3I INFOTECH LIMITED ,VASHI, NAVI MUMBAI V. DCIT/ ACIT, CIRCLE 15(3)(1), MUMBAI, MUMBAI

ITA 3437/MUM/2025

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The case involves 3i Infotech Limited appealing against adjustments made by the CPC during the processing of their income tax return for the assessment year 2018-19. The adjustments included the reclassification of contingent expenses and profits from the sale of fixed assets, which the CPC and the First Appellate Authority treated as taxable incomes. The Tribunal examined whether these adjustments were justified under the Income Tax Act, focusing on the correct interpretation of exempt incomes and the proper application of tax provisions concerning disallowances. The Tribunal concluded that the adjustments were incorrect and should be deleted, emphasizing the need for human judgment in the face of automated processes.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711694 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRABHADRA S MAHAJAN
• Assessee Lawyers: VED JAIN AW
• Keywords: Business income; Revised return; Depreciation; Earning of tax free income
• Section: 10; 40(a)(ia)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SMT RENU JAUHRI ACCOUNTANT MEMBER ITA No.3437/Mum/2025 (Assessment Year :2018-19) 3i Infotech Limited Tower No.5, 3rd Floor International Infotech Park, Vashi Navi Mumbai-400703 Vs. DCIT/ACIT, Circle- 15(3)(1) Mumbai PAN/GIR No.AAACI5205Q (Appellant) .. (Respondent) Assessee by Shri Ved Jain a/w Shri Pawan Garg (Virtually Appeared) Revenue by Shri Virabhadra S Mahajan, Sr. DR Date of Hearing 14/07/2025 Date of Pronouncement 21/07/2025 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against order dated 12/03/2025 passed by Addl/JCIT (A)-6, Chennai in relation to the adjustment u/s.143(1) for the A.Y.2018-19. 2. In the grounds of appeal assessee has challenged the following adjustments made by the CPC while processing the return u/s. 143(1). Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 2 a) Adjustment of Rs. 5,88,53,921/- an account of provision of contingent expenses written back by the assessee in AY 2018-19 The same was adjusted by the CPC merely on the ground that in Schedule El of Exempt Income this figure has not been stated. b) Similar adjustment of Rs. 2.31,254/-on account of profit on sales of fixed assets was made c) Further adjustment of Rs. 5,05,750/- on account of discrepancy between the amount disallowed in the return of Income and Form 3CD with respect to disallowance u/s 40(a)(i) of the Income Tax Act. 3. The brief facts qua the issue involved are that assessee filed its return of Income on 29/03/2019 declaring total income of Rs. Nil after setting off the Profits amounting to Rs. 83,70,22,403/- against brought forward loss under the normal provisions of the Income Tax Act 1961. Thereafter the assessee received the intimation order u/s 143(1) of the Act dated 12/11/2019. The intimation u/s 143(1) of the Act was passed assessing the Income from Business or Profession of Rs. 89,66,13,329/-under the normal provisions of the Act after making the aforesaid adjustments aggregating to Rs. 5,95,90,926/-. Thereafter, aggrieved by the Intimation order of the CPC, assessee filed an appeal before Ld. Addl / JCIT(A). 4. Before us ld. Counsel submitted that the assessee‟s case before the First Appellate Authority and also before us is that CPC has made adjustment of Rs. 5,88,53,921/- (i.e Rs. 4,53,921 + Rs. 5,84,00,000) on account of amount of provision which was Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 3 written back by the assessee in AY 2018-19 which was itself disallowed by the assessee while filing the ITR for the AY 2017- 18. The same is evident from the computation of income for the AY 2018-19 and also on perusal of the ITR. The same have been claimed as exempt income under the head \"Any other exempt income\" while computing business income. The CPC made adjustment merely on the ground that this amount has not been stated in Schedule El of Exempt Income. He submitted that this Schedule El is regarding incomes which are not chargeable to tax. 5. However, ld. First Appellate Authority has confirmed the adjustment holding as under:- “On perusal of the record of the appellant, it is noticed that while filing the original return for AY 2018-19 and original and revised returns for AY 2017-18 also, the appellant has not recorded the details of exempt income in schedule El, even though being credited into profit and loss account as exempt Income. It is ignorance of the assessee to omit to mention the details of exempt income in the relevant “Schedule EI” without which CPC cannot grant the exemption……… Considering the above discussion, the grounds of appeal 1 and 2 are dismissed.” 