2025 (10) TMI 150 - AT - Income Tax

Intimation under s.143(1) quashed for lack of opportunity; disallowances on s.80M and GST refund need s.143(2) notice

ITAT, Delhi (AT) held that the intimation under s.143(1) proposing disallowances (deduction under s.80M and GST refund mismatch) was without jurisdiction ... Intimation u/s 143(1) - two disallowances relating to claim of deduction u/s 80M and mis-match of refund of GST as reported in tax audit report. HELD THAT:- We observe that assessee has already filed an objection against the above proposed disallowances. However, AO has not considered the same nor given any opportunity to the assessee before passing the above intimation order. We observe that the proposed additions are not falling in any of the clauses mentioned u/s 143(1)(a) of the Act. Therefore, proposing any addition which is outside the provisions of section 143(1)(a) is bad in law and outside the jurisdiction of provisions of section 143(1)(a) of the Act. It is settled position of law under section 143(1) of the Act that it is restricted to arithmetical errors or an incorrect claim apparent from the record and not otherwise. The debatable issues are outside the purview of section 143(1)(a) of the Act. See Easter Industries Ltd. [2012 (5) TMI 397 - DELHI HIGH COURT] only option which was open to the Income-tax Officer, in such a case, was to require the assessee to furnish proof in which case he would have to issue notice under section 143(2). Adjustment could be made only if there was information available in such return, that prima facie a claim or allowance was inadmissible. Thus, we are inclined to allow Ground No.1 raised by the assessee that the impugned intimation passed u/s 143(1) of the Act is without jurisdiction. Accordingly, the same is quashed and the appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an intimation under section 143(1) could validly propose adjustments consisting of (a) disallowance of deduction claimed under section 80M and (b) addition of a GST refund alleged to be mismatched, when such adjustments do not fall within the specific categories of adjustments permitted by section 143(1)(a). 2. Whether issuance of an intimation under section 143(1) without considering the assessee's written objections and without giving an opportunity of being heard violates the principles of natural justice and is therefore invalid. 3. Whether debatable substantive issues of allowance/disallowance can be determined at the stage of processing under section 143(1) when a regular assessment under section 143(3) is available to the Revenue. 4. Whether the Tribunal should quash the intimation under section 143(1) on the above grounds and the consequence of such quashing on the Revenue's cross-appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Scope of permissible adjustments under section 143(1)(a) Legal framework: Section 143(1)(a) permits limited processing adjustments to a return - predominantly arithmetical errors, incorrect claims apparent from information in the return, specified disallowances connected with belated returns or audit reports, and specified mismatches as set out in sub-clauses (i)-(vi) and provisos. The proviso restricts the Assessing Officer's power to making adjustments only within those defined categories. Precedent treatment: The Court referred to established jurisprudence holding that only prima facie adjustments evident from the return and accompanying information may be made under section 143(1)(a); issues requiring enquiry or proof are not amenable to processing-stage adjustments. The Tribunal followed that line of authority. Interpretation and reasoning: The Court examined the two proposed adjustments - (a) disallowance under section 80M and (b) addition of GST refund on account of a purported mismatch - against the catalogue of permissible processing adjustments. Neither adjustment was attributable to arithmetic error, nor was it an incorrect claim manifestly apparent from the return or information filed; the conditions for other sub-clauses (e.g., belated return, audit-report indicated expenditure disallowance or the specific mismatch envisaged by the proviso) were not met. The Court held that these adjustments fall outside the express scope of section 143(1)(a) and thus exceed the statutory power conferred for processing a return. Ratio vs. Obiter: Ratio - Processing power under section 143(1)(a) is confined to adjustments expressly provided by statute and cannot be extended to substantive, debatable claims such as the present disallowance under section 80M or GST-refund addition; such matters require notice and full assessment procedures. Obiter - Emphasis on transactional examples from the record (e.g., classification of the GST refund issue) that are specific to facts but illustrate the general principle. Conclusion: The proposed adjustments were not within the limited categories permitted by section 143(1)(a) and were therefore beyond the Assessing Officer's jurisdiction when issued as part of the processing intimation. Issue 2 - Failure to consider the