2026 (1) TMI 590 - AT - Income Tax

Processing of income-tax return without opportunity to be heard results in remand for fresh intimation after hearing

Processing of income-tax returns without affording opportunity to the taxpayer was held contrary to the prescribed statutory procedure and principles of ... Violation of statutory provision of Sec 143(1A) - assessee has submitted that while processing the return of income of the assessee u/s.143(1) of the Act, the CPC has not followed the prescribed procedure - as alleged CPC has not given opportunity to the assessee to furnish the reply and defend his case - HELD THAT:- We find that, in this case, the principles of natural justice has been violated as the assessee has not been given any opportunity before making the impugned adjustments to the income of the assessee while processing the return u/s.143(1) of the Act. This act of the CPC/AO is against statutory provisions of section 143(1) of the Act. We, therefore, set aside the impugned order of the CIT(A) and restore the matter to the file of CPC/AO with direction to intimate/show-cause the assessee in respect of the impugned adjustments, consider the reply/explanation, if any, furnished by the assessee in this regard and, therefore, to pass a fresh intimation u/s.143(1) of the Act. Appeal of the assessee is treated as allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjustment made while processing the return under section 143(1), resulting in addition/disallowance, was vitiated for breach of the statutory requirement to first intimate/show-cause the assessee about the proposed adjustment and consider the assessee's response. 2. What consequential relief and directions were warranted upon finding violation of natural justice and the statutory procedure governing adjustments during processing under section 143(1). ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of adjustment under section 143(1) without prior intimation/opportunity Legal framework (as discussed by the Court): The Court treated section 143(1) as requiring that, before making 'impugned adjustments' while processing a return, the authority must intimate/show-cause the assessee regarding proposed adjustments and must consider the assessee's response, if any. Interpretation and reasoning: The Court found, on the record, that the assessee was not given any opportunity before the adjustment was made while processing the return. This was held to be a violation of the principles of natural justice and also 'against statutory provisions of section 143(1)'. Since the adjustment was made without following the mandated procedure of prior intimation and consideration of response, the processing suffered from procedural illegality. Conclusion: The adjustment/intimation was held to be procedurally unsustainable due to violation of natural justice and non-compliance with the statutory procedure under section 143(1). Issue 2: Appropriate relief-remand and directions for fresh processing Interpretation and reasoning: Having held that the statutory procedure and natural justice were breached, the Court did not adjudicate the merits of the adjustment/disallowance. Instead, it considered remand necessary so that the authority could follow the correct process: first intimate/show-cause the assessee in respect of the proposed adjustments, then consider the reply/explanation, and thereafter issue a fresh intimation under section 143(1). Conclusion: The order under challenge was set aside and the matter was restored to the authority for fresh action in accordance with section 143(1), after issuing intimation/show-cause and considering the assessee's response. The appeal was allowed for statistical purposes.