2025 (8) TMI 1497 - AT - Income Tax

Appeal allowed for statistical purposes; order remanded to reassess machine-driven income enhancement under section 143(1) and correct figures

ITAT (Patna) allowed the appeal for statistical purposes, finding the income enhancement under section 143(1) arose from a machine-driven discrepancy ... Income determined u/s 143(1) - enhancement as affected because discrepancy between the exemption claimed in the return and Form 9A filed by the assessee HELD THAT:- Process u/s 143(1) of the Act is a totally machine-driven process as of now. Accordingly, it is not expected that a computer would apply its mind beyond a point. It is certainly expected that any First Appellate Authority will take a holistic view of the issue at hand and ensure that the assessee is not penalised for some inadvertent oversight. In this case, we find that this is exactly what has happened and therefore, we deem it fit to remand this matter back to the file of CIT(A) for appraising the correct figures and allowing relief to the assessee as would be due to him within the law. Appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the enhancement of returned income under section 143(1) of the Income Tax Act, 1961, on account of a discrepancy between figures reported in the income-tax return (ITR) and Form 9A, was justified. 2. Whether the first appellate authority (CIT(A)) possesses power to condone delay or admit claims/exemptions after the prescribed period, including interaction with section 119(2)(b) of the Act. 3. Whether amounts received as project grants (including a one-time capital grant) that remain unspent at year-end constitute taxable surplus or are properly treated as liabilities and thereby do not give rise to income taxable under sections 11/12A. 4. Whether factual/mathematical discrepancies arising from the format/ presentation of figures in ITR vis-à-vis audited financial statements and Form 9A warrant remand for fresh appraisal by the first appellate authority. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of enhancement under section 143(1) due to discrepancy between ITR and Form 9A Legal framework: Section 143(1) embodies processing adjustments that may be made by the Assessing Officer on intake of a return; enhancements on record discrepancies between return and statutory forms are within the operation of s.143(1) subject to verification and appellate scrutiny. Precedent Treatment: No specific judicial precedents were cited or relied upon in the impugned orders or in the Tribunal's reasoning. Interpretation and reasoning: The Assessing Officer operated the mechanically-driven processing under s.143(1) to enhance the total income because the ITR reported a lower figure than Form 9A. The first appellate authority confirmed the AO's action, treating the discrepancy as an admitted incorrect statement in the return that ought to have been corrected by a revised return. The Tribunal observed that an automatic machine-driven enhancement is expected at processing stage but emphasised that appellate scrutiny must take a holistic view and guard against penalising the assessee for inadvertent oversights or reporting format issues. Ratio vs. Obiter: The Tribunal's direction to reappraise on remand is ratio in relation to the facts; the broader observation about the need for holistic appellate consideration is ratio insofar as it guides appellate practice in processing-driven adjustments. Conclusions: Enhancement under s.143(1) based solely on a discrepancy in reported figures is not conclusively justified where contemporaneous documents (audited financial statements, Form 9A) demonstrate the correct receipts and applications; the matter requires factual reassessment by the first appellate authority rather than automatic confirmation of processing adjustments. Issue 2: Power of the first appellate authority to condone delay and applicability of section 119(2)(b) Legal framework: Section 119(2)(b) empowers the Board to authorize income-tax authorities (other than certain appellate Commissioners) to admit applications/claims for exemption, deduction, refund or relief after expiry of the prescribed period for avoiding genuine hardship and to deal with them on merits. Precedent Treatment: The CIT(A) in the impugned order relied on the statutory wording of s.119(2)(b) to conclude that first appellate authorities do not have power to condone delay under that provision and that recourse to the Board under s.119 is the appropriate remedy if the period for filing a revised return has lapsed. Interpretation and reasoning: The CIT(A) interpreted s.119(2)(b) as indicating the legislative intent that powers to admit late claims lie with the Board's delegated authorities and not with first appellate authorities; where a return contains an admitted incorrect statement, the correct statutory remedy is revision of the return or, if time-barred, an application under s.119(2)(b). The Tribunal did not overrule this statutory interpretation but pointed out that the CIT(A)'s application of the principle failed to consider the factual matrix (audited