F5 NETWORKS INNOVATION PRIVATE LIMITED,HYDERABAD V. INCOME TAX OFFICER, WARD-17(1), HYDERABAD

ITA 912/HYD/2024

AI Insights

The case involves M/s. F5 Networks Innovation Pvt. Ltd., which appealed against the final assessment order passed by the Income Tax Officer, Ward-17(1), Hyderabad, for the assessment year 2020-21. The primary contention revolved around the adjustments made under sections 10AA, 36(1)(va), and 43B of the Income Tax Act, 1961, which pertained to disallowances related to exemptions and contributions to provident funds. The Tribunal considered the procedural aspects of how these adjustments were carried over from the initial processing under section 143(1) to the final assessment under section 143(3), and the implications of the Bilateral Advance Pricing Agreement (BAPA) entered into by the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705604 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Assessment Year: 2020-2021
• Other Referred Cases: Areca Trust Vs. CIT (Appellate Unit), NFAC, New Delhi, Toyota Boshoku Automotive India Pvt Ltd. Vs. DCIT, Mantri Cosmos II Owners Welfare Association Vs. ACIT, South India Club vs. ITO, Akbar Mohammad v. ACIT, Khandelwal Rubber Products (P) Ltd vs. CIT, Biland Ram Hargan Dass v. CIT, Coventory Spring & Co. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDER KUMAR NAIK
• Assessee Lawyers: SHARATH RAO
• Keywords: Set aside; Opportunity of being heard; Transfer pricing; International transaction; Principle of natural justice; TDS; Search and seizure; Earning of tax free income; Procedural lapse; Deduction Disallowance; FORM 26AS
• Section: 143(3); 142(1); 154; 271(1)(c); 234B; 246; 43B; 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad श्री विजय पाल राि, उपाध् यक्ष एिं श्री मिुसूदन सािडिया, लेखा सदस् य क े समक्ष । BEFORE SHRI VIJAY PAL RAO, VICE PRESIDENT AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आ.अपी.सं /ITA No.912/Hyd/2024 (निर्धारण वर्ा/Assessment Year:2020-21) M/s. F5 Networks Innovation Pvt. Ltd., Hyderabad. PAN:AADCF2598L Vs. Income Tax Officer, Ward-17(1), Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri Sharath Rao & Shri Himanshu Aggarwal, C.As रधजस् व द्वधरध/Revenue by: Shri Narender Kumar Naik, CIT-DR सुिवधई की तधरीख/Date of hearing: 23/06/2025 घोर्णध की तधरीख/Pronouncement: 30/06/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M. : This appeal is filed by M/s. F5 Networks Innovation Pvt. Ltd. (“the assessee”), feeling aggrieved by the order passed by the Learned Assessing Officer (“Ld. AO”) u/s. 143(3) r.w.s. 144C(13) r.w.s. 144B ITA No.912/Hyd/2024 2 of the Income Tax Act, 1961 (“the Act”) dated 23.07.2024 for the A.Y. 2020-21. 2. The assessee has raised the following grounds of appeal : ITA No.912/Hyd/2024 3 ITA No.912/Hyd/2024 4 3. The brief facts of the case are that, the assessee is filed its Return of lncome (\"ROI\") for the A.Y.2020-21 on a company 15.02.2021 declaring total income at Rs.Nil. The ROI of the assessee ITA No.912/Hyd/2024 5 was processed u/s.143(1) of the Act by CPC on 11.10.2021, by making an addition of Rs.35,45,42,960/-. ln view of international transactions, for determination of Arm's Length Price (ALP), the case of the assessee was referred to Learned Transfer Pricing Officer (Ld. TPO\"). The Ld. TPO as per his order dated 23.07.2023 proposed upward transfer pricing adjustment of Rs.19,42,30,478/- on account of international transactions. Accordingly, the Ld. AO passed draft assessment order on 29.09.2023. Aggrieved with the draft assessment order, the assessee preferred objections before the Learned Dispute Resolution Panel ('Ld. DRP\") and pursuant to the directions of Ld. DRP dated 20.06.2024, the Ld. AO finalised the ALP on account of international transactions amounting to Rs.17,65,40,037 /-. Finally, the Ld. AO completed the final assessment u/s.143(3) r.w.s. 144C(13) r.w.s. 144B of the Act on 23.07.2024 taking the income of assessee at Rs.35,45,42,960/- as computed by CPC u/s. s.143(1) of