Practice Support: CPC communication is in nature of show cause notice issued to assesse. Therefore, adjustment, if any, should be within scope of CPC communication.

[DEVKUMAR KOTHARI]

Centralized Processing Centre (CPC):

CPC center of Income –tax department process Return of Income filed online and is authorized to  make adjustment in amount of income as per provisions of S.143.(1) of Income Tax Act.

CPC communication:

CPC is expected / required to issue communication to assesse to explain any proposed adjustment in income as per ITR. If an adjustment is made without issuing communication and providing opportunity to assesse to explain / object to proposed adjustment, such adjustment will not be  in compliance with principal of natural justice and can be set aside.

CPC communication is in nature of a show cause notice:

The CPC communication is in nature of a show cause notice (SCN) therefore, it must be clear and specific as to what adjustment is proposed to make variations  in amount of income or tax  or interest or fees and per ITR. However, for purely computational adjustment /  issues such SCN  may not required.

Scope of SCN in nature of CPC communication:

The scope of adjustments which can be made is restricted in accordance  with SCN/ CPC communication. An adjustment or variation that is not communicated and no opportunity has been given to assesse cannot be made. Adjustment should be within strict terms of CPC communication.

Case of ROHIT BAJORIA VERSUS ITO, WARD-62 (1), KOLKATA - 2025 (4) TMI 1129 - ITAT KOLKATA

In this case assesse had sold a plot of land. In the Return of Income (ROI)  he disclosed / shown actual  consideration received and also the valuation made by stamp authorities in prescribed manner and at prescribed rows in ITR form. However, computation of long-term capital gains was made based on actual consideration. Therefore, valuation made by stamp authorities was disputed as excessive and not acceptable to assesse.

Assessee applied cost inflation index on cost of acquisition and computed long-term capital loss and claimed the same for carry forward also.

Assessee had not made any capital gains reinvestment and did not made any claim u.s.54 in ITR.

CPC communication:

In CPC communication CPC raised dispute about claim made u.s. 54 of the IT Act. Relevant part of CPC communication is inserted below:

In reply, assessee  did not accept the proposed variation and also pointed out that  the proposed addition is for difference between stamp valuation and actual consideration, that is also not acceptable because stamp authorities make high valuation to collect more stamp duty and are interested party and the valuation is excessive.

CPC did not dispose off first reply and issued another communication, in that also dispute was about claim u.s. 54. Relevant part from second communication is inserted below as screen shot:

In response to second communication assesse submitted that objection against first communication was not rejected, therefore, it can be said that it was accepted and therefore, second communication was stated to be without jurisdiction. Besides again dispute was raised as against first communication for proposed variation not acceptable and difference of valuation is due to excessive valuation made by stamp authority etc.

However, addition was made for the difference in valuation.

Assessee preferred appeal before the CIT(A) who restored issue to Ld. AO to make reference to valuation authority and make a fresh assessment in accordance with law.

Before the Tribunal, assesse raised grounds of appeal as follows:

1. For that Ld. CIT (A) was wrong in not setting aside adjustments made in intimation u.s. 143.1 though they are   without jurisdiction, illegal, void  and  adjustments  beyond scope of S. 143.1 adjustments and demand raised by Ld. CPC  and without making a reference to Departmental Valuation Officer (DVO) as required under law.

2. For that Ld. CIT(A) erred by restoring the matter to Ld. AO instead of setting aside the intimation and vacating  adjustments /additions made  and demand raised as without jurisdiction and illegal.

3. For that kindly vacate  (a)  the additions made in  intimation and consequuent  demand in totality and (b) the order of Ld. CIT(A).

4.  For that Ld. AO / CPC may be directed  to carry forward Long Term Capital  Loss as claimed in ITR.

5.  For that, in case of need,  various grounds raised before  Learned CIT(A) may be treated as grounds before Honorable  Tribunal with suitable modification as follows:

1. Issue Jurisdiction to make addition  s.143  rws 50C

(i) Addition made by Ld. AO is without jurisdiction for the reason that no notice by way of CPC communication or otherwise was given before making an addition for difference in stamp authority valuation and actual consideration, no opportunity was given for such addition, no reference was made to DVA for valuation and objections filed by assesse have not been considered.

(ii) Addition made is not for the reasons given in CPC communications.

(iii) No opportunity was given for explaining difference in actual consideration and valuation made by stamp authority, though the same was disclosed in ITR.

(iv) The addition may be deleted fully

Before Tribunal assessee also filed a brief note, summary of which is given below:

I give below brief notes and few latest judgments are enclosed with this letter.

Issue:   CPC raised issue of deduction u.s. 54, which was never claimed by assesse.

CPC communications and reply of assesse  are placed in paper book  page marked  A - D.

In ITR itself assesse had disclosed actual consideration and valuation by stamp authority and computed  capital gains  based on actual consideration.