6. Ld. Counsel thus submitted that First Appellate Authority did not consider the fact that adjustment of Rs. 5,88,53,921/- on account of provision of contingent expenses written back by the assessee in AY 2018-19 was disallowed while filing the ITR for the 2017-18. In AY 2018-19, assessee has written back the provision of contingent expenses and reduced the same from taxable profit. Also, it is not section 10 items and cannot be shown in Schedule EI of the ITR Form-6. Thus, Add/JCIT(A) has Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 4 erred in confirming the adjustment on the ground that assessee has omitted to mention the details of exempt Income in the relevant “Schedule EI”. In view of this, the adjustment made by the CPC and confirmed by the Ld Addl/JCIT(A) is incorrect and the same needs to be deleted. 7. Regarding adjustment of Rs.2,31,254/- on account of profit on sale of fixed assets, he submitted that CPC made an adjustment of Rs. 2,31,254/- on account of profit on sale of fixed assets which is not chargeable to tax as this amount gets adjusted in written down value as per section 43(6) of the Act. The assessee has duly disclosed this amount in the computation of income of Rs. 2,31,254/- and also in the ITR. The same have been claimed as exempt income under the head \"Any other exempt income” while computing business Income. The CPC made adjustment merely on the ground that this amount has not been stated in Schedule El of Exempt Income. He submitted that this Schedule El is regarding incomes which are not chargeable to tax. However, ld. First Appellate Authority has confirmed the adjustment holding as under:- “On perusal of the record of the appellant, it is noticed that while filing the original return for AY 2018-19 and original and revised returns for AY 2017-18 also, the appellant has not recorded the details of exempt income in schedule El, even though being credited into profit and loss account as exempt Income. It is ignorance of the assessee to omit to mention the details of exempt income in the relevant \"Schedule El without which CPC cannot grant the exemption………….. Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 5 Considering the above discussion, the grounds of appeal 1 and 2 are dismissed. 8. Thus, Ld. First Appellate Authority has confirmed the adjustment despite the fact that the profits on sale of fixed assets had been reduced from the WDV of the block of assets while computing the depreciation as per the provisions of the Act. Also profit on sale of Fixed assets of Rs. 2,31,254/- is not a section 10 item and cannot be shown in Schedule El of the ITR Form-6. Thus, Addl/JCIT(A) has erred in confirming the adjustment on the view that assessee has omitted to mention the details of exempt income in the relevant \"Schedule EI. In view of this, the adjustment made by the CPC and confirmed by the Ld. Addl/JCIT(A) is incorrect and the same needs to be deleted. 9. Lastly, with regard to adjustment of Rs.5,05,750/- on account of discrepancy between the amount disallowed in ITR and Form 3CD w.r.t. disallowance u/s.40(a)(i), the summary of which is as under: Particulars Form 3CD ITR Variance Disallowance u/s 40(a)(i)- Payment to Non-Resident Rs. 29,88,109/- 29,88,109 24,82,359 5,05,750 Disallowance u/s 40(a)(ia) Payment to Resident Rs. 82,74,532 30% of 82,74,532/- =24,82,359/- 24,82,359 29,88,109 (5,05,750) Net effect 0.00 Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 6 10. Thus, the actual disallowance u/s 40(a)(i) is Rs. 29,88,109/- in Form 3CD and disallowance u/s. 40(a)(ia) is Rs.24,82,359/- in form 3CD has rightly been reported in Tax audit report (i.e. Form 3CD). However, due to an inadvertent error in the ITR, the assessee flipped the figures and disallowed Rs.24,82,359/- u/s. 40(a)(i) in ITR and Rs.29,88,109/- u/s.40(a)(ia) in ITR. Ld. Addl / JCIT(A) confirmed the adjustment made by the CPC ignoring the submission of the assessee that the amount of disallowance u/s 40(a)(i) and 40(a)(ia) are inadvertently flipped but impact of the total disallowance would remain same. In view of this, the net effect of the disallowance u/s 40(a)(i) and 40(a)(ia) is Nil and the adjustment made by the CPC is incorrect and the same needs to be deleted. 11. The ld DR on the other hand relied upon the order of the First Appellate Authority. 12. After hearing both the parties and on perusal of the facts and material on record and the order of the First Appellate Authority, it is clearly seen that entire adjustment on account of technical glitches of the CPC system Now in so far as the adjustment of Rs.5,88,53,921/- as noted above, it was on account of provision of contingent expenses which was written back by the assessee in AY 2018-19 and was disallowed by the assessee itself while filing the ITR for A.Y.2017-18. This is quite evident from the copy of computation of income for A.Y.2018-19 which has been placed in the paper book at page 4 Item 3 & 4 whereby figure of Rs.4,53,921/- and Rs.5,84,00,000/- are clearly Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 7 stated and also in the ITR which is appearing at paper book page 8 Item No.5C. Thus, the income in question has been duly