ITAT allows appeal after tax authorities failed to provide mandatory intimation before section 143(1)(a) adjustments

The ITAT Ahmedabad allowed the assessee's appeal due to procedural non-compliance by the tax authorities. The CPC made adjustments under section 143(1)(a) by disallowing exemption exceeding Rs. 3 lakhs under section 10(10AA)(ii) based on an invalid CBDT Gazette Notification. However, the authorities failed to provide mandatory intimation to the assessee before making these adjustments, as required under the first proviso to section 143(1)(a). The ITAT held that adjustments cannot be made without prior written or electronic intimation to the assessee. The authorities directly communicated the adjustment by reducing the claimed refund, violating prescribed procedures. The appeal was allowed solely on grounds of procedural lapse in failing to intimate the assessee of proposed adjustments.

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ISSUES:

Whether the Assessing Officer had jurisdiction and authority to make adjustments under Section 143(1) of the Income-tax Act without issuing prior intimation to the assessee.Whether the exemption claimed exceeding Rs. 3 lakhs under Section 10(10AA)(ii) of the Income-tax Act is allowable, considering the validity of the Gazette Notification No.50588 E dated 31.05.2002 issued by CBDT.Whether the excess exemption claimed on leave encashment received on retirement qualifies for relief under Section 89(1) of the Income-tax Act.

RULINGS / HOLDINGS:

The adjustment of Rs. 11,63,550/- made by the Assessing Officer under Section 143(1) without prior intimation to the assessee is invalid as it violates the first proviso to Section 143(1)(a) which mandates that "no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode."The exemption claimed exceeding Rs. 3 lakhs under Section 10(10AA)(ii) was not allowed by the Tribunal, but the judgment primarily allowed the appeal on procedural grounds without deciding on the merit of the exemption claim.The Tribunal acknowledged the existence of a writ petition challenging the exemption limit under Section 10(10AA)(ii) as "not being revised since 1998" and appearing "unjustified considering rising inflation and pay scale revisions," but did not grant relief in this appeal on that basis.

RATIONALE:

The Tribunal applied the statutory framework under Section 143(1) of the Income-tax Act, 1961, which requires that before making any adjustment to the return of income, an intimation must be given to the assessee either in writing or electronically, and any response received must be considered before finalizing adjustments.The Tribunal emphasized strict compliance with procedural safeguards prescribed in the Act, holding that failure to issue the required intimation renders the adjustment invalid.The Tribunal did not delve into the substantive issue of exemption under Section 10(10AA)(ii) or the applicability of Section 89(1) relief, thereby avoiding a doctrinal shift or reinterpretation on these points.

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