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ISSUES PRESENTED AND CONSIDERED
1. Whether issuance of intimation under Section 143(1) without considering the assessee's reply to discrepancies notified in an earlier intimation violates the statutory scheme and causes prejudice.
2. Whether a Faceless Assessment Officer may lawfully treat the assessee's case on two differing bases (original ITR and a subsequently filed reply modifying the ITR) when an earlier reply to a Section 143(1) intimation was not considered before issuance of a subsequent intimation.
3. What relief or direction is appropriate where the respondent issued a subsequent intimation without considering the reply filed to an earlier intimation under Section 143(1).
ISSUE-WISE DETAILED ANALYSIS
Issue 1: Failure to consider reply filed in response to Section 143(1) intimation before issuing subsequent intimation
Legal framework: Section 143(1) prescribes processing of a return by (a) making specified adjustments (arithmetical errors, apparent incorrect claims, disallowances, additions based on Form 26AS/Form 16A/Form 16, etc.), (b) computing tax, interest and fee, (c) determining payable tax or refund after adjustments, (d) preparing and sending an intimation specifying sums payable or refund, and (e) granting refund determined. The statutory scheme contemplates that where discrepancies are intimated the assessee may respond and such response is to be considered in processing the return.
Precedent Treatment: No precedent was relied upon or cited in the judgment. The Court proceeded on the statutory text and the facts before it.
Interpretation and reasoning: A plain reading of Section 143(1) indicates that when an intimation notifies discrepancies and invites a reply, the assessing authority is to consider the reply and make suitable modifications in the processing of the ITR as warranted by law. Issuing a subsequent intimation without considering the reply undermines the statutory processing mechanism and risks neglecting adjustments claimed by the assessee.
Ratio vs. Obiter: Ratio - It is impermissible, in the statutory processing under Section 143(1), to issue an intimation correcting the return without first considering an earlier reply filed by the assessee to a discrepancy intimation; the reply must be considered in the processing stage. Obiter - Observations on potential administrative confusion if the reply is left to be addressed only at scrutiny stage.
Conclusions: The Court concluded that the respondent ought to consider the reply dated 23.04.2023 and accept the returns accordingly, since the statutory scheme requires consideration of the assessee's response to a 143(1) intimation before issuing a consequential intimation affecting tax/refund.
Issue 2: Permissibility and consequences of deferring consideration of the reply to scrutiny by a Faceless Assessment Officer, creating two bases for assessment
Legal framework: Scrutiny assessment (distinct from processing under Section 143(1)) allows a Faceless Assessment Officer to examine returns and material; however, processing under Section 143(1) must be performed in accordance with statutory steps and the assessee's replies to discrepancy intimations are part of that processing.
Precedent Treatment: None cited; Court assessed procedural fairness and statutory consistency.
Interpretation and reasoning: Allowing a Faceless Assessment Officer to wait until scrutiny to consider a reply that the processing authority failed to consider results in the assessee's case being potentially treated on two inconsistent bases - the original return and the modified position in the reply. Such dual stands would create unnecessary confusion and may prejudice the assessee's rights, particularly where refunds or tax demand are concerned. The Court accepted the respondent's assurance that the reply would be considered at scrutiny but held that this assurance does not validate skipping the processing-stage consideration required by Section 143(1).
Ratio vs. Obiter: Ratio - Deferment of consideration of a 143(1) reply to scrutiny, when the reply should have been considered during processing, is not an adequate substitute for compliance with Section 143(1); the assessing authority must consider the reply and adjust the processed return before or as part of the intimation process. Obiter - Practical remarks on the potential for confusion if two divergent positions are allowed to persist into scrutiny.
Conclusions: The Court directed that the respondents consider the reply and accept the returns accordingly, and thereafter the Faceless Assessment Officer shall proceed with scrutiny only after providing opportunity of hearing, thereby preventing the scenario where the reply is only belatedly considered at scrutiny to the assessee's prejudice.
Issue 3: Appropriate remedial directions where processing-stage reply was not considered
Legal framework: Courts may issue writs or directions to ensure compliance with statutory mandates and to protect constitutional and statutory rights where administrative action departs from procedural requirements or causes prejudice.
Precedent Treatment: No authorities cited; relief fashioned on statutory interpretation and principles of fair procedure.
Interpretation and reasoning: Given the statutory requirement to process returns under Section 143(1) and the factual failure to consider the reply before issuing a subsequent intimation, the Court found it necessary and proportionate to direct the respondents to consider the reply and accept returns where appropriate. Further, because scrutiny may materially affect rights, the Court required the Faceless Assessment Officer to provide an opportunity of hearing before passing orders in scrutiny assessment to protect procedural fairness.
Ratio vs. Obiter: Ratio - Where an assessing authority issues an intimation without considering an earlier reply to a Section 143(1) discrepancy intimation, the appropriate remedy is to direct reconsideration of that reply and to mandate that subsequent scrutiny proceed only after providing hearing opportunity. Obiter - No costs were ordered; administrative sequencing remarks.
Conclusions: The Court ordered (i) the respondents to consider the reply dated 23.04.2023 and accept the returns accordingly, and (ii) the Faceless Assessment Officer to provide an opportunity of hearing before passing orders in the scrutiny assessment. The writ petition was disposed of with those directions and no costs.
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