2024 (8) TMI 1227 - AT - Income Tax

Validity of Adjustments made in intimation u/s 143(1) - mismatch between the income tax return and tax audit report filed by the assessee -Whether adjustment can be made by CPC u/s. 143(1)(a) of the Act while processing the return filed by the assessee without complying with the condition stipulated in first proviso to clause (a) of sub-section (1) of section 143? - HELD THAT - We do find force in the submissions made by assessee in respect of any adjustment which is proposed to be made, a prior intimation is required to be served on the assessee, either in writing or electronically, as contained in 1st proviso to section 143(1)(a) - Counsel has evidently demonstrated before us, the failure on the part of CPC to issue such prior intimation to the assessee before making an adjustment. Thus, the only aspect which emerges in the appeal is whether the adjustment has been made in compliance to 1st proviso to sec. 143(1)(a) of the Act. Considering the facts on record and the perusal of the provisions contained in sec. 143(1)(a) of the Act, we find that on this aspect, the revenue fails. This position has not been controverted by Ld. Sr. DR also. In case, where there is no response received from the assessee then, within thirty days of the issue of such intimation, department is free to make such adjustment or disallowance. The documentary evidence placed on record and the e-proceedings downloaded from the Income Tax portal, no where suggests that such a process has been followed. Thus, we find that the impugned intimation issued u/s. 143(1)(a) is not in compliance with the provisos to section 143(1)(a) of the Act and thus, the impugned intimation is invalid under the Act. Assessee appeal allowed.

Summary

Issues:
1. Whether adjustments made in intimation u/s 143(1) are beyond the scope of the section.
2. Whether the order passed violated the first proviso to section 143(1) by not providing necessary intimation to the appellant before making adjustments.
3. Whether the disallowance of deductions and addition to income by the AO, CPC were justified.
4. Whether the CIT(A) erred in not accepting the submissions made by the appellant.

Analysis:

Issue 1:
The appeal challenged adjustments made in the intimation u/s 143(1) as beyond the scope of the section. The appellant argued that adjustments were made without proper intimation, making them bad in law. The CIT(A) upheld the adjustments based on a mismatch between the return and tax audit report. The Tribunal found that no intimation was given to the assessee before making adjustments, as required by the first proviso to section 143(1)(a). The failure to provide prior intimation rendered the adjustments invalid under the Act.

Issue 2:
The appellant contended that the order violated the first proviso to section 143(1) by not giving necessary intimation before making adjustments. The Tribunal agreed with the appellant, finding that no intimation was issued by the CPC as required by law. The failure to comply with the proviso rendered the intimation invalid.

Issue 3:
Regarding the disallowance of deductions and addition to income, the appellant argued that the actions of the AO, CPC were unjustified. The CIT(A) upheld the disallowances based on a mismatch between the return and tax audit report. The Tribunal, however, found that the adjustments were not made in compliance with the provisions of section 143(1)(a) due to the lack of prior intimation, rendering them invalid under the Act.

Issue 4:
The appellant raised concerns about the CIT(A) not accepting their submissions and explanations. The Tribunal found in favor of the appellant, allowing the grounds of appeal and ultimately allowing the appeal. The decision was based on the failure to provide prior intimation before making adjustments, as required by law.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing the importance of complying with the provisions of section 143(1)(a) by providing prior intimation before making adjustments. The failure to do so rendered the adjustments invalid under the Act.