2025 (3) TMI 925 - AT - Income Tax

Stay of demand - validity of intimation u/s 143(1) - mistakes in intimation by holding that the JAO was liable to make such rectification - HELD THAT - AO did not follow the directions of the ld. DRP in verifying and rectifying the rectification petition filed before the Assessing Officer. Similarly the Ld. Addl/JCIT(A)-5 Mumbai also did not decide the appeal filed against the order u/s 143(1) on merits but held that once the draft assessment order u/s 144C(1) is passed by the Assessing Officer the intimation u/s 143(1) of the Act gets merged with the draft order and therefore after such merger the intimation u/s 143(1) does not survive. Further as noted above the same income determined u/s 143(1) of the Act dated 25.12.2021 has been again added in the order u/s 143(3) r.w.s. 144C(13) of the Act dated 24.07.2024 which amounts to taxing the same income twice. Therefore this is a fit case for grant of stay of the balance demand of Rs. 1, 32, 23, 10, 668/- raised against the assessee and the same is stayed till the disposal of the quantum appeal u/s 143(3) r.w.s. 144C(13) or the appeal against the order u/s 143(1) dated 25.12.2021 or for a period of 180 days from the date of order whichever is earlier.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment revolve around the following issues:

1. Whether the intimation under Section 143(1) of the Income Tax Act, 1961, dated December 25, 2021, is valid and legally sustainable.

2. Whether the additions and disallowances made in the intimation under Section 143(1) are justified and in accordance with the law.

3. Whether the subsequent assessment order under Section 143(3) read with Section 144C(13) dated July 24, 2024, amounts to taxing the same income twice.

4. Whether the assessee is entitled to a stay of the outstanding tax demand pending the resolution of the appeals.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Intimation under Section 143(1)

- Relevant legal framework and precedents: Section 143(1) of the Income Tax Act allows for the processing of returns and the issuance of intimation regarding tax demands or refunds. The legal question here involves the procedural and substantive correctness of such an intimation.

- Court's interpretation and reasoning: The Tribunal noted that the intimation under Section 143(1) merged with the draft assessment order under Section 144C(1), as per the CIT(A)'s reasoning. This merger implies that the intimation does not survive independently once the draft order is passed.

- Key evidence and findings: The Tribunal observed that the intimation involved significant additions and disallowances, which were contested by the assessee in subsequent appeals.

- Application of law to facts: The Tribunal agreed with the CIT(A) that the merger of the intimation with the draft order rendered the former non-survivable.

Issue 2: Justification of Additions and Disallowances in Intimation

- Relevant legal framework and precedents: The correctness of additions and disallowances is typically assessed against the provisions of the Income Tax Act, including sections related to deductions and allowances.

- Court's interpretation and reasoning: The Tribunal found that the additions and disallowances were not adequately verified, as the directions of the Dispute Resolution Panel (DRP) to verify such additions were not followed.

- Key evidence and findings: The Tribunal noted that the additions included disallowances under various sections, such as Section 80IA and adjustments for provisions like gratuity and leave encashment, which were disputed by the assessee.

- Application of law to facts: The Tribunal highlighted that the failure to follow DRP's directions and verify the additions led to a prima facie case for the assessee.

Issue 3: Double Taxation in Subsequent Assessment Order

- Relevant legal framework and precedents: Section 143(3) read with Section 144C(13) pertains to the finalization of assessment orders following the draft stage.

- Court's interpretation and reasoning: The Tribunal observed that the same income was taxed twice, once in the intimation under Section 143(1) and again in the final assessment order, which is impermissible.

- Key evidence and findings: The Tribunal found that the additions made in the intimation were repeated in the final assessment order, leading to double taxation.

- Application of law to facts: The Tribunal concluded that the repetition of additions constituted a clear case of double taxation.

Issue 4: Entitlement to Stay of Demand

- Relevant legal framework and precedents: The stay of demand is typically granted when there is a prima facie case, and the balance of convenience favors the assessee.

- Court's interpretation and reasoning: The Tribunal found that the unresolved rectification petitions and the prima facie case presented by the assessee justified granting a stay.

- Key evidence and findings: The Tribunal noted the pending rectification petitions and the unresolved issues in the appeals as significant factors.

- Application of law to facts: The Tribunal granted a stay on the outstanding demand, recognizing the potential hardship to the assessee.

SIGNIFICANT HOLDINGS

- Preserve verbatim quotes of crucial legal reasoning: "Once the draft assessment order u/s 144C(1) is passed by the Assessing Officer, the intimation u/s 143(1) of the Act gets merged with the draft order and therefore after such merger, the intimation u/s 143(1) does not survive."

- Core principles established: The Tribunal established that the merger of intimation with draft orders nullifies the former, and that double taxation of the same income is impermissible.

- Final determinations on each issue: The Tribunal ruled in favor of the assessee by granting a stay on the outstanding demand, pending resolution of the appeals, recognizing the procedural and substantive issues with the intimation and subsequent assessment orders.