Adjustment under Section 143(1) without reasonable opportunity to assessee violates second proviso requirements

ITAT Mumbai held that adjustment made under section 143(1) without providing reasonable opportunity to assessee violated the second proviso of section 143(1). The tribunal noted inconsistency where the same return was accepted under section 143(3) proceedings but rejected under section 143(1). The AO failed to follow mandatory procedural requirements by not giving the assessee reasonable opportunity before making adjustments. Consequently, the additions were deleted, the appeal order was set aside, and the assessee's appeal was allowed.

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Issues:
1. Disallowance of revenue expenditure under section 11(1) of the Income-tax Act, 1961.
2. Disallowance of accumulated amount for application to the trust's object under section 11(1) of the Act.
3. Adjustment made in intimation under section 143(1) without providing opportunity to the appellant.
4. Legality of order made under section 143(1) of the Act.
5. Application of sections 234B and 234C of the Act.

Analysis:

1. The appeal was against the order of the Commissioner of Income-tax (Appeals) confirming the rejection of the claim of revenue expenditure and disallowance of accumulated amount for application to the trust's object under section 11(1) of the Act. The Assessing Officer had made adjustments under section 143(1) without providing a reasonable opportunity to the appellant. The Tribunal noted that in the subsequent assessment under section 143(3) of the Act, the deductions and claims were accepted, highlighting the inconsistency in the treatment of the same return under different sections. The Tribunal held that the Assessing Officer's actions violated the 2nd Proviso of section 143(1) by not providing a reasonable opportunity to the assessee, leading to the deletion of the disallowed amounts.

2. The appellant contended that the disallowances made by the Assessing Officer were unjustified due to the lack of opportunity provided to the assessee, as required by the provisions of the Act. The Tribunal observed that the same return of income was accepted in the assessment under section 143(3) but rejected under section 143(1), indicating a discrepancy in treatment. By citing the provisions of section 143(1) and emphasizing the necessity of providing intimation and considering the assessee's response before making adjustments, the Tribunal concluded that the Assessing Officer's actions were in violation of the law. Consequently, the disallowed amounts were deleted, and the appeal of the assessee was allowed.

3. The Tribunal considered the arguments presented by both the Authorized Representative (AR) and the Departmental Representative (DR) regarding the condonation of delay in filing the return and the applicability of circulars issued by the Central Board of Direct Taxes (CBDT). The AR highlighted the violation of the 2nd Proviso of section 143(1) due to the absence of a reasonable opportunity given to the assessee. On the other hand, the DR referred to circulars issued by the CBDT regarding the condonation of delay in filing returns. The Tribunal analyzed these arguments and circulars to determine the legality of the adjustments made under section 143(1) without providing the assessee with a proper opportunity, ultimately ruling in favor of the appellant and allowing the appeal.

4. The Tribunal's decision was based on the violation of procedural fairness and legal requirements in the assessment process. By comparing the treatment of the same return under sections 143(1) and 143(3) of the Act, the Tribunal highlighted the inconsistency in the Assessing Officer's actions. The failure to adhere to the provisions of section 143(1) by not providing a reasonable opportunity to the assessee before making adjustments led to the deletion of disallowed amounts. The Tribunal emphasized the importance of procedural fairness and adherence to statutory provisions in conducting assessments, ensuring that taxpayers are given a fair opportunity to present their case before any adjustments are made.

5. The Tribunal's ruling underscored the significance of procedural compliance and the requirement to provide a reasonable opportunity to taxpayers during the assessment process. The decision to delete the disallowed amounts was grounded in the violation of the 2nd Proviso of section 143(1) by the Assessing Officer, highlighting the need for consistency and fairness in tax assessments. By upholding the appeal and setting aside the impugned order, the Tribunal reaffirmed the importance of procedural integrity and adherence to legal provisions in ensuring a just and equitable tax administration.

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