Prior intimation is mandatory before return-processing adjustments disallowing deduction claims under section 143(1)(a).

An adjustment disallowing a deduction at the return-processing stage cannot be sustained unless the assessee is first given the statutory prior intimation contemplated by section 143(1)(a) of the Income-tax Act, 1961. The ITAT followed its coordinate bench view and held that, where the Department could not show that such prior intimation was issued, the disallowance of deduction under section 80IE made while processing the return could not stand. The adjustment was therefore deleted in favour of the assessee.

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Issues: Whether the disallowance of deduction under section 80IE made while processing the return under section 143(1)(a) could be sustained when no prior intimation of the proposed adjustment was given to the assessee.

Analysis: The adjustment was made in the course of processing the return, but the statutory scheme of section 143(1)(a) requires prior intimation before making such an adjustment. The Tribunal followed its earlier coordinate bench view on the same procedural requirement and held that, where the Department could not show that the assessee had been given the mandated intimation, the disallowance could not stand.

Conclusion: The issue was decided in favour of the assessee. The disallowance of deduction under section 80IE was directed to be deleted for want of prior intimation before the adjustment.

Ratio Decidendi: An adjustment disallowing a deduction at the return-processing stage cannot be sustained unless the assessee is first given the statutory prior intimation contemplated by section 143(1)(a) of the Income-tax Act, 1961.

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