AO unjustified in assessing income as per CPC intimation ignoring rectification application

AO was not justified in assessing income as per ITR processed by CPC Bangalore u/s 143(1)(a) without giving effect to the rectification application u/s 154 – ITAT

In a recent judgment, ITAT Varanasi has held that AO was not justified in assessing the income of the assesse as per ITR processed by CPC Bangalore u/s 143(1)(a) without giving effect to the rectification application u/s 154.

ABCAUS Case Law Citation:
5122 (2026) (04) abacus.in ITAT

The CPC Bangalore processed the return of the appellant assessee under section 143(1) after making adjustments to the returned income. The assessee company filed a rectification application before the CPC under section 154 against such intimation, but this was not considered since the rectification rights had by then been transferred to the AO.

Thereafter, the assessee filed a rectification request with the jurisdictional AO vide email. Even while this rectification request was under consideration, the case of the assessee was selected for scrutiny through CASS with the reason, “expenses earned for earning exempt income” to be examined.

The AO, without recording any detailed reasons passed an assessment order in which he held that the total income as processed by the CPC Banglore was accepted as the assessed income.

Aggrieved with the said order, the assessee filed an appeal before the CIT(A) and submitted that a detailed rectification request had been filed with the jurisdictional AO in respect of the intimation under section 143(1) but the AO had assessed the total income following the orders of the CPC, Bangalore, without considering the rectification application that had been filed by the assessee.

The AO in the order passed under section 143(3) had also not discussed the submissions furnished by the assessee company and had also not recorded any reasons for his non-satisfaction regarding the explanations made by the assessee.

The CIT(A), after considering the grounds of appeal filed by the assessee and the submissions filed before him, passed an order in which he stated that under section 143(1), the AO was empowered to make adjustments and the adjustments that had been made by the CPC were in accordance with the provisions of the Act. As the grievance of the assessee was against this intimation and none of the grounds arose out of the order under section 143(3), therefore, all the grounds of appeal were infructuous and were liable to be dismissed.

Before the ITAT, the assesse relied upon the decision of the ITAT Jaipur Bench wherein it was held that the consequent demand from the adjustment under section 143(1) merged into the order of the AO passed under section 143(3) of the Income Tax Act.

It was also submitted that TAT Delhi Bench also held that where an assessment was made under section 143(1) and subsequently a regular assessment was done under section 143(3), the order passed under section 143(1) merged with the assessment order passed under section 143(3), rendering the appeal against the intimation under section 143(1) as infructuous.

On the contrary, the Revenue contended that mistakes was in the return filed by the assessee and the assessee had not revised its return within due time therefore, the processing that was done by the CPC was correct and since there was failure to revise the return, the ld. AO was also justified in assessing the income at the amount determined by the CPC. It was submitted that since the grievance arose out of the processing and not the regular assessment under section 143(3), the assessee should have gone in appeal if the application under section 154 had not been addressed within time.

The ITAT noted that AO u/s 143(3) does not make any reference to any submissions made by the assessee in this regard or why he was not in agreement with them. There was a rectification application that was pending before the jurisdictional Assessing Officer which had also not been considered by the AO to pass the assessment order.

Rejecting the views of the CIT(A) that the grievance of the assessee arose out of the processing of the return the ITAT opined that once the case has been taken up under section 143(3) and the Assessing Officer had invited and considered submissions made by the assessee to pass an order, then the mere fact that he chose to reiterate the assessment at a figure determined by the CPC during processing, would not disentitle the assessee from filing an appeal against his orders and agitating his decision to sustain the assessment at the income determined by the CPC. Thus, CIT(A) was wrong in holding that the appeal of the assessee was infructuous and dismissing it on this count.

The ITAT restored the matter back to the file of the ld. AO with directions to the assessee to make its submissions before him and to the AO to consider such submissions and pass a reasoned order in accordance with law. 

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