2025 (7) TMI 511 - AT - Income Tax

Deduction u/s 80IA(4)(iv) - belated filling of Form 10CCB - adjustment made u/s 143(1) - Doctrine of Merger - HELD THAT - In the instant case the adjustment made u/s 143(1) relating to disallowance of deduction claimed u/s 80IA for non filing of audit report has merged with the scrutiny assessment vide notice u/s 143(2) the said claim for deduction being one of the main issue for which the case has been selected for scrutiny and the said issue of claim u/s 80IA(4)(iv) has been exclusively adjudicated and discussed in the body of the assessment order being one of the reason for selections. As such we hold that for all practical purposes the subject matter of adjustment made in the intimation u/s 143(1) being the same as the issue of selection of the case for scrutiny is already merged with the assessment order u/s 143(3) and the appeal of the assessee against the assessment order passed u/s 143(3) preferred before the first appellate authority was legal and valid. Hon ble Supreme Court in the Kunhayammedv. State of Kerala 2000 (7) TMI 67 - SUPREME COURT (LB) has aptly summed up the doctrine of merger as follows Where an appeal or revision is provided against an order passed by a court tribunal or any other authority before superior forum and such superior forum modifies reverses or affirms the decision put in issue before it the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists remains operative and is capable of enforcement in the eye of the law. Therefore the Doctrine of Merger simply means that when an order passed by a lower court tribunal or authority is subjected to the remedy of appeal available under a statute before a superior court and the superior court either affirms or modifies the order the order of the lower court tribunal or authority merges with the order of the superior court. The Hon ble High Court of Calcutta in C.E.S.C. Ltd. 2003 (4) TMI 83 - CALCUTTA HIGH COURT dealt with a similar issue. The Court held that when what was accepted in the intimation has been reversed in the regular assessment and the assessee has preferred an appeal which is pending the theory of merger is bound to apply in the present case for the reason that the intimation issued u/s 143(1)(a) is no longer operative. It was further observed that the only order which is effective and operative is the one passed u/s 143(3) of the IT Act. Assessee in the instant case is entitled to the deduction of its claim made u/s 80IA(4)(iv) and the same is legally allowable and the AO is directed to give cognizance of the audit report filed in form 10CCB - Assessee appeal allowed.

Summary

The core legal questions considered in this appeal are:

1. Whether the claim for deduction under section 80IA(4)(iv) of the Income Tax Act can be denied solely on the ground of belated filing of the audit report in Form 10CCB, when the report was submitted before completion of the assessment proceedings.

2. Whether the appeal filed against the assessment order under section 143(3) of the Act is maintainable when no appeal was filed against the intimation under section 143(1).

3. The applicability and effect of the doctrine of merger between the intimation under section 143(1) and the assessment order under section 143(3), especially in the context of scrutiny assessments initiated after the intimation.

4. The legal consequences of procedural irregularities, such as late filing of Form 10CCB, in claiming deductions under Chapter VI-A of the Income Tax Act.

Issue 1: Denial of deduction under section 80IA(4)(iv) due to belated filing of Form 10CCB

The relevant legal framework includes section 80IA(4)(iv) which allows certain industrial undertakings to claim deductions, subject to conditions including filing of an audit report in Form 10CCB. The procedural requirement to file Form 10CCB along with the return is mandated, but the question arises whether a belated filing before completion of assessment is fatal to the claim.

Precedents relied upon by the assessee include the Supreme Court decision in G.M. Knitting Industries Pvt. Ltd., which held that filing the audit report before completion of assessment proceedings amounts to sufficient compliance, despite not filing it with the return. Other supporting judgments from Allahabad, Karnataka, and Delhi High Courts reinforce that a mere procedural lapse in filing Form 10CCB with the return does not disentitle the assessee from claiming the deduction if the report is filed before assessment completion.

The assessing officer contended that these precedents relate to the pre-electronic filing era and thus are not applicable. However, the Tribunal referred to recent decisions from coordinate benches of the Income Tax Appellate Tribunal (ITAT) at Amritsar, Delhi, and Kolkata which have upheld the principle that submission of Form 10CCB is directory and not mandatory, and that belated filing before assessment completion is valid compliance.

The Tribunal examined the facts that the audit report was uploaded on 3rd April 2021, prior to the completion of the assessment on 10th September 2021, and was brought to the AO's attention during scrutiny proceedings. Despite this, the AO disallowed the deduction on the ground of late filing. The Tribunal held that ignoring the audit report filed before assessment completion was erroneous and the deduction under section 80IA(4)(iv) must be allowed.

The Tribunal emphasized that the procedural requirement is not a substantive condition and that the law does not mandate strict compliance at the time of filing the return if the report is submitted before the assessment is finalized.

Issue 2: Maintainability of appeal against order under section 143(3) when no appeal was filed against intimation under section 143(1)

The CIT(A) had dismissed the appeal on the ground that the appellant had not filed an appeal against the intimation under section 143(1), and since no addition was made in the order under section 143(3), the appeal was not maintainable.

