Loading judgment…
Facts
The assessee filed an appeal against an order confirming a disallowance of Rs. 12,02,660/- representing employee's contribution towards PF/ESI due to non-deposit within the due date. The AO made this disallowance during the processing of the return u/s 143(1) of the Act.
Held
The Tribunal held that no adjustment can be made to the total income under Section 143(1) of the Act without providing the assessee an opportunity of being heard. In this case, the assessee was not given such an opportunity, making the entire proceedings invalid.
Key Issues
Whether the disallowance made under section 143(1) without affording an opportunity of being heard to the assessee is valid?
Sections Cited
143(1), 36(1)(va), 244A, 154, 139, 142(1), 10AA, VI-A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K & SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the office of the CIT(A)/Addl/JCIT(A)-4, Mumbai dated 19/12/2023 in DIN No. ITBA/APL/S/250/2023-24/1058886126(1) for the assessment year 2020-21.
The issue raised by the assessee is that the ld. CIT-A erred in confirming the disallowance made by the AO for Rs. 12,02,660/- representing the employee’s contribution towards PF/ESI on account of non-deposit within the due date.
ITA No.218/Bang/2024 Page 2 of 6
2.1 The assessee in the present case is a partnership firm and filed return of income declaring an income of Rs.12,02,660/- only which was processed u/s 143(1) of the Act dated 26/08/2021 by making the disallowance of Rs. 6,61,035/- under the provisions of sec. 36(1)(va) of the Act on account of non-deposit of employees contribution towards PF and ESI within the due date as specified under the respective Act of PF/ESI.
On appeal, the ld. CIT(A) dismissed the appeal of the assessee by upholding the adjustment made in the intimation generated u/s 143(1) of the Act.
Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. AR before us filed a paper book running from pages 1 to 238 and contended that the adjustment while processing the return of income us/ 143(1) of the Act has been made without affording an opportunity of being heard to the assessee and, therefore, the same is liable to be quashed.
On the other hand, the ld. DR could not controvert the argument advanced by the ld. AR of the assessee. However, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. It has been mandated under the provisions of sec. 143(1) of the Act that no adjustment can be made to the total income of the assessee unless an opportunity of being heard is given to the assessee either in writing or in electronic form. In the present case, it is an admitted position that the return was processed u/s 143(1) of the Act after making adjustment without giving any opportunity
.
ITA No.218/Bang/2024
Page 3 of 6
to the assessee. This fact can be verified from the details submitted by the ld. DR, which is reproduced as under:
We also find that the ITAT Ahmedabad Bench in the case of Devendra Singh Bhaskar, involving identical facts and circumstances in ITA No. 431/Ahd/2022 vide order dated 09-08-2023 for the assessment year 2020-21 has decided the issue in favor of the assessee. The relevant extract of the order is reproduced as under:
“10. We have given our thoughtful consideration and perused the materials available on record including the written submission filed by the assessee. From perusal of 143(1) intimation dated 20.09.2021, the assessee’s claim of refund of Rs. 3,40,120/- was reduced to Rs. 85,600/- by making addition in the total income. We notice from the footnote at Page No. 13 of the intimation order which reads as follows: NOTE: 1. Interest u/s 244A of the Income Tax Act, 1961 is computed up to the date of issue of the refund. 2. The refund determined in this intimation, along with interest u/s 244A is subject to adjustment of arrear demand, if any, u/s. 245 3. The Refund is issued by the State Bank of India (Refund Banker) on behalf of the Income Tax Department. The details of the status of the Refund can be obtained from website (www.tin-nsdl.com) under "Status of Tax Refunds. In case of any difficulty or delay in the receipt of refund, kindly call the State Bank of India Call Center number 18004259760 to know the status of refund. 4. If you consider that any part of this intimation requires to be rectified, you may request for a rectification u/s 154 of the Income Tax Act 1961. 10.1. We further notice from Page No. 14 of the intimation order in Table-B that there is a mismatch of Rs. 2 only in the TDS claimed by the assessee with that of the 26AS report. Thus it appears that the assessee was not put to notice the disallowances proposed by CPC before initiating u/s.
.
ITA No.218/Bang/2024
Page 4 of 6
143(1) proceedings. For better understanding the powers available to an A.O. while processing the intimation u/s. 143(1), the same is reproduced as follows:
“143. (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 sub- section (1) of section 139;
(iv) disallowance of expenditure 82[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 83[section 10AA or under any of the provisions of Chapter VI-A under the heading "C.— Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under subsection (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: (underline is ours)
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. 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 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,
.
ITA No.218/Bang/2024
Page 5 of 6
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.” 11. 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.”
The facts of the case on hand are identical to the facts of the case discussed above, therefore, respectfully following the same, we set aside the finding of the ld. CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal raised by the assessee is allowed.
As the assessee succeeds on the issue discussed above on technical count only, we don’t want to adjudicate the issue raised by the assessee on merit. Furthermore, the ld. AR has also not advanced any
.
ITA No.218/Bang/2024 Page 6 of 6
argument on the merit of the issue. As such, the grounds of appeal raised by the assessee on merit of the case do not require any separate adjudication. Therefore, we dismiss the same as infructuous.
In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in court on 16th day of May, 2024 Sd/- Sd/- (GEORGE GEORGE K) (WASEEM AHMED) Vice President Accountant Member Bangalore, Dated, 16th May, 2024 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore
.