In intimation u.s. 143.1,  CPC made addition of difference of valuation  u.s.50C ignoring disclosure in  ITR, scope and intent of notice given to assesse by CPC, facts and reply of assesse and scope of S.143.1.

Variation made in intimation u.s. 143.1 for difference is thus beyond scope of S.143.1 and also the scope of notice by way of CPC communication , which was only  about S.54 and was not  about S. 50C.

Therefore, addition made was without application of mind and  is void ab initio being without jurisdiction, not within scope of S.143.1  and without any notice to assessee. 

Detailed submissions  with relevant documents were made before Learned CIT(A) on all grounds before him which were submitted in paper book on 23.09.24 before Tribunal.

Ld. CIT(A)  ignored   factual and legal aspects and instead of setting aside and declaring intimation as void ab initio,  restored  back matter  to the Ld.  AO for complying with  S.50C which was not at all  an issue raised  in communication issued by  CPC.

The issue  of S.143.1 and S. 50C is covered in favor of assesse by judgments of co-ordinate benches of ITAT, some of which are referred below:

MOHAMMED KHALID MASUD  VERSUS ACIT, CIRCLE-33, KOLKATA   Order in  I.T.A. No.171Kol 2024  dt. 21.05.2024 2024 (5) TMI 1097 - ITAT  ( submitted earlier in paper book at serial no. 6 of index,  pages marked  W  to Z4 )

AMIT SABHARWAL VERSUS ASST. DIRECTOR OF INCOME TAX, CPC, BENGALURU/ITO, WARD 46 (3), NEW DELHI ITA No. 5292/Del. /2024 Dated: - 12-3-2025 .  2025 (3) TMI 712 - ITAT DELHI. Enclosed 5  page marked  1-5)

SH. INDER JEET MALIK, VERSUS ADIT, CENTRAL CIRCLE-71 (1), DELHI ITA No. 1024/Del/2022 Dated: - 26-7-2022.     2022 (7) TMI 1583 - ITAT DELHI. Enclosed  3  Pages marked 6-8.  

About  contentious issues S.143.1 cannot be invoked to make variation:

MAJHAULIA SUGAR INDUSTRIES PVT. LTD. VERSUS INCOME TAX OFFICER, WARD-10 (2) KOLKATA   I. T. A. No. 1375/KOL/2023  Dated: - 30-4-2024. 2024 (7) TMI 633 - ITAT KOLKATA Enclosed  3 pages marked 9-11.

I rely on documents on record in paper book  and submissions before lower authorities also.”

The case was heard by honorable Tribunal. Author appeared and explained all issues and pressed that CPC communication is in nature of SCN and CPC cannot go beyond CPC communication and cannot make adjustment or variation which was not subject matter of CPC Communication. Honorable Tribunal considered the same and found force in submissions and set aside the order u.s. 143.1 and the order of CIT(A). Therefore, computation as per ITR stood accepted.

From order of Tribunal:

After hearing representatives of both side and pursuing records honorable Tribunal passed order. Relevant portion from  the same is reproduced below with highlights added:

“3. It is submitted by the Ld. AR that the assessee had filed his return of income for the impugned assessment year on 30.08.2019. It was the submission that the CPC issued a show cause notice asking the assessee why his claim u/s. 54 is not liable to be disallowed. The assessee had responded giving detailed explanation. However, the assessee did not say that he had not made a claim u/s. 54 of the Act. The CPC subsequently issued intimation u/s. 143 (1) disallowing the alleged claim u/s. 54 of the Act. It was the submission that on appeal, the Ld. CIT(A) restored the issue to the Assessing Officer directing valuation by the DVO in respect of the claim of variation of stamp authority valuation and the actual consideration. It was the submission that when there is no claim u/s. 54 such an adjustment is not permissible.

4. In reply, the Ld. Sr. DR submitted that the ld. CIT(A) has restored the issue to the file of the Assessing Officer and that the assessee could make the necessary submission before the Assessing Officer.

5. We have heard the rival submissions. An intimation is issued in respect of a return filed by the assessee. Such intimation is to make adjustment in regard to certain specific issues which are provided in the provisions of section 143 (1) (a). The assessee had admittedly not made a claim u/s. 54 of the Act in the return filed by him. Since the assessee has not made the claim u/s. 54, hence it no more lies in the realm of the 143 (1) (a) to enter into any issue which has not been claimed by the assessee and for making any disallowance. As there is no claim u./s. 54 of the Act in the return filed by the assessee, the disallowance made in the intimation u/s. 143 (1) (a) in respect of the valuation itself is inadmissible. This being so, the addition as made in the intimation u/s. 143 (1) (a) and ad (sic. as)  decided by the Ld. CIT(A) stands deleted.

6. In the result, the appeal of the assessee is allowed.”

Readers may  refer to the reported judgment. The aspect discussed in this article is common for any subject matter. This can be applied in any matter  which involves issue of notice and opportunity to respond to it.