2025 (5) TMI 1949 - AT - Income Tax

Section 143(1) order merges with subsequent 143(3) order when addressing same issue, trust exemption case remitted for fresh consideration

B. Narayan Das Shyam Sunder Loya Cure Thalassemia Welfare Trust, Hyderabad Versus The Income Tax Officer, [Exemption], Ward-1 (1), Hyderabad.

ITAT Hyderabad held that an order passed under section 143(1) is merged or subsumed with a subsequent order under section 143(3) when both address the ... Scope of order passed u/sec.143(1) as merged or subsumed with the order passed u/sec.143(3) - exemption claimed by the assessee on corpus donation received for specific purpose HELD THAT:- AO has passed order u/sec.143(1) of the Act on 26.09.2019 and further has passed order u/sec.143(3) of the Act on 05.04.2021. The issue before the AO in both the orders are one and the same i.e., exemption claimed by the assessee on corpus donation received for specific purpose. The assessee-trust has filed appeal against both the orders before the CIT(A). CIT(A) disposed of the appeal filed by the assessee-trust against the order passed by the AO u/sec.143(3) of the Act on 10.07.2024 for non-prosecution and the assessee-trust has challenged the said order before the Tribunal. Since the first appeal filed by the assessee against the order passed u/sec.143(3) has been set-aside to the file of the learned CIT(A), we are of the considered view that, this issue also needs to be remitted back to the file of learned CIT(A) to decide the issue on merits, since the order passed u/sec.143(1) is merged or subsumed with the order passed u/sec.143(3) of the Act. Thus, we set-aside the order of the learned CIT(A) and restore the issue back to the file of learned CIT(A) for fresh consideration and also direct the learned CIT(A) to reconsider the issue on merit along with pending appeal of the assessee-trust filed against the order passed u/sec.143(3) of the Act. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this appeal revolve around the procedural and substantive aspects of assessment orders under the Income Tax Act, 1961, specifically:Whether the order passed under section 143(1) of the Income Tax Act stands subsumed or merged with the subsequent order passed under section 143(3) for the same assessment year.Whether the appeal filed against the order under section 143(1) can be adjudicated independently when an appeal against the order under section 143(3) for the same assessment year is pending or remanded.The appropriate forum and procedure for adjudicating appeals against orders passed under sections 143(1) and 143(3) when both relate to the same assessment year and identical issues.The correctness of the CIT(A)'s dismissal of the appeal filed against the order under section 143(1) on the ground of redundancy and whether such dismissal is sustainable.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the order passed under section 143(1) is subsumed or merged with the subsequent order passed under section 143(3) for the same assessment year.Relevant Legal Framework and Precedents: It is a well-established principle under the Income Tax Act that an order passed under section 143(3), which is a detailed scrutiny assessment, supersedes the earlier summary order passed under section 143(1) for the same assessment year. The section 143(1) order is a summary assessment based on the return filed and limited verification, whereas section 143(3) involves detailed inquiry and examination of the return and other materials.Court's Interpretation and Reasoning: The Tribunal reiterated this settled position, emphasizing that once an order under section 143(3) is passed, the earlier order under section 143(1) stands merged or subsumed. The Tribunal noted that in the present case, both orders pertain to the same issue-the exemption claimed by the assessee-trust on corpus donation received for a specific purpose during the assessment year 2018-2019.Key Evidence and Findings: The Assessing Officer issued the section 143(1) intimation on 26.09.2019 and subsequently passed the section 143(3) order on 05.04.2021. Both orders rejected the exemption claimed by the assessee-trust on the corpus donation amounting to Rs. 1,09,00,000/-.Application of Law to Facts: Since the issue and the assessment year are identical, the later detailed assessment order under section 143(3) supersedes the earlier summary order under section 143(1), making the latter redundant for further proceedings.Treatment of Competing Arguments: The Revenue and the assessee agreed on this principle. The Revenue contended that the appeal against the section 143(1) order was rightly dismissed as redundant because the section 143(3) order subsumes it. The assessee also acknowledged this but urged that since the appeal against the section 143(3) order was remanded to the CIT(A) for fresh consideration, the appeal against the section 143(1) order should also be remanded for adjudication together.Conclusions: The Tribunal held that the section 143(1) order is subsumed by the section 143(3) order and therefore cannot be independently adjudicated once the latter is in question. However, since the appeal against the section 143(3) order was remanded to the CIT(A), the appeal against the section 143(1) order must also be remanded for reconsideration together.Issue 2: Whether the appeal against the order under section 143(1) can be dismissed as infructuous when the appeal against the section 143(3) order is pending or remanded.Relevant Legal Framework and Precedents: The procedure for appeals under the Income Tax Act allows for consolidation or simultaneous consideration of appeals