ITAT allows appeal after AO accepts ICDS claim during scrutiny but fails to delete section 143(1) adjustment

The ITAT Chandigarh allowed the assessee's appeal against an adjustment made under ICDS (Indian Accounting Standards) in an intimation u/s 143(1). The case was selected for scrutiny to examine ICDS compliance. The AO issued notices seeking information about the assessee's claim, which was duly provided with necessary documentation. During assessment proceedings, the AO examined the matter and made no adverse findings, effectively accepting the assessee's claim. However, while computing income, the AO failed to delete the ICDS adjustment from the s.143(1) intimation despite having accepted it during scrutiny. The ITAT found this error apparent from records and directed deletion of the adjustment, setting aside the CIT(A)'s order.

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Issues:
Appeal against rejection of application under Section 154 due to ICDS adjustment.

Analysis:
The appeal was filed by the Assessee against the rejection of the application under Section 154 by the AO concerning the adjustment on account of ICDS amounting to Rs. 3,52,475. The Assessee contended that the said amount was allowable during the current year based on actual incurrence of losses, which had been disallowed in the previous year on a provisions basis. The Assessee argued that the adjustment was not considered by the CPC, Bangalore, and an intimation under section 143(1) was issued after making the adjustment. The Assessee moved an application under section 154, but no action was taken by the AO due to ongoing assessment proceedings. The Assessee provided explanations and submitted documentary evidence during the assessment proceedings, and no adverse findings were recorded by the AO. However, the AO did not delete the adjustment while computing the income, which was accepted during the assessment proceedings.

The Ld. CIT(A) sustained the addition made by the AO, leading the Assessee to appeal. The Assessee argued that the ICDS claim was allowable and claimed on an actual basis. The Assessee contended that all relevant information and documentation were part of the assessment record, and necessary inquiries were conducted during the assessment proceedings. The Assessee requested the deletion of the adjustment made by the AO and sustained by the Ld. CIT(A). The Ld. DR supported the lower authorities' orders, stating that the Assessee failed to file an appeal against the intimation under section 143(1) in a timely manner. The Ld. DR argued that the rectification application was rightly rejected by the AO as there was no mistake apparent from the record. The Ld. DR contended that the appeal against the order under section 154 r.w.s 143(3) was without merit and deserved dismissal.

The Tribunal found that the AO did not delete the adjustment towards ICDS while computing the income, despite examining and accepting the claim during the assessment proceedings. The Tribunal held that the AO should have considered the income after deleting the adjustment as per the intimation under section 143(1). Therefore, the Tribunal set aside the order of the Ld. CIT(A) and directed the deletion of the adjustment of Rs. 3,52,475. The appeal of the Assessee was allowed.

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