2024 (7) TMI 779 - AT - Income Tax

Denial of deduction claimed u/s 10(2A) - adjustment of income u/s 143(1)(a)(ii) - addition of share of profit (net of loss) derived by the appellant in the capacity as a Partner by invoking the provisions of Section 143(1)(a)(ii) - HELD THAT - The addition was made on the basis of the profit received by the assessee from the different partnership firms total amount which is liable for exemption u/s 10(2A) of the Act. But in case of legal issue, the intimation was issued and within two days, the final order u/s 143(1) of the Act was passed which entirely violated the 2 nd Proviso of section 143(1) of the Act. In our considered view, the Ld.AO passed the order beyond the jurisdiction and liable to be quashed. Accordingly, the impugned appeal order is set aside and the addition is deleted. As the legal ground of the assessee is succeeded, the ground on merit is only remain for academic purposes.

Issues involved:
Appeal against adjustment of income under section 143(1)(a)(ii) of the Income-tax Act, 1961 for Assessment Year 2020-21, violation of provisos to Section 143(1)(a), claim of exemption u/s. 10(2A) of the Act, violation of 2nd Proviso of section 143(1), legal and merit-based grievances, violation of 2nd Proviso of section 143(1), determination of gross tax payable, interest u/s. 234 of the Act.

Analysis:

1. Adjustment of income under section 143(1)(a)(ii): The assessee challenged the adjustment made by the Ld. ADIT, CPC regarding the denial of claim of exemption u/s. 10(2A) of the Act. The grounds of appeal highlighted the illegality of the adjustment due to lack of proper communication, opportunity to respond, and application of mind. The issue revolved around the procedural fairness and compliance with statutory provisions in making adjustments to the income.

2. Violation of provisos to Section 143(1)(a): The appellant contended that the adjustment made by the Ld. ADIT, CPC was in violation of the conditions stipulated under the provisos to Section 143(1)(a). The failure to provide necessary information, opportunity to respond, and proper communication were raised as legal grounds for challenging the adjustment.

3. Claim of exemption u/s. 10(2A) of the Act: The primary contention of the assessee was related to the claim of exemption u/s. 10(2A) for the share of profit derived as a partner of various firms. The appellant argued that the share of profit was exempt under the Act and should not have been assessed as income for the year under appeal. The detailed breakdown of the share of profit from different partnership firms was presented to support the claim of exemption.

4. Violation of 2nd Proviso of section 143(1): The violation of the 2nd Proviso of section 143(1) was a crucial aspect of the appeal. The appellant argued that the adjustment of income was done without allowing the requisite 30 days for response, thereby infringing upon the statutory provisions. The legal challenge was based on the procedural irregularity in the assessment process.

5. Determination of gross tax payable and interest u/s. 234 of the Act: The appeal also addressed the determination of gross tax payable under normal provisions of the Act and the imposition of interest u/s. 234. The arguments presented by both parties focused on the assessment of tax liability and the consequential interest charged, highlighting the legal and financial implications of the decision.

In conclusion, the appellate tribunal allowed the appeal of the assessee, setting aside the impugned order and deleting the addition of income under section 143(1)(a)(ii). The decision was based on the finding that the Ld. AO had exceeded jurisdiction in passing the order, thereby warranting its quashing. The success on the legal ground rendered the merit-based arguments academic, leading to the allowance of the appeal.

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