The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has held that an intimation issued under Section 143(1) of the Income Tax Act, 1961, after initiation of scrutiny proceedings under Section 143(2), is bad in law and void ab initio.
The bench of Sandeep Singh Karhail (Judicial Member) and Waseem Ahmed (Accountant Member) relied on the Supreme Court’s ruling in CIT v. Gujarat Electricity Board, reported in (2003) 260 ITR 84 (SC), and directed the deletion of adjustments made through the subsequent intimation.
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The appellant/assessee filed its income tax return for Assessment Year 2020-21. The return was selected for scrutiny through the Computer-Assisted Scrutiny Selection (CASS) system on the ground of large relief allowed under Sections 90/91 of the Income Tax Act.
The Assessing Officer issued a notice under Section 143(2) of the Act on 29 June 2021, thereby initiating scrutiny proceedings.
However, the Centralised Processing Centre (CPC), Bangalore, subsequently processed the same return under Section 143(1) and issued an intimation on 25 December 2021.
The dispute before the Tribunal concerned whether the Revenue could issue an intimation under Section 143(1) after scrutiny proceedings had already commenced through the issuance of a notice under Section 143(2).
The assessee submitted that the return had been selected for scrutiny on account of the large relief allowed under Sections 90/91 of the Act.
After examining the details and documents furnished by the assessee, the Assessing Officer did not make any addition on this issue in the assessment order passed under Section 143(3) read with Section 144B.
The assessee submitted that, instead of assessing the total income as declared in the return of income, the income was assessed at the amount computed in the intimation issued under Section 143(1).
The Authorised Representative pointed out that the Section 143(1) intimation was issued on 25 December 2021, whereas the notice under Section 143(2) had already been issued on 29 June 2021.
Accordingly, the assessee contended that once scrutiny proceedings had been initiated by the Assessing Officer, the CPC could not subsequently issue an intimation under Section 143(1) in respect of the same return.
The Department opposed the assessee’s contention and submitted that Sections 143(1) and 143(2) operate independently and serve distinct statutory purposes.
The department argued that the statutory timelines governing the issuance of an intimation under Section 143(1) and the service of a notice under Section 143(2) are separate. According to the Department, the limitation for issuing a notice under Section 143(2) is linked to the end of the financial year in which the return is furnished, rather than the date of processing under Section 143(1).
The Department contended that the legislation does not prescribe completion of processing under Section 143(1) as a prerequisite for issuing a valid notice under Section 143(2).
It further submitted that Section 143(1) provides for summary and mechanical processing of returns by the CPC, including prima facie adjustments and the determination of demand or refund. In contrast, Section 143(2) enables the Assessing Officer to examine whether income has been understated, excessive loss has been computed, or tax has been underpaid before completing a scrutiny assessment.
The Revenue therefore maintained that both provisions operate in different fields and that processing under Section 143(1) need not precede the issuance of a notice under Section 143(2).
The Department also argued that scrutiny selection through CASS is based on the data contained in the return as furnished by the assessee and is independent of the time taken by the CPC to process the return.
Additionally, the Revenue submitted that no prejudice had been caused to the assessee, as the assessee had been served with the scrutiny notice, participated in the assessment proceedings, and filed submissions before the Assessing Officer without raising an objection concerning the sequence of the proceedings at the appropriate stage.
On these grounds, the Department requested that the assessee’s contention be rejected and the assessment order be upheld.
After considering the submissions of both parties and examining the material available on record, the Tribunal noted that the relevant sequence of events was undisputed.
The return filed by the assessee on 10 January 2021 had been selected for scrutiny through CASS, and a notice under Section 143(2) was issued on 29 June 2021.
The same return was subsequently processed by the CPC under Section 143(1), with the intimation issued on 25 December 2021.
The Tribunal observed that scrutiny proceedings had already been initiated on the date the return was processed under Section 143(1).
The central issue before the Bench was whether the Revenue could issue an intimation under Section 143(1) after scrutiny proceedings had commenced and a notice under Section 143(2) had already been issued.
The ITAT observed that the issue was no longer res integra, as it had already been decided by the Supreme Court in CIT v. Gujarat Electricity Board, reported in (2003) 260 ITR 84 (SC).
The Tribunal referred to the Supreme Court’s findings concerning the relationship between summary processing under Section 143(1) and regular assessment proceedings under Section 143(2).
The Supreme Court had observed that Section 143(1)(a) provides a summary procedure for quick collection of tax and quick refunds. Under the statutory scheme, where summary processing has been undertaken, the Revenue may proceed to make a regular assessment under Section 143(2).
However, the Supreme Court clarified that the converse is not available. Once regular assessment proceedings have commenced under Section 143(2), there is no need for a summary proceeding under Section 143(1)(a).
The Bangalore Tribunal applied this principle to the facts of the case, where the scrutiny notice had been issued before the subsequent Section 143(1) intimation.
The Tribunal noted that the notice issued under Section 143(2) on 29 June 2021 preceded the intimation issued under Section 143(1) on 25 December 2021.
Respectfully following the Supreme Court’s decision in Gujarat Electricity Board, the Bench held that the intimation issued under Section 143(1) was bad in law and void ab initio.
The Tribunal accordingly directed that the adjustments made through the Section 143(1) intimation be deleted, holding that the adjustments were not sustainable.
The Bench further noted that the Assessing Officer had not made any separate addition in the assessment order passed under Section 143(3) read with Section 144B.
Consequently, the Tribunal directed that the assessee’s return of income be accepted.
The Tribunal held that the Section 143(1) intimation issued after the initiation of scrutiny proceedings was bad in law and void ab initio. It directed the deletion of the adjustments made through the intimation.
Since the Assessing Officer had not made any separate addition in the scrutiny assessment, the Tribunal directed that the assessee’s return of income be accepted.
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