The assessee argued that the issue of deduction under section 80IA was part of the scrutiny assessment initiated by notice under section 143(2) and thus the disallowance in the intimation under section 143(1) merged into the scrutiny assessment order under section 143(3). Therefore, the appeal against the section 143(3) order was valid and maintainable.

The Tribunal referred to the jurisdictional High Court's ruling in CIT vs. Arihant Industries Ltd., which clarified that the intimation under section 143(1) is given without prejudice to the proceedings under section 143(2) and that assessment under section 143(3) can be initiated even after intimation under section 143(1). The High Court held that the intimation under section 143(1) and the assessment under section 143(3) can co-exist and both are appealable under section 246A.

Further, the Tribunal cited the doctrine of merger as expounded by the Supreme Court in Kunhayammed v. State of Kerala, which states that when a superior forum modifies or affirms an order of a subordinate forum on appeal, the subordinate order merges into the superior order and only the latter remains operative.

The Tribunal also relied on High Court decisions from Madras and Calcutta which held that after an order under section 143(3) is passed, the intimation under section 143(1) merges with it and ceases to have independent existence. The Supreme Court ruling in CIT vs. Gujarat Electricity Board was also cited, emphasizing that once proceedings under section 143(2) commence, the summary procedure under section 143(1) is no longer applicable.

Applying these principles, the Tribunal held that the disallowance originally made in the intimation under section 143(1) merged with the scrutiny assessment order under section 143(3), and the appeal against the latter was valid and maintainable.

Issue 3: Doctrine of merger between intimation under section 143(1) and assessment order under section 143(3)

The Tribunal elaborated on the doctrine of merger, explaining that when an appeal is filed against a higher order (section 143(3) assessment), the earlier intimation under section 143(1) merges into the higher order and ceases to have independent existence. This principle ensures that only the final order governs the rights and liabilities of the parties.

The Tribunal observed that in the present case, the issue of deduction under section 80IA(4)(iv) was part of the scrutiny assessment and was fully adjudicated in the assessment order under section 143(3). Therefore, the intimation under section 143(1) became subsumed in the assessment order, and the appeal against the latter was the appropriate remedy.

This understanding was supported by multiple High Court and Supreme Court decisions, providing a settled legal position on the relationship between intimation and assessment orders.

Issue 4: Effect of procedural irregularities on substantive claims under Chapter VI-A deductions

The Tribunal addressed the contention that procedural lapses such as late filing of audit reports should not defeat substantive claims for deductions, especially when the report is filed before completion of assessment.

The Tribunal's reasoning was grounded in the principle that procedural requirements are generally directory unless expressly made mandatory by law, and that the object of the law is to allow genuine claims rather than defeat them on technical grounds.

The Tribunal relied on authoritative decisions which have consistently held that procedural irregularities cannot be used to deny substantive relief, provided the assessee rectifies the defect before the assessment is finalized.

In the instant case, since the audit report in Form 10CCB was filed before the assessment order, the procedural lapse was cured in time and the deduction was rightly claimable.

Conclusions

The Tribunal concluded that:

- The belated filing of the audit report in Form 10CCB before completion of assessment proceedings is sufficient compliance of the statutory requirement under section 80IA(4)(iv).

- The deduction claimed under section 80IA(4)(iv) cannot be denied merely on the ground of late filing of the audit report when it was submitted before the assessment was completed.

- The appeal filed against the assessment order under section 143(3) is maintainable even if no appeal was filed against the intimation under section 143(1), because the intimation and assessment order merge under the doctrine of merger.

- The assessment order under section 143(3) subsumes the intimation under section 143(1), and the appeal against the former is the proper remedy to challenge disallowances made therein.

- Procedural irregularities are not fatal to substantive claims if rectified before assessment completion, consistent with judicial precedents.

The Tribunal directed the Assessing Officer to give cognizance to the audit report filed in Form 10CCB and allow the deduction under section 80IA(4)(iv) as claimed by the assessee.

Significant holdings include the following verbatim excerpts:

"The submission of form 10CCB is directory in nature and not mandatory and it is sufficient compliance if the said report is filed with the AO, before completion of assessment, which is an admitted fact in the instant case."

"The intimation under section 143(1) is given without prejudice to the provisions of sub-section (2) of section 143(2). That makes the position clear that even when intimation under section 143(1) has been given yet proceedings for assessment under section 143(3) can be initiated by issuance of notice under section 143(2)."

"Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of the law."

"After passing of an order under Section 143(3) of the Act, the intimation under Section 143(1)(a) of the Act gets merged with the order under Section 143(3) of the Act and the intimation under Section 143(1)(a) of the Act does not any more independently survive for rectification by the Assessing Authority under Section 154 of the Act."

"It is not open to the Revenue to issue intimation under section 143(1)(a) of the Income-tax Act, 1961, after notice for regular assessment is issued under section 143(2). The Legislature intended that where the summary procedure under section 143(1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee, to make a regular assessment under section 143(2). The converse is not available."