the Act and computed the total income of the assessee at Rs.53,10,82,997/-. ITA No.912/Hyd/2024 6 3.1 Aggrieved with the final assessment order of Ld. AO, the assessee is in appeal before us. The Ld. AR submitted that, the ground no.1 of the assessee is related to addition on account of transfer pricing adjustment. He further submitted that, the assessee had entered into a Bilateral Advance Pricing Agreement (“BAPA”) u/s.92CC of the Act, which cover the assessment year under consideration and in the light of the BAPA, the assessee seeks the withdraw ground no.1. Accordingly, the Ld. AR invited our attention to the withdrawal request of ground no.1 placed at page no.308 of the paper book and the copy of BAPA placed at page nos.309 to 337 of the paper book. Hence, the Ld. AR prayed before the bench to accept the request of the assessee for withdrawal of ground no.1. 4. Per contra, the Learned Department Representative (“Ld. DR”) did not raise any objection to withdrawal of ground no.1 on account of BAPA. 5. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. In view of the BAPA entered u/s.92CC of the Act dated 20.03.2025 (Page ITA No.912/Hyd/2024 7 nos.309 to 337 of the paper book) covering the year under consideration and in the absence of any objection from the revenue, ground no.1 of the assessee is permitted to be withdrawn. Accordingly, ground no.1 of the assessee is dismissed being withdrawn. 6. The Ld. AR submitted that, ground no.2 of the assessee is general in nature and the assessee is not pressing the same. Accordingly, ground no.2 of the assessee is dismissed being not pressed. 7. Ground nos.3, 4 & 5 arises out of the order passed by the CPC u/s.143(1) of the Act. The Ld. AR argued these grounds on technical grounds as well as on merits. As far as the technical issue is concerned, the Ld. AR submitted that, the CPC while processing the ROI u/s.143(1) of the Act made an addition of Rs.35,45,42,960/- and the Ld. AO also completed the final assessment order by taking income as computed by CPC u/s.143(1) of the Act. The Ld. AR submitted that, the assessee had raised objection against the ITA No.912/Hyd/2024 8 addition made by CPC u/s.143(1) of the Act before the Ld. DRP. However, the Ld. DRP rejected the claim of the assessee relying on the decision of the co-ordinate bench of ITAT in the case of Areca Trust Vs. CIT (Appellate Unit), NFAC, New Delhi in ITA no.433/Bang/2023 dated 26.07.2023 and contended that the disallowance made by CPC u/s.143(1) of the Act should have been separately appealed and that, such an intimation u/s. 143(1) of the Act does not automatically merged with the final order passed u/s.143(3) of the Act. Accordingly, the Ld. DRP dismissed the claim of the assessee qua addition made by CPC u/s.143(1) of the Act. The Ld. AR argued that, this finding of the Ld. DRP was incorrect in law. The Ld. AR submitted that, the intimation u/s.143(1) of the Act is not a final assessment and get merged with the regular assessment u/s.143(3) of the Act. Accordingly, it was the duty of Ld. AO to examine and verify the claim independently. In support of the submission, the Ld. AR placed reliance on the decision of co-ordinate bench of ITAT, Bangalore in the case of Toyota Boshoku Automotive India Pvt Ltd. Vs. DCIT, IT(TP)A No.1539/Bang/2024 dated 09.05.2025 ITA No.912/Hyd/2024 9 placed at page nos.1 to 36 of the case law paper book, wherein the co-ordinate bench of Tribunal considered and distinguished the view taken in Areca Trust Vs. CIT (Appellate Unit) (supra). The Ld. AR also relied on the decision of this Tribunal in the case of Mantri Cosmos II Owners Welfare Association Vs. ACIT (ITA Nos.20 & 21/Hyd/2025 dated 21.03.2025) placed at page nos.37 to 52 of the case law paper book, wherein this Tribunal held that the intimation u/s.143(1) of the Act merges with the regular assessment u/s.143(3) of the Act and the Ld. AO must re-examine such claim. 