AO's s.143(3) assessment overrides earlier CPC adjustment under s.143(1); s.143(1) intimation merges into s.143(3) and deduction confirmed

ITAT holds that once the AO, in a regular scrutiny assessment under s.143(3), has examined and allowed a deduction, any disallowance made earlier by CPC in the s.143(1) intimation ceases to have effect. The s.143(1) intimation merges into the s.143(3) assessment and has no independent existence. The First Appellate Authority's upholding of the CPC adjustment is set aside, and the appeal is allowed, confirming the deduction as allowed by the AO under s.143(3).

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ISSUES PRESENTED AND CONSIDERED

1. Whether an adjustment made by the Centralised Processing Centre under section 143(1) disallowing a deduction survives after a regular assessment under section 143(3) which examines and allows the same deduction.

2. Whether the First Appellate Authority could sustain the CPC adjustment under section 143(1) where the assessing officer in the subsequent scrutiny assessment under section 143(3) has examined evidence and allowed the claimed deduction.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Survival of CPC adjustment under section 143(1) after scrutiny assessment under section 143(3)

Legal framework: Section 143(1) provides for processing of returns and issue of intimation/adjustment by CPC; section 143(3) provides for regular scrutiny assessment by the assessing officer with fuller inquiry and opportunity to the assessee. The relationship between an intimation under section 143(1) and a subsequent assessment under section 143(3) governs whether an earlier processing adjustment continues to have effect.

Precedent treatment: The Court follows the established principle that a regular assessment under section 143(3) supersedes or merges with the earlier intimation under section 143(1), such that the 143(1) intimation has no independent existence once a 143(3) assessment is made which deals with the same issue.

Interpretation and reasoning: The Tribunal examined the assessment order passed under section 143(3) and found that the assessing officer had specifically considered the claimed deduction, verified antecedent facts (that the amount was disallowed in the preceding year and that corresponding TDS was deposited in the year under consideration), and allowed the deduction of Rs. 23,67,760. Given that the scrutiny assessment involved fuller inquiry and applied the facts to the statutory provisions, the earlier automated adjustment made in the CPC intimation could not continue to operate independently. The reasoning rests on the legal principle of merger: a subsequent comprehensive adjudication on the same matter replaces the earlier preliminary processing outcome.

Ratio vs. Obiter: The finding that the 143(3) assessment, having examined and allowed the claim, displaces the 143(1) intimation is the ratio decidendi on this point.

Conclusions: The CPC adjustment under section 143(1) does not survive where the assessing officer, in a subsequent section 143(3) assessment, has examined the claim and allowed the deduction. Consequently, the deduction of Rs. 23,67,760 stands allowed as per the 143(3) assessment and the contrary CPC adjustment is rendered inoperative.

Issue 2: Validity of First Appellate Authority's affirmation of the CPC adjustment when the AO in scrutiny proceedings allowed the claim

Legal framework: An appellate authority deciding an appeal must have regard to the material on record and to subsequent orders of the assessing officer that finally determine disputed claims; appellate correctness depends on whether the authority considered the operative assessment order.

Precedent treatment: The Tribunal adheres to the view that once the regular assessment under section 143(3) has adjudicated an issue, appellate authorities cannot sustain a preliminary processing adjustment that has been superseded by that regular assessment.

Interpretation and reasoning: The First Appellate Authority affirmed the CPC adjustment on the basis that the assessee had not substantiated, before that authority, that the amount was earlier disallowed and that TDS was deposited. The Tribunal observed, however, that the assessing officer in the subsequent 143(3) assessment had before him the necessary material and had allowed the deduction after verification. Where the regular assessment has examined and allowed a claim on the merits, the appellate affirmation of the earlier CPC adjustment cannot be sustained; the decisive document is the operative assessment order under section 143(3).

Ratio vs. Obiter: The holding that the First Appellate Authority's decision cannot stand in the face of an operative 143(3) assessment allowing the claim is treated as a binding conclusion (ratio) in the context of this appeal.

Conclusions: The First Appellate Authority erred in sustaining the CPC disallowance; the operative 143(3) assessment allowing the deduction must prevail, and the appellate order is therefore set aside with the assessee's appeal allowed to the extent of the deduction.

Cross-reference

The resolution of Issue 2 follows from the principle established under Issue 1: because the section 143(3) assessment merged with and replaced the section 143(1) intimation, any appellate affirmation of the earlier CPC adjustment is untenable once the assessing officer has adjudicated and allowed the claim in the scrutiny assessment.

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