2025 (1) TMI 1569 - AT - Income Tax

Permissible Adjustment u/s 143(1) - ICDS adjustment made by the AO(CPC) adding back the negative amount - main contention of the revenue in their appeal is that the ld. ADDL. CIT(A) lacks validity in allowing the appeal of the assessee without discussing the case on merit on the basis of documentary evidences - HELD THAT - As per the explanation (b) of provisions of sec. 143(1) acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by or refundable to the assessee under clause (c) and where no adjustment has been made under clause (a) of the Act. Therefore the question of examination of the documentary evidences while processing of return u/s 143(1) of the act does not arise at all. In our view the AO has wide powers to examine the same by initiating the Assessment/Reassessment proceedings. Therefore this contention of the revenue fails. While allowing the appeal of the assessee the ld. ADDL./JCIT (A)-2 Chennai has elaborately discussed on the merits of the case. In the case of the ICDS adjustment which has been added back u/s. 143(1) of the Act we are completely in agreement with the view of the ld. ADDL./JCIT (A)-2 Chennai in observing that the ICDS adjustments were made under the head ICDS-I ICDS-VI which relates to accounting policies and changes in the exchange rates. As per the adjustment the net negative effect was considered by the assessee while computing total income for the AY 2023-24. We also concur with the opinion of the ld. ADDL./JCIT (A)-2 Chennai that as the assessee has reported the necessary adjustments under Col. No. 13(e) of the audit report disclosing the necessary ICDS adjustments the adjustment made by the AO (CPC) adding back the negative amount is not justifiable. Denial of deduction u/s 80JJAA - CIT(A) deleted addition - HELD THAT - We also concur with the opinion of the ld. ADDL./JCIT (A)-2 Chennai that as the assessee has opted for the concessional tax regime under section 115BAA of the IT Act previously based on form 10IC filed for AY 2020-21 which was duly accepted by the AO (CPC) while processing the return of income u/s 143(1) of the Act then denying the assessee claim u/s. 80JJAA for the AY 2023-24 without providing valid reasons lacks validity. We are also of the opinion that companies opting for the concessional tax regime u/s. 115BAA though not claiming any exemption or deduction under the Act can still make a claim under section 80JJAA of the Act. In the present case the assessee had also filed the original return before the extended due date of 30.11.2023. Therefore we find no infringement in the order of the ld. ADDL./JCIT (A)-2 Chennai and accordingly we dismiss the appeal of the Revenue. Cross objection filed by the assessee contending that the intimation passed u/s. 143(1) of the Act is in violation of the provisions of sec. 143(1)(a) - We are of the opinion that the intimation passed u/s. 143(1) of the Act by the central processing centre by ignoring the mandate law contained in sec. 143(1)(a) that before making such adjustment the assessee should be put to notice is illegal bad in law. Since this has not been done the jurisdiction of the Central processing centre in doing such adjustments sans any notice is vitiated. Adjustment done by the central processing centre is not sustainable in law. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal and cross objection are:

(a) Whether the denial of deduction claimed under section 80JJAA of the Income Tax Act, 1961 ("the Act") by the Assessing Officer (AO) while processing return under section 143(1) is valid without examination of documentary evidence and discussion on merits?

(b) Whether the adjustment made by the AO (Central Processing Centre) adding back the negative ICDS adjustment amount of Rs. 14,37,45,699/- during processing under section 143(1) of the Act is justifiable and permissible without valid reasons and opportunity to the assessee?

(c) Whether the intimation issued under section 143(1) of the Act by the Central Processing Centre without providing prior notice to the assessee as mandated under proviso to section 143(1)(a) is valid or violative of the principles of natural justice?

(d) Whether the delay of one day in filing the appeal by the Revenue before the Tribunal should be condoned.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of denial of deduction under section 80JJAA

Legal framework and precedents: Section 80JJAA provides deduction for additional employee cost incurred by the assessee. The concessional tax regime under section 115BAA allows companies to pay tax at reduced rates but does not bar claiming deductions such as under section 80JJAA. The return filed under section 139 is processed under section 143(1) which permits limited adjustments as per clauses (i) to (vi) of section 143(1)(a).

Court's interpretation and reasoning: The Tribunal noted that the assessee had opted for the concessional tax regime under section 115BAA, which was accepted by the AO in earlier years and during processing of the current year return. Despite this, the AO (CPC) denied the deduction under section 80JJAA without providing any valid reasons or discussion on merits. The Tribunal observed that denial of such deduction without valid reasons and without examining documentary evidence lacks validity.

Key evidence and findings: The assessee filed the original return before the extended due date and claimed deduction under section 80JJAA. The AO (CPC) denied the claim during processing under section 143(1) without any discussion or valid reason. The appellate authority had accepted the claim based on the facts and prior acceptance of the concessional tax regime.

Application of law to facts: The Tribunal held that companies opting for concessional tax regime under section 115BAA can still claim deduction under section 80JJAA. The denial without valid reasons during processing under section 143(1) is not sustainable.