assessee's objections and breach of natural justice Legal framework: Principles of natural justice require that where an assessing officer proposes an adjustment and the taxpayer files objections, those objections must be considered before a final order is passed under any provision that materially affects tax liability. Where statute or procedure contemplates consideration of representations, omission to do so can render the order void for want of jurisdiction or procedural unfairness. Precedent treatment: The Court relied on the established approach that an intimation which effects material change without considering filed objections or without giving an opportunity where required is vitiated. The Tribunal aligned with these precedents in treating non-consideration as a fatal deficiency. Interpretation and reasoning: The assessee had submitted written objections to the proposed adjustments in response to the draft intimation. The Assessing Officer issued the final intimation without addressing those objections and without affording an opportunity of hearing. Given that the proposed adjustments were not plain arithmetical or manifest errors, but substantive in character, failure to consider objections offended principles of natural justice and statutory expectation of reasoned action on objections. Ratio vs. Obiter: Ratio - Where objections have been filed against proposed processing-stage adjustments that materially alter tax liability, the authority must consider and record reasons before finalizing the intimation; failure to do so renders the intimation invalid. Obiter - Commentary on the nature of responses that would suffice in other factual matrices. Conclusion: The intimation was issued in breach of natural justice because the Assessing Officer did not consider the assessee's objections and provided no reasons for the substantive adjustments. Issue 3 - Inappropriateness of resolving debatable issues at processing stage and relationship with regular assessment Legal framework: The statutory scheme contemplates regular assessment procedures (e.g., section 143(3)) where enquiries and adjudication on debatable or fact-intensive claims are to be undertaken through notice and opportunity. Processing under section 143(1) is not intended as a substitute for such adjudicatory processes. Precedent treatment: Consistent authority holds that debatable matters - those requiring evidence, examination or determination of facts and legal entitlement - cannot be resolved at the limited processing stage and must be left to full assessment procedures. Interpretation and reasoning: The Tribunal observed that the disputed disallowances were debatable substantive issues. Even though a regular assessment under section 143(3) was later completed, that fact does not validate an earlier intimation passed without jurisdiction or without considering objections. The appropriate course for the Revenue, where prima facie materials are insufficient, is to issue a notice under the regular assessment provisions rather than to effectuate a substantive adjustment at the processing stage. Ratio vs. Obiter: Ratio - Debatable substantive issues cannot be determined in a section 143(1) intimation; reliance on subsequent completion of regular assessment does not cure an earlier jurisdictional defect in the intimation. Obiter - Observations on administrative practice and interplay between processing and assessment stages. Conclusion: The impugned adjustments were debatable issues ill-suited for resolution under section 143(1) and should have been pursued, if at all, under regular assessment procedures with appropriate notice. Issue 4 - Relief and consequences Legal framework: When an order is held to be beyond jurisdiction or vitiated for failure to observe natural justice, the appropriate remedy is to quash that order and restore the position to what is lawful under the statute; consequential relief follows against cross-appeals that depend on the validity of the quashed order. Precedent treatment: The Tribunal applied the established remedial principle of quashing unlawful processing-stage orders and recognized that Revenue's cross-appeal cannot succeed where the foundational intimation is invalid. Interpretation and reasoning: Given that the intimation under section 143(1) was beyond the statutory scope and issued without considering filed objections, the Tribunal quashed the intimation. Consequently, the assessee's appeal succeeds, and the Revenue's cross-appeal, which seeks to sustain the impugned adjustments, fails. Ratio vs. Obiter: Ratio - Quashing of the processing-stage intimation is the appropriate remedy where jurisdictional limits and natural justice were breached; consequential dismissal of Revenue's cross-appeal follows. Obiter - None material beyond application of the ratio to these facts. Conclusion: The intimation under section 143(1) was quashed as beyond jurisdiction and for breach of natural justice; the assessee's appeal was allowed and the Revenue's appeal dismissed. Cross-references: Issues 1-3 inform the remedial conclusion in Issue 4.