relating to the same assessment year and issue to avoid multiplicity of proceedings and conflicting decisions. The appellate authorities are empowered to remand matters for fresh consideration to ensure comprehensive adjudication.Court's Interpretation and Reasoning: The CIT(A) had dismissed the appeal against the section 143(1) order on the ground that it was subsumed by the appeal against the section 143(3) order, which was pending before the Tribunal. The Tribunal observed that this dismissal was premature because the appeal against the section 143(3) order had been remanded to the CIT(A) for reconsideration, implying that the CIT(A) would again be the appropriate authority to decide both appeals together.Key Evidence and Findings: The ITAT's prior order dated 14.10.2024 had set aside the appeal against the section 143(3) order to the CIT(A) for reconsideration along with the pending appeal against the section 143(1) order. Despite this, the CIT(A) dismissed the appeal against the section 143(1) order as infructuous on 23.01.2025.Application of Law to Facts: Since the CIT(A) was directed to reconsider both appeals together, dismissing one appeal as redundant without hearing it on merits was inconsistent with the remand order and principles of natural justice.Treatment of Competing Arguments: The assessee argued for remand of the appeal against the section 143(1) order to the CIT(A) for fresh adjudication along with the appeal against the section 143(3) order. The Revenue, while supporting the CIT(A)'s dismissal, fairly conceded that remand would be appropriate in view of the ITAT's earlier directions.Conclusions: The Tribunal concluded that the dismissal of the appeal against the section 143(1) order was not sustainable and that the appeal should be remanded to the CIT(A) for fresh consideration along with the appeal against the section 143(3) order.Issue 3: The appropriate forum and procedure for adjudicating appeals against orders under sections 143(1) and 143(3) when both relate to the same assessment year and issue.Relevant Legal Framework and Precedents: The Income Tax appellate framework contemplates that appeals against assessment orders for the same year and issue are best adjudicated together to ensure consistency and avoid duplication. The CIT(A) is the first appellate authority, and the ITAT is the second appellate authority. Remand orders by the ITAT to the CIT(A) for reconsideration are common to ensure comprehensive adjudication.Court's Interpretation and Reasoning: The Tribunal emphasized the need for the CIT(A) to consider both appeals simultaneously on merit, as directed by the ITAT's earlier order. This approach aligns with principles of judicial economy and fairness.Key Evidence and Findings: The ITAT had already set aside the appeal against the section 143(3) order to the CIT(A) for reconsideration along with the pending appeal against the section 143(1) order. The CIT(A)'s dismissal of the appeal against the section 143(1) order was contrary to this direction.Application of Law to Facts: The Tribunal held that the appropriate procedure is to remand both appeals to the CIT(A) for joint consideration on merit, ensuring that the assessee's grievances are addressed comprehensively.Treatment of Competing Arguments: Both parties agreed that remand was the appropriate course given the circumstances. The Tribunal's order reflects this consensus.Conclusions: The Tribunal directed the CIT(A) to reconsider both appeals together on merit, thereby establishing the procedural principle of consolidated adjudication of related appeals.3. SIGNIFICANT HOLDINGSThe Tribunal succinctly stated the core legal reasoning as follows:'There is no dispute with regard to the settled position of law that, once an order has been passed u/sec.143(3) of the Act, then, any earlier order passed u/sec.143(1) of the Act for the very same assessment year is subsumed or merged with the subsequent order passed by the Assessing Officer u/sec.143(3) of the Act.'Further, the Tribunal held:'Since the first appeal filed by the assessee against the order passed u/sec.143(3) has been set-aside to the file of the learned CIT(A), we are of the considered view that, this issue also needs to be remitted back to the file of learned CIT(A) to decide the issue on merits, since the order passed u/sec.143(1) is merged or subsumed with the order passed u/sec.143(3) of the Act.'Core principles established include:The primacy of the section 143(3) assessment order over the section 143(1) order for the same assessment year and issue.The necessity of consolidated adjudication of appeals relating to the same assessment year and issue to avoid multiplicity and inconsistent outcomes.The procedural correctness of remanding appeals to the first appellate authority for fresh consideration when prior appeals have been set aside for reconsideration.The inadmissibility of dismissing appeals as redundant or infructuous without due consideration when related appeals are pending or remanded.Final determination on each issue:The section 143(1) order is merged with the section 143(3) order and cannot be independently adjudicated once the latter is challenged.The appeal against the section 143(1) order cannot be dismissed as infructuous when the appeal against the section 143(3) order is pending or remanded; it must be considered jointly.The appropriate forum for adjudication of both appeals is the learned CIT(A), who must reconsider both appeals on merits as per the ITAT's directions.The appeal filed by the assessee is allowed for statistical purposes by remanding the matter to the CIT(A) for fresh adjudication.