Treatment of competing arguments: The Revenue argued that the appellate authority erred by allowing the deduction without discussing documentary evidence on merits. The Tribunal rejected this contention on the ground that processing under section 143(1) is a limited exercise and not an assessment on merits.

Conclusions: The denial of deduction under section 80JJAA during processing under section 143(1) without valid reasons is invalid. The appellate authority rightly allowed the deduction.

(b) Justifiability of ICDS adjustment added back by AO (CPC) under section 143(1)

Legal framework and precedents: Income Computation and Disclosure Standards (ICDS) adjustments relate to accounting policies and are to be disclosed in audit reports. Section 143(1) permits limited adjustments while processing returns but does not allow arbitrary additions without valid reasons or opportunity to the assessee.

Court's interpretation and reasoning: The Tribunal agreed with the appellate authority that the ICDS adjustments under ICDS-I and ICDS-VI relate to accounting policies and exchange rate changes, which were duly disclosed by the assessee in audit report (Form 3CD, Col. 13(e)). The AO (CPC) added back a net negative adjustment of Rs. 14,37,45,699/- during processing under section 143(1) without valid reasons or notice.

Key evidence and findings: The assessee's audit report disclosed the ICDS adjustments. The appellate authority found no justification for the AO's addition during processing, especially since the negative adjustment reduced taxable income and was already considered by the assessee.

Application of law to facts: The Tribunal held that such adjustments are not permissible under section 143(1) without valid reasons and opportunity to the assessee. The addition made by AO (CPC) was unjustified and unsustainable.

Treatment of competing arguments: Revenue contended that the appellate authority erred in allowing the appeal without discussing documentary evidence on merits. The Tribunal rejected this, clarifying that processing under section 143(1) is not an assessment on merits but a limited adjustment exercise.

Conclusions: The addition of ICDS adjustment by AO (CPC) during processing under section 143(1) without valid reasons and opportunity is not justifiable. The appellate authority correctly set aside the addition.

(c) Validity of intimation under section 143(1) without prior notice

Legal framework and precedents: Proviso to section 143(1)(a) mandates that before making any adjustment during processing of return, the AO must give notice to the assessee and allow a reasonable opportunity to respond. This is a requirement of natural justice and statutory mandate.

Court's interpretation and reasoning: The Tribunal held that the intimation passed by the Central Processing Centre (CPC) under section 143(1) without issuing any notice to the assessee before making adjustments violates the mandate of section 143(1)(a) proviso. This omission renders the intimation illegal and bad in law.

Key evidence and findings: The assessee contended that no notice was issued before adjustments were made under section 143(1). The Tribunal found that the CPC had not complied with the statutory requirement of prior notice and opportunity.

Application of law to facts: The Tribunal emphasized that the jurisdiction of the CPC to make adjustments without notice is vitiated and such adjustments cannot be sustained in law as they violate principles of natural justice.

Treatment of competing arguments: The Revenue did not effectively rebut the contention regarding absence of notice. The Tribunal sided with the assessee on this point.

Conclusions: The intimation under section 143(1) without prior notice as required under proviso to section 143(1)(a) is illegal and bad in law. The cross objection filed by the assessee on this ground is allowed.

(d) Condonation of delay in filing appeal

Legal framework and precedents: Delay in filing appeals can be condoned if sufficient cause is shown and the delay is minimal.

Court's interpretation and reasoning: The Tribunal noted the delay of one day in filing the appeal by the Revenue and the explanation that the delay was due to staff reshuffling and additional charge of officers during training. Considering the short delay and reasons, the Tribunal condoned the delay in the interest of justice.

Conclusions: Delay of one day in filing the appeal by the Revenue is condoned.

3. SIGNIFICANT HOLDINGS

"It is an undisputed fact that the assessee filed the appeal before the ld. ADDL./JCIT (A) against the intimation passed u/s. 143(1) of the Act. We are of the opinion that where return has been made u/s. 139 or in response to notice u/s. 142(1) of the Act, such returns are only processed under the provisions of sec. 143(1) of the Act by making the adjustment as mentioned in clauses (i) to (vi) of sec. 143(1)(a). Therefore, the contention of Revenue is not tenable as there is no scope to process the return on merits based on examination of documentary evidences under the provisions of Section 143 (1) of the Act."

"Companies opting for the concessional tax regime u/s. 115BAA though not claiming any exemption or deduction under the Act can still make a claim under section 80JJAA of the Act."

"The adjustment made by the Central Processing Centre under section 143(1) of the Act without issuing notice to the assessee as mandated under proviso to section 143(1)(a) is illegal and bad in law and violates the principles of natural justice."

"The jurisdiction of the Central Processing Centre in making adjustments without notice is vitiated, and such adjustments are not sustainable in law."

Final determinations:

(i) The Revenue's appeal against the appellate authority's order allowing deduction under section 80JJAA and deleting ICDS adjustment is dismissed.

(ii) The assessee's cross objection challenging the intimation passed under section 143(1) without notice is allowed, holding such intimation illegal and bad in law.

(iii) Delay of one day in filing appeal by Revenue is condoned.