2025 (3) TMI 988 - AT - Income Tax

CIT(A) correctly applied merger doctrine but lacked proper reasoning on Section 143(3) adjustments verification required

Deputy Commissioner of Income Tax Circle 5 (2) (1), Mumbai Versus Aditya Birla Housing Finance Limited

ITAT Mumbai held that CIT(A) correctly applied the doctrine of merger, allowing the assessee to challenge adjustments made under Section 143(1) during ... Adjustment made u/s. 43B - Intimation issued u/s 143(1) - HELD THAT:- A perusal of the Computation Sheet shows that the adjustment made while processing return of income u/s 143(1) have been incorporated. Therefore, in the facts of the present case, it cannot be said that the grievance raised by the Assessee in appeal before the CIT(A) does not rise from the Assessment Order, dated 25/10/2022, passed under Section 143(3) r/w/s 144B of the Act. Accordingly, we accept the contention of the Assessee that in the facts and circumstances of the present case the doctrine of merger would apply. Therefore, we reject the contention of the Revenue that the CIT(A) erred in entertaining and adjudicating the grounds raised by the Assessee in appeal before the CIT(A) challenging the adjustments made while issuing intimation under Section 143(1) of the Act. Accordingly, Ground No. 1 raised by the Revenue is dismissed. CIT(A) had proceeded to grant relief to the Assessee without providing any opportunity to the AO to verify (a) the factual averments made on behalf of the Assessee and (b) the documents filed by the Assessee in support of the same - We do find some merit in the aforesaid contention. The adjustments were initially made u/s 143(1). Admittedly, no submission/documents in relation to the adjustment were filed during the regular assessment proceedings. CIT(A) has proceeded to allow the grounds raised without calling for a remand report. It was contended on behalf of the Assessee that no new evidence was filed by the Assessee during the appellate proceedings before the Tribunal and therefore, the question of calling for a remand report does not arise. Arguendo, even if the aforesaid submission of the Assessee is accepted as correct, we find that the CIT(A) has not recorded any reasoning for accepting the contention of the Assessee. After reproducing the assessment order and the submissions of the Assessee, the CIT(A) has concluded in favour of the Assessee. However, no reasoning has been recorded. The order passed by the CIT(A) is silent as the discrepancy or inadvertent error, if any, in the audit report, financial statements and/or the return of income. The claim of the Assessee could, at best, be regarded as additional claim made by the Assessee in appellate proceedings before the CIT(A). The aforesaid additional claim has been adjudicated on the basis of the material on record by the CIT(A) without any fresh inquiry into facts. Therefore, we do not find any infirmity in the approach adopted by the CIT(A). It is admitted position that updated Form 26AS reflected aggregate TDS credit of INR.12, 76, 37, 773/- for the Assessment Year 2021-2022. In our view, the Assessee is entitled to claim additional TDS credit provided corresponding income has been offered to tax during the Assessment Tear 2021-2022. Accordingly, we direct the Assessing Officer to allow credit for additional TDS of INR.27, 40, 247/- as reflected in updated Form 26AS after verifying that the corresponding income has been offered to tax as income for the Assessment Year 2021-2022. The Assessee is directed to file a statement showing reconciliation statement in support of the contention that the additional TDS credit claimed pertains to income already offered to tax. Accordingly, to his extent the order passed by the CIT(A) is confirmed. In view of the aforesaid, Ground No. 2, 3 and 4 raised by the Revenue are partly allowed. In terms of the aforesaid, Ground No. 5 seeking set-aside of the order passed by the CIT(A) is partly allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in the appeals were:Whether the CIT(A) was justified in deleting the adjustments made under Section 43B of the Income Tax Act, 1961, in intimation under Section 143(1) in appeals filed against orders under Section 143(3) read with Section 144B.Whether the CIT(A) erred in granting relief without calling for a remand report on the adjustments made under Section 143(1).Whether the CIT(A) was correct in directing the Assessing Officer (AO) to grant credit for additional TDS reflected in Form 26AS but not claimed in the income return.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Deletion of Adjustments under Section 43BRelevant Legal Framework and Precedents: Section 43B pertains to certain deductions to be allowed only on actual payment. Section 143(1) allows for adjustments in the processing of returns, while Section 143(3) involves a more detailed scrutiny assessment.Court's Interpretation and Reasoning: The Tribunal noted that the intimation under Section 143(1) was issued after the scrutiny proceedings under Section 143(3) had begun. The Tribunal found that the adjustments made in the intimation were incorporated into the assessment order, thereby merging the two under the doctrine of merger.Key Evidence and Findings: The Tribunal observed that the AO had accepted the returned income in the assessment order but stated that the assessment was done as per the computation sheet, which included the Section 143(1) adjustments.Application of Law to Facts: The Tribunal concluded that the CIT(A) was justified in considering the adjustments made under Section 143(1) as part of the appeal against the Section 143(3) order due to the merger of the two.Treatment of Competing Arguments: The Tribunal rejected the Revenue's argument that the CIT(A) could not entertain the appeal against Section 143(1) adjustments without a separate appeal being filed, as the adjustments were effectively part of the Section 143(3) order.Conclusions: The Tribunal upheld the CIT(A)'s decision to entertain the appeal regarding Section 43B adjustments.Issue 2: Granting Relief without a Remand ReportRelevant Legal Framework and Precedents: The need for a remand report arises when new evidence is presented or when factual verification is necessary.Court's Interpretation and Reasoning: The Tribunal agreed that the CIT(A) should have called for a remand report to verify the factual claims made by the Assessee, as no new evidence was presented during the appellate proceedings.Key Evidence and Findings: The Tribunal noted the absence of reasoning in the CIT(A)'s order for accepting the Assessee's claims without verification.Application of Law to Facts: The Tribunal found merit in the Revenue's contention that a remand report was necessary for factual verification.Treatment of Competing Arguments: While the Assessee argued that no new evidence was presented, the Tribunal emphasized the importance of factual verification through a remand report.Conclusions: The Tribunal set aside the CIT(A)'s order regarding the adjustments under Section 43B and remanded the issues back to the AO for fresh consideration with an opportunity for the Assessee to be heard.Issue 3: Credit for Additional TDSRelevant Legal Framework and Precedents: TDS credit is generally allowed if corresponding income is offered for taxation.Court's Interpretation and Reasoning: The Tribunal found no infirmity in the CIT(A)'s decision to grant TDS credit based on updated Form 26AS, provided the corresponding income was offered for taxation.Key Evidence and Findings: The Tribunal relied on the updated Form 26AS reflecting the TDS credit.Application of Law to Facts: The Tribunal directed the AO to verify that the corresponding income was offered for taxation before allowing the additional TDS credit.Treatment of Competing Arguments: The Tribunal balanced the Revenue's concerns with the Assessee's right to claim TDS credit, subject to verification.Conclusions: The Tribunal upheld the CIT(A)'s order regarding TDS credit, subject to verification by the AO.3. SIGNIFICANT HOLDINGSThe Tribunal held that the adjustments made under Section 143(1) merged with the Section 143(3) order, allowing the CIT(A) to entertain the appeal on those adjustments.The Tribunal emphasized the necessity of a remand report for factual verification when relief is granted without new evidence being presented.The Tribunal affirmed the principle that TDS credit should be allowed if the corresponding income is offered for taxation, subject to verification.The Tribunal's decisions resulted in partial remand of the issues for fresh consideration by the AO, with directions to verify the Assessee's claims.