Assessment order passed u/s 143(3) adopting the income computed by CPC u/s 143(1) does not mean that the challenge to CPC order passed u/s 143(1) will not survive.
In a recent judgment, ITAT Delhi held that AO passing the assessment order u/s 143(3) adopting the assessed income as computed by CPC u/s 143(1) does not mean that the grounds raised by the assessee challenging the validity of the order passed u/s 143(1) will not survive.
ABCAUS Case Law Citation:
4355 (2024) (12) abcaus.in ITAT Delhi
In the instant case, the assessee had challenged the order passed by the JCIT(A) for not adjudicating the appeal against the order of CPC u/s 143(1)wherein the AO, passed the assessment order u/s 143(3) of the Act, adopting income computed by CPC making adjustment u/s 143(1)(a) of the Income Tax Act, 1961 (the Act).
In this case an intimation u/s 143(1) was passed by CPC, Bangaluru making disallowance u/s 36(1)(va) of the Act in respect of employee’s contribution to PF & ESI. The appeal of the assessee against the order of CPC issued u/s 143(1) was disposed of by the JCIT(A) observing that since order u/s 143(3) of the Act had been passed by assessment unit where disallowance made by CPC u/s 36(1)(va) of the Act had been upheld, the grounds of appeal taken by the appellant for proceedings u/s 143(1) do not survive and are liable to be dismissed.
The case of assessee was that the passing of order u/s 143(1) of the Act was without giving intimation to the assessee and not following the mandate of the first proviso to section 143(1)(a) of the Act which requires that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Placing reliance on the decision of the Kolkata Bench of the Tribunal the assessee further submitted that the JCIT (Appeals) erred in not admitting the legal additional ground of appeal for allowing the deduction u/s 80JJAA on the enhancement by the disallowance u/s 36(1)(va) of the Act.
The assessee placing reliance on the CBDT Circular No.37/2016 dated 02.11.2016 submitted that the Board has clarified in its Circular that in the instances where disallowances made u/s 32, 40(a)(ia), 40A(3), 43(b) etc. resulted in increase in profits the assessee is eligible for deduction under Chapter VIA on such enhanced income.
The assessee also placed reliance on the decision of the Bangalore Bench of the Tribunal. Referring to this decision it was submitted that the Bangalore Tribunal considering the circular issued by the Board and also referring to various High Courts including the decision of the Hon’ble Karnataka High Court held that the assessee is entitled for chapter VIA deductions on the enhanced profits on account of disallowance made u/s 40(a)(ia) of the Act.
The Tribunal observed that the ground raised by the assessee in respect of non service of notice and not giving opportunity prior to passing intimation which goes to the very validity of the order passed u/s 143(1) of the Act was not adjudicated by the JCIT(A). Also, additional ground, as an alternative, taken by the assessee that deduction under chapter VIA (in the case of the assessee deduction u/s 80JJAA) shall be allowed on the enhanced income on account of disallowance made u/s 36(1)(va) of the Act was not adjudicated.
The Tribunal opined that the reasoning given by the Addl./JCIT(Appeals) for not adjudicating above grounds was not correct and misplaced.
The Tribunal held that simply because the AO while passing the assessment order u/s 143(3) had adopted the assessed income as computed u/s 143(1) of the Act, it does not mean that the grounds raised by the assessee challenging the validity of the order passed u/s 143(1) and the additional ground for allowance of deduction u/s 80JJAA will not survive.
The Tribunal opined that the JCIT (Appeals) failed to adjudicate the grounds raised by the assessee in the appeal filed against the order u/s 143(1) of the Act probably on a misunderstanding of the provision. Therefore, appeal merits being restored to the file of the Addl./JCIT(Appeals) for adjudicating the grounds raised by the assessee in an appeal against order passed u/s 143(1) of the Act.
Accordingly, the appeal was restored to Addl./JCIT(Appeals) with a direction to dispose of the grounds raised by the assessee in accordance with law after providing adequate opportunity to the assessee.
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