2023 (10) TMI 454 - AT - Income Tax

Addition by way of adjustment u/s 143(1) - Treating stipend receipts as salary income - assessee had filed rectification application u/s 154 - HELD THAT - The issue is not simple but is debatable one and moreover no reason was assigned by the CPC for adjustment. Considering these facts, the Bench noticed that the assessee had filed rectification application u/s 154 of the Act for rectification of mistake apparent on record i.e. adjustment of debatable issue u/s 143(1) was without assigning any reason for doing so. Mechanism of application of Section 143(1) finds that the first proviso to Section 143(1) mandates that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode and, under the second proviso to Section 143(1), 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 adjustment shall be made . Thus, Bench is of the view that scope of permissible adjustment u/s 143(1)(a) is thus much broader, and, as long as an adjustments fits the description u/s 143(1)(a)(i) to (v) read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Second provisos to Section 143(1), is indeed permissible. It is however, important to take note of the fact that unlike the old scheme of prima facie adjustments u/s 143(1)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of 'such adjustments' as proposed u/s143(1) , in writing or by electronic mode, and the response received from the assessee, if any to be considered before making any adjustment makes the process of making adjustments u/s 143(1), under the present legal position, an interactive and cerebral process. Thus, as per the considered view of the Bench when an assessee raises objections to proposed adjustments u/s 143(1), AO CPC has to dispose of such objections before proceeding further in the matter-one way or the other, and such disposal of objections is a quasi judicial function. Clearly, AO CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, the Bench is of the view that once objections are raised before the AO CPC and the Assessing Officer, CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi judicial function that he is performing and in performing a quasi judicial function, he has to set out his specific reasons for doing so. Disposal of objections in my view cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out specific reasons for rejecting the same. In this very case, although in one year the same amount was treated as stipend exempt u/s 10(16) of the Act and in year two said amount was treated to be taxable income. Hence, issue was not simple but a debatable one and since the assessee filed rectification application u/s 154 of the Act for rectification of mistake apparent on record i.e. adjustment of debatable issue u/s 143(1) without assigning any reason for doing so. Hence, in view of the above discussions, the Bench is of the view that the addition by way of adjustment and intimation u/s 143(1) of the Act on debatable and controversial issue is beyond the scope of Section 143(1) of the Act and thus the Revenue was clearly in error in making aforesaid adjustments. Therefore, the Bench directs the Revenue to delete the addition so made and consequently the Ground No. 2 of the assessee is allowed.

Summary

Issues Involved:
1. Treatment of stipend receipts as salary income.
2. Non-rectification of apparent mistake by the AO under Section 154.

Summary:

Issue 1: Treatment of Stipend Receipts as Salary Income
The assessee, a Doctor, received a stipend during his internship at Medanta Hospital, which was initially treated as exempt income under Section 10(16) of the Income Tax Act. However, for the assessment year 2017-18, the Assessing Officer (AO) proposed adding the stipend to the assessee's total income under Section 143(1). The assessee argued that the stipend should remain exempt, as it was in previous years. The Tribunal referenced the ITAT Delhi Bench decision in Garg Heart Centre and Nursing Home Pvt. Ltd., which held that adjustments under Section 143(1) on debatable issues are beyond the scope of the section. The Tribunal concluded that the addition of the stipend as salary income was erroneous and directed its deletion.

Issue 2: Non-rectification of Apparent Mistake by AO under Section 154
The assessee filed a rectification application under Section 154, arguing that the adjustment of the stipend as salary income was a mistake apparent on record. The Tribunal noted that the AO did not provide specific reasons for the adjustment, which is required under the current scheme of Section 143(1). The Tribunal emphasized that the AO's disposal of objections is a quasi-judicial function requiring a judicious call and specific reasons. Since the adjustment was made without proper reasoning, it was deemed beyond the scope of Section 143(1). Consequently, the Tribunal allowed the assessee's appeal for rectification.

Conclusion:
The Tribunal allowed the appeal, directing the Revenue to delete the addition of the stipend as salary income. The decision on Ground No. 2 rendered Ground No. 1 moot, and the Tribunal did not comment on the merits of the addition in Ground No. 1. The appeal of the assessee was allowed in full.

Order Pronounced:
The order was pronounced in the open court on 01/05/2023.