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Facts
The assessee filed an ITR declaring a business loss, but the CPC issued an intimation under section 143(1) determining a higher income due to a mismatch, allegedly caused by a software error in depreciation calculation. The assessee's rectification application under section 154 was rejected by the AO, who held there was no mistake in the intimation but rather in the assessee's filing. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the intimation order passed under section 143(1) was invalid because the proviso to section 143(1)(a) mandates that no adjustments can be made unless an intimation is given to the assessee, which was not done in this case. This violated statutory provisions and principles of natural justice. Consequently, the intimation order was quashed.
Key Issues
Whether the intimation order under section 143(1) is valid when no prior intimation/notice was provided to the assessee regarding the adjustments made, thereby violating the principles of natural justice and statutory provisions.
Sections Cited
143(1), 154, 143(1)(a), 139(4), 139
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Before: SHRISANJAY GARG & SHRI BIJAYANANDA PRUSETH
आदेश / O R D E R
PER BIJAYANANDA PRUSETH, AM:
This appeal by the assessee emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘the Act’) dated 28.05.2024 by the National Faceless Appeal Centre, Delhi/Commissioner of Income-tax (Appeals) [in short ‘CIT(A)’] for the assessment year (AY) 2013-14.
The grounds of appeal raised by the assessee are as under: “(1) On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in rejecting application u/s 154 of the Income tax Act, 1961. (2) On the facts and in the circumstances of the case as well as the law on the subject, the learned DCIT, CPC/s Jurisdiction Assessing Officer has erred in calculating business income of Rs.62,73,189/- instead of business loss of Rs.12,19,451/- claimed by the assessee in the return of income under the head of income under the head of “income from business or profession” in the intimation order u/s 143(1) of the Income Tax Act, 1961.
(3) On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in calculating figure of Rs.62,73,189/- on account of mismatch figure of income from business and profession. (4) On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in not allowing loss of Rs.12,19,451/- as allowable loss claimed in the return of income. (5) On the facts and in the circumstances of the case as well as the law on the subject, the learned Commissioner of the Income Tax (Appeals) has erred in confirming the action of the Assessing Officer in computing income under section 143(1) of the Income Tax Act, 1961. (6) On the facts and I the circumstances of the case as well as the law on the subject, the learned Assessing Officer has not offered adequate opportunities to hear the case and passed ex-parte order and hence the case may please be set aside and restored back to the CIT(A) or AO. (7) It is therefore prayed that the above addition may please be delete as learned Members of the Tribunal may deem it proper. (8) Appellant craves leave to add, alter or delete any ground(s) either before or in the course of the hearing of the appeal.”
The assessee has raised the following additional ground: “1. On the facts and in the circumstances of the case as well as law on the subject, the learned CIT(A) has erred vin confirming the action of the Assessing Officer, CPC, Bangalore of passing the order u/s 143(1) of the Income Tax Act, 1961 without issuing notice as per section 143(1)(a) of the Act and passed the intimation order with demand, hence the intimation order u/s 143(1) of the Act is not valid and non-est in the eyes of the law.” 3.1 The learned Authorized Representative (ld. AR) of the assessee contended that AO, CPC has passed the order u/s 143(1) of the Act without issuing intimation/notice as mandated in section 143(1)(a) of the Act and additional ground is specifically raised to clarify the issue on its technicality. Therefore, he requested to admit the additional ground.
2013-14 Khodiyar Motors 4. On the other hand, learned Senior Departmental Representative (ld. Sr. DR) for the revenue submitted that the Bench may decide as it thinks fit. 5. The additional ground raised by the appellant requires the Tribunal to consider a question of law arising from the facts which are on record in the assessment proceedings. No new facts are needed to decide the additional ground raised by the appellant. Therefore, following the decision of Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT, (1998) 29 ITR 383 (SC), the additional ground is admitted and the same will be decided in course of the present order.
6. Facts of the case in brief are that appellant filed ITR - 5 for AY 2013-14 on 06.10.2013. Against the said ITR, an intimation order u/s 143(1) of the Act was received by the appellant in which demand of Rs.27,07,000/- was raised due to mismatch in the figure of income from business or profession. As per the computation of income, the appellant claimed business or profession loss at Rs.12,19,451/-. However, as per the intimation u/s.143(1), the income was determined at Rs.62,73,189/-. There was a computational error in so far as the figure of depreciation was Rs.18,92,312/-. However, due to software error, depreciation was calculated otherwise than the block of asset method, because of which mismatch arose in the figure of income from business or profession as per the ITR filed and as per intimation received. Appellant filed application for rectification u/s 154 of the Act on 21.09.2014. The AO passed order u/s 154 on 06.03.2019 and found that while furnishing the details in the deprecation schedule for the plant and machinery, the assessee has entered the value with negative sign of 84,621/-. The AO held that there 2013-14 Khodiyar Motors was no mistake in the intimation sent u/s 143(1) of the Act, but there was a mistake in the filing of details in the ITR Depreciation Schedule by the assessee himself. He further stated that to rectify any mistake in the return of income filed, remedy under the Act is to file a revised return of income as per provisions of section 139(4) of the Act. Hence, the rectification application of the assessee was beyond the scope of provisions of section 154 of the Act.
Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of assessee by observing that the contention of the AO was correct.
Aggrieved by the order of the CIT(A), appellant filed appeal before the Tribunal. The ld. AR of the assessee submitted that the CIT(A) has not considered the preliminary issue regarding violation of statutory provisions of section 143(1) of the Act by way of non-issue and non-service of notice u/s 143(1)(a) of the Act prior to passing the intimation order u/s 143(1) of the Act, raising demand of Rs.27,07,000/- due to mismatch in the figure of income from business or profession. The Ld. AR contended that the CIT(A) has wrongly dismissed the appeal of the assessee without appreciating that the provisions of section 143(1)(a) have not been complied with while passing intimation order u/s 143(1) of the Act and therefore, he requested to set aside the order of the CIT(A). He relied on the following decisions: (i) Khilav Rajendrakumar Joshi vs. DCIT, dated 08.11.2024, (ii) Khushavdan Sajkukhlal Solanki vs. DCIT, ITA No.1914/AHD/2024, dated 07.03.2025 and (iii) Devendra Singh Bhaskar vs. DCIT, ITA No.431/AHD/2022, dated 11.10.2023.
2013-14 Khodiyar Motors 9. On the other hand, Ld. Sr. DR for the Revenue supported the order of the lower authorities.
We have heard both the parties and perused the materials available on record. We have deliberated the case laws relied on by Ld. AR. The appellant filed ITR-5 for AY 2013-14 on 06.10.2013, declaring business or profession loss of Rs.12,19,451/-. The return was processed by the AO, CPC and the intimation order u/s 143(1) of the Act was issued to the assessee in which demand of Rs.27,07,000/- was raised due to mismatch in the figure of income from business or profession. The Ld. AR of the assessee contended that AO, CPC has not given any intimation to the assessee before finalizing the intimation order u/s 143(1) of the Act dated 23.04.2014 and raised demand of Rs.27,07,000/-. 10.1 Before proceeding further, it would be proper to refer to the provision of section 143(1)(a) of the Act for ready reference: “143. Assessment. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely: — (a) the total income or loss shall be computed after making the following adjustments, namely:— (i) any arithmetical error in the return; (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under subsection (1) of section 139; (iv) disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v) disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain 2013-14 Khodiyar Motors incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: (emphasis supplied). Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made: Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;” 10.2 It is, therefore, clear that the total income or loss shall be computed after making the adjustments as provided in sub-clauses (i) to (vi), provided that no adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. In the present case, the appellant has submitted that no such intimation was given by the AO before making adjustment on account of mismatch in the figure of income from business or profession. Therefore, it is clear that there has been violation of statutory provisions, being proviso to section 143(1)(a) of the Act as well as the principles of natural justice. Therefore, the intimation order issued u/s 143(1) of the Act, dated 23.04.2014, is against the first proviso to section 143(1)(a) and therefore, the entire proceedings u/s 143(1) of the Act is invalid in law. 10.3 Similar issue has been decided by the Coordinate Bench of this tribunal in favour of assessee in the case of Khilav Rajendrakumar Joshi (supra). Besides, the Coordinate Bench of ITAT, Ahmedabad in the case of Devendra Singh Bhaskar (supra)
2013-14 Khodiyar Motors has decided the issue in favour of assessee after following the decision of the ITAT, Ahmedabad in case of Arham Pomps vs. DCIT, in dated 27.04.2022. In view of the facts discussed above and the decisions cited supra, we hold that the entire proceedings u/s 143(1) is vitiated and is invalid in law. Consequently, the intimation order dated 23.04.2014 issued u/s 143(1) of the Act by CPC is quashed.
Since we have quashed the intimation order u/s 143(1) of the Act, we are not adjudicating the other grounds on merits.
In the result, the appeal of the assessee is allowed. Order pronounced in accordance with Rule 34 of ITAT Rules, 1963on /11/2025 in the open court.