issue in favour of the assessee as follows:
"Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that Section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under Section 154. Apart therefrom, the provisions of Section 143(1)(a)(i) indicate that the intimation sent under Section 143(1)(a) shall be without prejudice to the provisions of Sub-section (2). The Legislature, therefore, intended that, where the summary procedure under Sub-section (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available; a regular assessment proceeding having been commenced
Page 6 of 9 under Section 143(2), there is no need for a summary proceeding under Section 143(1)(a)"
10. Respectfully following the Hon'ble Apex Court decision in the above case, we hold that where regular assessment proceedings, having been commenced u/s 143(2) of the Act, there is no need for summary proceedings u/s 143(1) of the Act and delete the adjustment u/s 143(1).
11. In the result, the appeal of the assessee in is allowed.”
9. Ld. AR then submitted that the facts of assessee’s case are very much identical to the facts of above decisions and hence the view taken in above decisions shall apply to assesee’s case and hence the upward adjustments made by AO in the intimation passed u/s 143(1) must be deleted.
Ld. DR for revenue dutifully relied on the orders of lower authorities and left the matter to the wisdom of bench.
We have considered rival submissions of both sides and carefully examined the facts of case in the light of judicial rulings cited by Ld. AR.
Admittedly, in present case, the assessee filed return of income u/s 139 on 30.10.2018 declaring a total income of Rs. 18,99,830/- and in order to scrutinize such return the AO issued notice dated 23.09.2019 u/s 143(2).
Thereafter, while the scrutiny-proceeding was going on, the AO processed assessee’s return through an intimation dated 07.12.2019 u/s 143(1) determining total income at Rs. 70,39,780/-. Subsequently, the AO completed scrutiny-assessment vide order dated 20.04.2021 u/s 143(3) assessing the total income at Rs. 30,61,239/-. The assessee is aggrieved by AO’s action of passing intimation dated 07.12.2019 u/s 143(1). The Page 7 of 9 assessee’s case before us is that once the AO has issued notice u/s 143(2), the AO cannot assume jurisdiction u/s 143(1). After a careful consideration, we find that the case of assessee is squarely covered by decision of Hon’ble Supreme Court in Gujrat Electricity Board (supra) as followed by ITAT, Delhi Bench in The India Thermit Corp (supra). Respectfully following these decisions, we agree that the upwards adjustments made by AO in the intimation u/s 143(1) dated 07.12.2019, after taking up assessee’s case for scrutiny-assessment vide notice u/s 143(2) dated 23.09.2019, are not sustainable. Accordingly, we direct AO to delete the impugned upward adjustments made in intimation u/s 143(1). The assessee’s additional ground is thus accepted and allowed.
Since we have already given adequate relief to assessee by accepting additional ground, the original grounds raised in Form No. 36 become infructuous and do not require any adjudication at this stage from us.
Before parting we may make it clear that in present appeal we are concerned with the adjustments made by AO in intimation u/s 143(1) and accordingly we have directed the AO to delete those adjustments on a technical ground only. However, we are not expressing any view on the merits of the additions/disallowances for which the AO is free to take any action, if warranted, as per law. Further, we are not against scrutiny- assessment framed by AO u/s 143(3) vide order dated 20.04.2021.
Resultantly, this appeal is allowed.
Order pronounced in open court on 29/08/2025