stated on the ITR, The same has been claimed as exempt under the head „any other exempt income‟ while computing the business income. Merely because the said amount has not been stated in Schedule El (exempt income) of the ITR, which appears at page 13 of the paper book, cannot be the ground for denial as it has no relevance because the same is with regard to income which is not chargeable to tax for example, income falling under Section 10. Once the provision of contingent expenses and the written back expenses has been disallowed in the return of income in A.Y.2018-19, have already been disallowed in the current return of income for A.Y.2017-18, assessee has only reversed the said provision and reduced the same from the taxable profit, the same ought to have been allowed, instead ld. First Appellate Authority confirmed the adjustment stating that assessee has omitted to mention the details of exempt Income in the relevant “Schedule EI” without appreciating that it is not an exempt income u/s.10. Accordingly, such an adjustment is deleted. 13. Similarly, the adjustment of Rs.2,31,254/- on account of profit on sales of fixed assets is never chargeable to tax as this amount gets adjusted in written down value as per Section 43(6) and this has been duly disclosed in the computation of income, the copy of which has been filed at page 4 of the paper book at Item No.2 and also in the ITR which is appearing at page 8 of Item No.5C and page 12 Item No.5. The same was claimed as Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 8 exempt income under the head „any other exempt income‟ while computing the business income. Here in this case also, CPC has made adjustment on the ground that same has not been stated in Schedule EI of exempt income. We fail to understand how the adjustment can be confirmed when the profit of fixed sale assets have been reduced from WDV of the block of assets while computing the depreciation as per the provisions of the Act and also profit on sale of Fixed assets is not a section 10 item and cannot be shown in Schedule El of the ITR Form-6, accordingly, the adjustment is also deleted. 14. Lastly, with respect to the adjustment of Rs.5,05,750/- on account of discrepancy between the amount disallowed in the return of Income and figures reported in Form 3CD given at page 26 and ITR at page 6,the working of the disallowance u/s 40(a)(i) for the payment to Resident Rs. 82,74,532/-, the actual disallowance reported in Form 3CD and disallowance of Section 40(a)(ia) in Form 3CD was Rs.29,88,109/- This discrepancy is evident from page 26-29 of the paper book, particularly Item 21(b)(ii)(A) has arisen due to inadvertent error in the ITR, wherein the figures got flipped. The disallowance of Rs.24,82,359/- u/s. 40(a)(i) and Rs.29,88,109/- u/s.40(a)(ia) in ITR is appearing as Item No.8A(b), given at page 6 of the paper book. This has been duly brought to the notice of ld. First Appellate Authority also that the amount of disallowance u/s.40(a)(ia) are inadvertently flipped and there is absolutely no the impact on the total disallowance as it would remain same Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 9 and the net effect of the disallowance would be „Nil‟. However, still he proceeded to confirm the adjustment. We do not find any reason for such an adjustment to be made and is directed to deleted. 15. While it is conceivable that inadvertently errors may have crept into the system generated process of software modules employed by CPC during the mechanized handling of the returns, such lapses, though unintended must not be allowed to go unchecked or unaddressed, once the matter is brought to the notice of the ld. AO or First Appellate Authority. If the assessee has cogently brought these facts before the First Appellate Authority, it becomes incumbent upon such authority to transcend the rigidity of algorithmic determination and exercise their judicial mind. The very purpose of the appellate scrutiny is to apply reasoned human judgment over automated determinations. The decision making process when it deviates from such mindful applications, risks reducing adjudication to a sterile exercise in digital formalism. Adjudication is not merely a function of computation; it is a human endeavor, imbued with fairness, discernment and duty to correct that which machines may have misread. Thus, Ld. First Appellate Authority ought to have appreciated and applied his mind to the fact that such kind of adjustment could not have been warranted and matter need not have travelled to the second appellate stage on such trivial issue. Accordingly, all the adjustments made are deleted. Printed from counselvise.com ITA No.3437/Mum/2025 3i Infotech Limited 10 16. In the result, appeal of the assessee is allowed. Order pronounced on 21st July, 2025. Sd/- (RENU JAUHRI) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 21/07/2025 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Printed from counselvise.com "