Adjustment under s.143(1)(a)(vi) for TDS mismatch invalid without hearing; s.139(9) notice not statutory opportunity considered

ITAT Chennai allowed the assessee's appeal and deleted the demand raised through adjustments under s.143(1)(a) for non-credit of TDS. The Tribunal held that s.143(1) expressly requires that an opportunity of being heard be given before making any adjustment to the returned income, including adjustments based on Form 26AS under s.143(1)(a)(vi). No such opportunity was given, rendering the adjustment unsustainable. ITAT further held that a prior communication under s.139(9) regarding defective return cannot be treated as the statutory opportunity required under s.143(1), as the two provisions operate in distinct fields. The order of the CIT(A) was set aside and the additional grounds of the assessee were allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, before making adjustments under section 143(1)(a) of the Income-tax Act, 1961, on the basis of variance between Form 26AS receipts and receipts disclosed in the return, the Revenue is mandatorily required to give an opportunity of being heard to the assessee in terms of the first proviso to section 143(1).

1.2 Whether a communication issued under section 139(9) pointing out defects in the return can be treated as sufficient compliance with the statutory requirement of prior intimation and opportunity before making adjustments under section 143(1)(a).

1.3 Consequentially, whether the adjustment made under section 143(1)(a) denying TDS credit and the resultant demand are sustainable in law, and whether other grounds on merits survive for adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Mandatory opportunity before making adjustments under section 143(1)(a)

Legal framework

2.1.1 The Tribunal examined section 143(1), particularly clause (a) and sub-clause (vi), along with the first and second provisos. Section 143(1)(a) permits specified adjustments to the returned income, including addition of income appearing in Form 26AS, Form 16A or Form 16 which has not been included in the return. The first proviso mandates that no such adjustment shall be made unless an intimation of such adjustment is given to the assessee, in writing or in electronic mode, and the second proviso requires consideration of the assessee's response within 30 days before making the adjustment.

Interpretation and reasoning

2.1.2 The Tribunal held that the statutory prescription in section 143(1) is "crystal clear" and unambiguous: an opportunity of being heard must precede any adjustment proposed to the returned income under section 143(1)(a).

2.1.3 It was noted that, on the facts, the denial of TDS credit was founded on variance between total receipts as per Form 26AS and receipts disclosed in the return, thereby squarely attracting section 143(1)(a)(vi) (adjustment based on income appearing in Form 26AS vis-à-vis income in the return).

2.1.4 The Tribunal rejected the Revenue's contention that no real "adjustment" was made and that the CPC had merely used information on record to compute tax. Once the returned income is disturbed by such comparison and denial of TDS credit, it constitutes an "adjustment" within the meaning of section 143(1)(a), thus triggering the mandatory proviso requirements.

2.1.5 The Tribunal reiterated the principle that, where statutory language is unambiguous, no alternate or diluted interpretation is permissible; hence, the procedural safeguard of prior intimation and opportunity cannot be bypassed.

Conclusions

2.1.6 The Tribunal concluded that, since no opportunity/intimation as contemplated under section 143(1) was given before making the impugned adjustment, the processing order under section 143(1) and the consequent denial of TDS credit could not legally survive.

2.2 Whether communication under section 139(9) can substitute opportunity under section 143(1)

Legal framework

2.2.1 The Tribunal examined section 139(9), which deals with treatment of a return as "defective" and the procedure for intimation of defect, granting the assessee an opportunity to rectify, failing which the return may be treated as invalid/non est.

2.2.2 The Tribunal contrasted this with section 143(1), which concerns processing of a validly filed return and determination of total income after making permissible adjustments.

Interpretation and reasoning

2.2.3 The Revenue argued that a CPC communication under section 139(9), pointing out variance between receipts in Form 26AS and receipts shown in the return, constituted an opportunity to the assessee, sufficient to validate the later adjustment under section 143(1)(a).

2.2.4 The Tribunal held that sections 143(1) and 139(9) "operate in different fields": section 143(1) disturbs the returned income by permissible adjustments; section 139(9) enables the Assessing Officer to treat the return itself as invalid/non est if defects are not cured.

2.2.5 Because of this distinct operation, there is "no similarity between the two" provisions. An opportunity given under section 139(9) is for rectification of defects in the return and cannot be deemed or stretched to be the specific statutory opportunity mandated under the first proviso to section 143(1) before making adjustments to the returned income.

2.2.6 On the facts, the assessee did not respond to the section 139(9) communication. The Tribunal observed that, in such circumstances, the Revenue's lawful option under section 139(9) was to treat the return as invalid/non est; however, the Revenue had "no authority" to proceed instead with adjustments under section 143(1) without separately complying with the proviso to section 143(1).

Conclusions

2.2.7 The Tribunal held that a communication issued under section 139(9) cannot be construed as an opportunity of the type envisaged under section 143(1). The Revenue's argument that the section 139(9) notice amounted to compliance with section 143(1) was rejected as legally untenable and factually unconnected with the statutory scheme.

2.3 Sustainability of adjustment and consequential demand; survival of other grounds

Interpretation and reasoning

2.3.1 Having found that the mandatory opportunity requirement under section 143(1) was not complied with, and that section 139(9) communication could not cure this defect, the Tribunal held that the order of the appellate authority upholding the 143(1) adjustment was based on an "inappropriate understanding of the facts and law."

2.3.2 The Tribunal therefore set aside the appellate order and directed deletion of the entire impugned demand raised under section 143(1), which had arisen on account of non-credit of TDS claimed by the assessee.

2.3.3 In view of the assessee's success on the additional ground relating to violation of statutory procedure and natural justice under section 143(1), the Tribunal held that all other grounds on the merits of the addition became purely academic and did not require adjudication.

Conclusions

2.3.4 The adjustment made under section 143(1)(a) denying TDS credit and the resultant demand were held to be unsustainable in law and directed to be deleted.

2.3.5 The appeal was allowed on the additional ground; the remaining grounds were treated as academic.

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