Adjustment to exemption claim under section 10(10AA)(ii) invalidated for lack of prior intimation; assessment set aside.

CPC processing adjusted an assessee's claim of exemption under 10(10AA)(ii) without issuing the prior intimation required by the first proviso to section 143(1)(a). The legal basis is that no adjustment under summary processing may be made unless the assessee is first intimated of the proposed adjustment and any response is considered; that requirement is jurisdictional and not merely procedural. Failure to give the statutorily mandated intimation vitiates the 143(1) proceedings and renders the intimation invalid, leading to allowance of the assessee's appeal.

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Issues: Whether the intimation issued by CPC under section 143(1) dated 06.03.2023, which restricted the assessee's claim of exemption under section 10(10AA) without issuing the prior intimation contemplated by the first proviso to section 143(1)(a), is valid.

Analysis: The first proviso to section 143(1)(a) requires that no adjustment under section 143(1)(a) be made unless an intimation of the proposed adjustment is given to the assessee and any response received is considered; this requirement engages principles of natural justice (audi alteram partem). Coordinate Benches have held that where CPC makes adjustments without issuing the statutorily mandated prior intimation, the 143(1) proceedings are vitiated and the intimation is invalid. Applying that legal framework to the admitted facts that no prior intimation was issued before restricting the exemption claim, the intimation dated 06.03.2023 suffers from non-compliance with the statutory mandate and is legally untenable. As the intimation is invalid for that reason, merits of the 10(10AA) claim and alternative 89(1) plea were not adjudicated.

Conclusion: The intimation issued by CPC under section 143(1) dated 06.03.2023 is invalid for failure to comply with the first proviso to section 143(1)(a); the appeal is allowed.

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