143(1) intimation not merged with 143(3) r.w.s. 144C(3)/144B; appeal maintainable, CIT(A) to decide merits afresh

ITAT Kolkata held that the intimation issued u/s 143(1) did not merge with the subsequent assessment order u/s 143(3) r.w.s. 144C(3)/144B because the specific adjustments and interest u/s 115P made in the intimation were neither reversed nor adjudicated in the scrutiny assessment. Accordingly, the appeal against the 143(1) intimation remained independently maintainable. ITAT ruled that CIT(A) erred in dismissing the assessee's appeal on the doctrine of merger and set aside the impugned order. CIT(A) was directed to entertain and decide the assessee's grounds on merits in respect of the 143(1) intimation.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether an appeal against an intimation under section 143(1) is maintainable before the first appellate authority after a subsequent regular assessment order under sections 143(3)/144C(3)/144B is passed for the same assessment year.

1.2 Whether, on the facts, the intimation under section 143(1), in which interest under section 115P was levied and other prima facie adjustments were made, merged into the subsequent order under sections 143(3)/144C(3)/144B so as to render the appeal against the intimation infructuous.

1.3 Consequentially, whether the first appellate authority was justified in dismissing the appeal against the intimation under section 143(1) as not maintainable without adjudicating the specific grounds raised, including those relating to levy of interest under section 115P and credit of DDT/TDS.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2 - Maintainability of appeal against section 143(1) intimation and application of doctrine of merger vis-à-vis section 143(3)/144C(3)/144B order

Legal framework (as discussed)

2.1 The Tribunal noted that an intimation under section 143(1) is a separately appealable order under section 246A. It is also rectifiable under section 154(1)(b). The doctrine of merger, as explained in judicial precedents, including the jurisdictional High Court decision in C.E.S.C. Ltd. and the Supreme Court decision in Kunhayammed, was discussed with reference to:

(i) The principle that there cannot be more than one effective and operative order governing the same subject matter at the same time.

(ii) The requirement that, for merger to operate, the superior forum must have modified, reversed or affirmed the decision of the subordinate forum on the subject-matter put in issue.

2.2 The Tribunal referred to its own Coordinate Bench decision in MSTC Ltd., where, on similar facts, it was held that the doctrine of merger does not apply where adjustments made in the intimation under section 143(1)(a) are neither reversed nor adjudicated in the subsequent order under section 143(3), and the intimation continues to have independent existence in respect of such adjustments.

Interpretation and reasoning

2.3 The Tribunal examined whether the issues arising from the intimation under section 143(1) - particularly levy of interest under section 115P and related adjustments - had been considered, reversed, modified or affirmed in the subsequent assessment order under sections 143(3)/144C(3)/144B.

2.4 It was found that the regular assessment order dealt with entirely different additions, namely:

(i) Transfer pricing adjustment,

(ii) Addition on account of provision for warranty, and

(iii) Disallowance of education cess.

2.5 The Tribunal recorded that the adjustments and interest levied under section 115P in the intimation under section 143(1) were not considered or adjudicated in the scrutiny assessment under sections 143(3)/144C(3)/144B, nor were they reversed in that order. The regular assessment merely assessed income at a higher figure on account of separate additions; it did not deal with, or subsume, the specific issues arising from the earlier intimation.

2.6 Applying the doctrine of merger as articulated in MSTC Ltd. and the jurisdictional High Court decision, the Tribunal reasoned that merger operates only where the later order of the superior or subsequent authority modifies, reverses or affirms the earlier order on the same subject-matter. Where the later order is silent on, and does not deal with, particular adjustments made in the earlier order, those adjustments do not merge and the earlier order continues to subsist for those specific matters.

2.7 On this reasoning, the Tribunal held that the conclusion of the first appellate authority - that the intimation under section 143(1) automatically merged into the regular assessment under sections 143(3)/144C(3)/144B and therefore did not survive - was incorrect, as it failed to consider whether the subject-matter of the appeal (interest under section 115P and related adjustments) had actually been taken up and decided in the subsequent assessment order.

Conclusions

2.8 The intimation under section 143(1) dated 29.12.2021, particularly in so far as it levied interest under section 115P and made other prima facie adjustments, did not merge into the subsequent assessment order under sections 143(3)/144C(3)/144B dated 30.10.2023, since those specific matters were not considered or adjudicated in the latter order.

2.9 The appeal against the intimation under section 143(1) was separately maintainable, notwithstanding the passing of the subsequent assessment order under sections 143(3)/144C(3)/144B for the same assessment year.

2.10 The order of the first appellate authority treating the appeal against the intimation under section 143(1) as infructuous on the ground of merger was unjustified and not in accordance with the doctrine of merger as applied in the jurisdictional High Court and the Tribunal's coordinate bench decision in MSTC Ltd.

Issue 3 - Validity of dismissal of appeal by first appellate authority without adjudication on merits of grounds (including levy of interest under section 115P)

Interpretation and reasoning

3.1 Having held that the intimation under section 143(1) continued to subsist and that appeal against it was maintainable, the Tribunal examined the consequence of the first appellate authority dismissing the appeal as infructuous without addressing the specific grounds raised.

3.2 The Tribunal noted that the assessee had specifically challenged, inter alia:

(i) The levy of interest under section 115P in the intimation under section 143(1),

(ii) The alleged failure to grant proper credit of DDT/TDS,

(iii) The adjustment of interest under section 115P against refund, and related grounds.

3.3 Since these matters were not part of, and were not adjudicated in, the subsequent assessment order under sections 143(3)/144C(3)/144B, the Tribunal held that the first appellate authority was obliged to decide these grounds on merits in the appeal against the intimation. Dismissing the appeal solely on the ground of alleged merger resulted in failure to exercise jurisdiction vested in the appellate authority under section 250.

Conclusions

3.4 The first appellate authority erred in law in dismissing the appeal against the intimation under section 143(1) as infructuous without adjudicating the grounds raised, including those relating to levy of interest under section 115P and credit of DDT/TDS.

3.5 The order of the first appellate authority was set aside, and the matter was remanded with a direction to adjudicate afresh the grounds of appeal raised against the intimation under section 143(1) on their merits.

3.6 In view of the above findings, the assessee's grounds challenging the treatment of the appeal as infructuous and asserting the separate maintainability of the appeal against the intimation under section 143(1) were allowed, and the appeal before the Tribunal was allowed for statistical purposes.

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