statements and Form 9A) and the potential for inadvertent reporting errors that can and should be addressed on appeal to avoid unjust taxation. Ratio vs. Obiter: The statement regarding the allocation of delay-condonation powers under s.119(2)(b) is treated as authoritative interpretation of that provision by the CIT(A) and was not disturbed by the Tribunal; however, the Tribunal's emphasis on appellate discretion to take a holistic view is an interpretive guideline (ratio in application) rather than a declaration limiting s.119(2)(b). Conclusions: While the statutory scheme in s.119(2)(b) contemplates Board-level relief for admitting late claims, first appellate authorities should nevertheless examine the factual correctness of processing-generated adjustments and not mechanically refuse relief on the ground of procedural lapse where the substance shows compliance; where necessary, the matter should be remanded for factual appraisal and, if the timeline issue remains, appropriate avenues under s.119 may be pursued. Issue 3: Taxability of unspent project grants and characterization as liability vs. income under sections 11/12A Legal framework: Sections 11 and 12A (and allied provisions) govern exemption of income applied to charitable objects; the taxability of grants depends on the nature of the grant, conditions of sanction, and whether unspent balances constitute income or held liabilities to be utilized/returned per terms. Precedent Treatment: No judicial authorities were cited in the record regarding the classification of unspent grants; the parties relied on documentary evidence (sanction terms, audited accounts, utilization certificate formats) to establish the nature of the funds. Interpretation and reasoning: The assessee's case - supported by audited financials, Form 9A and the utilization certificate (Form GFR 12A) - was that the grant of Rs.45,00,000 comprised Rs.20,00,000 one-time capital grant for fixed assets and Rs.25,00,000 for revenue expenditure; the format of ITR/Form 7 caused presentation of fixed-asset acquisitions net of subsidy, creating apparent understatement of receipt in ITR columns. The assessee contended that unspent balances were liabilities to the sponsoring agency (to be spent in subsequent periods or returned) and not available as surplus income. The Tribunal found these factual contentions sufficient to require appellate reappraisal rather than summary confirmation of processing adjustments and accepted that unspent grant balances may properly be treated as liability where the terms of sanction and utilization certificate so indicate. Ratio vs. Obiter: The conclusion that, on the materials before it, unspent grant balances are to be treated as liabilities and not taxable income is ratio as applied to the present facts; the broader proposition that terms of sanction and utilization certificates determine tax character is explanatory and applicable to similar fact-situations. Conclusions: Where documentary evidence (sanction terms, audited statements, utilization certificates, Form 9A) shows that grant receipts were earmarked and any unspent portion is a liability to the grantor, such amounts do not constitute taxable surplus under sections 11/12A; that factual determination must be made on appraisal rather than by mechanical processing. Issue 4: Appropriate remedy - remit for factual reappraisal by the first appellate authority Legal framework: Appellate authorities are required to examine both law and facts and ensure that mechanical or machine-driven processing adjustments do not result in unjust taxation where documentary materials demonstrate correctness of the assessee's position. Precedent Treatment: No precedent authority was cited; the Tribunal relied on principles of appellate review and fairness in administrative adjudication. Interpretation and reasoning: The Tribunal acknowledged that s.143(1) processing is largely machine-driven and that initial adjustments may arise from report-format differences or inadvertent errors in particular ITR columns. It held that the CIT(A) should have adopted a holistic approach, considered the audited financials, Form 9A and utilization certificate, and not mechanically confirm the AO's enhancement. Given the apparent documentary basis for the assessee's position and the factual questions about receipt/application of grants, the Tribunal found it appropriate to remit the matter to the CIT(A) for fresh appraisal and determination of relief within law. Ratio vs. Obiter: The remand order is dispositive ratio directing further factual inquiry; the admonition about holistic appellate consideration is a guiding principle forming part of the Tribunal's reasoning. Conclusions: The proper remedy is to remit the matter to the first appellate authority for reappraisal of the correct figures and determination of relief (including consideration of whether revision or s.119 remedy is required), rather than affirming processing-stage enhancements without examining contemporaneous documentary evidence; the appeal is allowed for the limited purpose of statutory re-examination on the facts.