ITAT Quashes CPC Adjustment Made Without Mandatory Notice u/s 143(1)(a)
ITAT Quashes CPC Adjustment Made Without Mandatory Notice u/s 143(1)(a)
The assessee submitted original ITR-3 for AY 2022-23 on 30/07/2022, reporting income of Rs. 1,09,84,741. Revised return was submitted on 10/11/2022, reporting income of Rs. 1,09,81,920 and claiming a refund. After suo motu rectification under Section 154 on 28/12/2022, a re-revised return was filed on 29/12/2022 declaring income of ₹95,10,910 and claiming exemption of Rs. 17,71,010 under Section 10(10AA)(ii) for leave encashment received from LIC at retirement. The assessee contended full exemption was available since LIC is a statutory corporation.
The CPC, however, by intimation under Section 143(1) dated 06/03/2023, restricted the exemption to Rs. 3,00,000 and disallowed Rs. 14,71,010. Salary income was enhanced to Rs. 87,69,457, and total income was determined at Rs. 1,09,81,920. Tax was computed at Rs. 37,06,276 with interest under Sections 234B/234C, and a net demand of Rs. 70,730 was raised. The assessee appealed to CIT(A), challenging the absence of a mandatory notice u/s 143(1)(a), CPC’s jurisdiction, non-speaking order, restriction under Section 10(10AA)(ii) and alternatively relief under Section 89(1). CIT(A) dismissed the appeal.
Central Issue: Whether CPC was justified in restricting exemption u/s 10(10AA)(ii) without issuing prior notice as required under Section 143(1)(a).
ITAT Held: The Tribunal held that the first proviso to Section 143(1)(a) requires CPC to issue intimation of proposed adjustment and consider assessee’s reply before making modifications to it. Since no such notice was issued in this case, the adjustment was invalid.
Relying on coordinate bench decisions in Devendra Singh Bhaskar v. DCIT and Khilav Rajendrakumar Joshi (Legal heir of Late Rajendrakumar S. Joshi) v. DCIT, CPC the Tribunal revoked the CPC intimation dated 06/03/2023 and cancelled the order of CIT(A). It explained that since the intimation itself was quashed, no decision on the merits of exemption under Section 10(10AA) or alternative claim under Section 89(1) was required to be made. Therefore, the appeal was allowed.
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