2025 (6) TMI 1692 - AT - Income Tax

Validity of order passed u/s 143(1) - AO / CPC jurisdiction to make the adjustment - taking the capital gain shown in the profit and loss account which was also considered by the assessee in the computation of income under the head capital gain after claiming the benefit of indexation - HELD THAT - We find that the assessee has shown income from capital gain as profit and loss account which was apparently before claiming the indexation benefit. We further note that the assessee while filing the return income assessee has duly taken the said amount of capital gain into account and computed the capital gain accordingly after taking benefit of indexed cost. AO/ CPC ignored all these facts and picked up these figures without indexation which has resulted in excess amount of income assessed which in our opinion is wrong and against the facts on record. Even the CIT (A) overlooked the correct facts and figures presented by the assessee. Thus we find merit in the contention of the assessee that the said adjustment made by the AO/ CPC was not a prima facie adjustment to be made u/s 143(1) of the Act as the issue involved/ required a lot of debate/ discussion and facts to be clarified and therefore cannot be said to be a prima facie adjustment. In our opinion if the AO/ CPC had any issue with regard to said capital gain the proper course would have been made to fix the scrutiny and to examine the amount of capital gain accordingly. We are inclined to quash the intimation passed u/s 143(1) as invalid on the ground that the AO / CPC has no such jurisdiction to make the adjustment. The appeal of the assessee is allowed.

Summary

The Appellate Tribunal (ITAT Kolkata) allowed the assessee's appeal against the Commissioner of Income-tax (Appeals)'s order dated 18.01.2024 for AY 2018-19. The dispute concerned the confirmation of an addition of Rs.27,11,790/- made by the AO/CPC under section 143(1) of the Income-tax Act, 1961, arising from a purported double inclusion of capital gains.The assessee declared capital gains of Rs.1,03,28,496/- in the profit and loss account before indexation and correctly computed the capital gains after claiming indexation benefit in the return filed on 29.09.2018. The AO/CPC erroneously took the unindexed capital gain figure again while processing the return under section 143(1), resulting in an inflated assessed income.The Tribunal held that "the said adjustment made by the AO/ CPC was not a prima facie adjustment to be made u/s 143(1) of the Act as the issue involved/ required a lot of debate/ discussion and facts to be clarified and therefore, cannot be said to be a prima facie adjustment." It found the AO/CPC lacked jurisdiction to make such adjustment at the summary stage under section 143(1) and that the proper recourse would have been to initiate scrutiny assessment.Accordingly, the ITAT quashed the intimation passed under section 143(1) as invalid and allowed the appeal, emphasizing that the addition was "wrong and against the facts on record" and that the CIT(A) erred in upholding the AO's order.