2025 (4) TMI 285 - AT - Income Tax

Validity of assessment order based on a non-existing 143(1) intimation - HELD THAT - The 1st proviso to Section 143(1) provides that an intimation shall be sent to the assessee in case where the loss declared in the return by the assessee is adjusted but no tax interest or fee is payable by or no refund is due to him. And the 2nd proviso to Section 143(1) provides that no intimation under sub-section shall be sent after the expiry of nine months from the end of the financial year in which the return was made. In this case the intimation u/s. 143(1) dated 10-08-2021 determining the loss as made by CPC but the same was not communicated to the assessee. As per 1st proviso to Section 143(1) the intimation shall be sent to the assessee declaring the loss assessed/adjusted but no tax interest or fee payable or no refund due to the assessee. In this case the intimation was never served on the assessee after repeated grievance petitions before various authorities the assessee was served with copy of the intimation through email on 13-01-2025. In the meanwhile regular assessment and notice u/s. 143(2) was issued on 29-06-2021. After issuance of the 143(2) notice there is no question of making intimation u/s. 143(1). Therefore the so called intimation is invalid in law which was not served to the assessee as per 1st proviso to Section 143(1) of the Act. Final assessment order is liable to be modified as that of the returned loss of Rs. 30.65 crores made by the assessee. Thus the Ground Nos. 1 to 6 raised by the Assessee are allowed.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment were:

1. Whether the intimation under Section 143(1) of the Income Tax Act, 1961, which was not served on the assessee, can be considered valid and form the basis for the assessment order.

2. Whether the adjustment made by the Assessing Officer (AO) in reducing the declared loss of the assessee without providing a basis or reason is justified.

3. Whether the failure to serve the intimation under Section 143(1) within the prescribed timeline renders it invalid.

4. Whether the Dispute Resolution Panel (DRP) erred in not adjudicating on the merits of the adjustment made under Section 143(1).

5. Whether the AO violated principles of natural justice by not issuing a show cause notice as required under Section 141B.

6. Whether the AO's failure to allow credit for tax deducted at source (TDS) claimed by the assessee was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Intimation under Section 143(1)

The relevant legal framework involves Section 143(1) of the Income Tax Act, which requires that an intimation be sent to the assessee if the loss declared in the return is adjusted but no tax is payable or no refund is due. The Court noted that the intimation dated 10-08-2021 was not communicated to the assessee, despite repeated grievances filed by the assessee. The Court interpreted that after the issuance of a notice under Section 143(2), any intimation under Section 143(1) becomes invalid. Since the intimation was not served within the prescribed period, it was deemed invalid, and the AO's reliance on it for final assessment was incorrect.

2. Adjustment without Basis

The Court observed that the AO reduced the declared loss of the assessee without providing any basis or reason, rendering the assessment order non-speaking in nature. The Court emphasized the need for transparency and reasoned decision-making by tax authorities, which was lacking in this case. The adjustment was thus deemed unjustified.

3. Timeliness of Intimation

The Court highlighted the second proviso to Section 143(1), which mandates that no intimation shall be sent after nine months from the end of the financial year in which the return was made. In this case, the intimation was served much later, on 13-01-2025, and thus was invalid. The Court concluded that the AO could not base the assessment on an intimation that was not served within the statutory timeline.

4. DRP's Non-Adjudication

The DRP declined to adjudicate on the adjustment made under Section 143(1), stating that it did not emanate from the draft assessment order. The Court found this reasoning flawed, as the DRP should have considered the merits of the adjustment, given the procedural irregularities. The Court thus found fault with the DRP's approach.

5. Principles of Natural Justice

The Court noted that the AO did not issue a show cause notice as required under Section 141B, which violated the principles of natural justice. This omission denied the assessee an opportunity to present their case, making the assessment process procedurally unfair.

6. Non-Allowance of TDS Credit

The issue of non-allowance of TDS credit was not addressed in the final assessment order. The Court stated that the assessee could seek rectification from the AO regarding this matter.

SIGNIFICANT HOLDINGS

The Court held that the intimation under Section 143(1) was invalid due to non-service within the prescribed timeline, and therefore, the AO's reliance on it was incorrect. The final assessment order should reflect the returned loss of Rs. 30.65 crores, as declared by the assessee. The Court allowed Grounds 1 to 6 raised by the assessee, emphasizing the importance of procedural fairness and adherence to statutory timelines.

The Court's core principles established include the invalidity of untimely intimations under Section 143(1) and the necessity for reasoned decision-making by tax authorities. The appeal was partly allowed, with the Court directing necessary modifications to the assessment order.

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