8. Per contra, the Ld. DR supported the findings of Ld. DRP and reiterated that, the assessee should have challenged the disallowances made under intimation u/s.143(1) of the Act by way of a separate appeal. He further submitted that, the Ld. DRP had rightly relied on the decision of co-ordinate bench of ITAT in the case of Areca Trust Vs. CIT (Appellate Unit) (supra), holding that the disallowance once made u/s.143(1) of the Act cannot be reintervened u/s.143(3) of the Act unless appeal separately. Thus, ITA No.912/Hyd/2024 10 he submitted that the Ld. DRP has rightly rejected the claim of the assessee. 9. We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the findings of Ld. DRP placed at page nos.84 & 85 of its order which is to the following effect : ITA No.912/Hyd/2024 11 9.1 We have also gone through the relevant portion of order of co- ordinate bench of ITAT in the case of Toyota Boshoku Automotive India Pvt. Ltd. Vs. DCIT (supra) which is to the following effect : “ 25. The next issue raised by the assessee vide ground Nos. 19 to 24 of its appeal pertains to the disallowance of gratuity expenses under section 43B of the Act by the CPC and learned DRP failure to adjudicate CPC adjustments by stating that CPC adjustments are independent of scrutiny assessments. Additionally, the AO violated the principles of natural justice by making adjustments without issuing a show cause notice and failed to consider documentary evidence submitted by the assessee. 26. The necessary facts are that the assessee in the return of income filed for the year under consideration declared total income at Rs. 58,27,68,190/- only. The return of income was processed under section 143(1) of the Act wherein the CPC disallowed the claim of gratuity expenses for Rs. 5,13,01,761/- as per the provision of section 43B of the Act, thereby the CPC assessed the income of the assessee at Rs. 63,40,69,950/-. Subsequently the case of the assessee was selected for scrutiny assessment wherein certain addition on account of TP adjustment was made. The AO while finalising the draft assessment order computed the total income after taking into account the income computed under intimation order under section 143(1) of the Act and addition of TP adjustment. 27. The aggrieved assessee raised an objection before the learned DRP and contend that during the year, it incurred certain gratuity expenses ITA No.912/Hyd/2024 12 which is duly reflected in the Tax Audit Report. As per section 43B of the Act, gratuity contributions to an approved gratuity fund are allowable on an actual payment basis. The company has complied with this provision, and thus, the gratuity expense should be treated as an allowable deduction. However, the AO erroneously disallowed INR 5,13,01,761/- related to gratuity expenses, citing that it was not allowable under section 43B of the Act. As per the assessee, this disallowance is incorrect as the payment was made before the due date for filing the return of income. The assessee contended that payments made after March 31, 2020, but before the due date of ROI filing, are still deductible under section 43B of the Act. The company made the gratuity payment on September 15, 2020, and proof of this payment is available in the records. The AO has failed to appreciate this legal provision and has mechanically disallowed the amount. Additionally, the AO did not issue a show cause notice or provide an opportunity for the assessee to explain the payment before making the disallowance. This procedural lapse has deprived the assessee of a fair hearing, violating the principles of natural justice. The ld. DRP is therefore requested to consider this aspect while adjudicating the case. 28. Based on the above facts, the assessee urges the DRP to delete the disallowance made by the AO and treat the gratuity payment as an allowable expense under provision of section 43B of the Act. 29. The learned DRP observed that the disallowance of Rs. 5,13,01,761/- for gratuity under section 43B of the Act was made in the intimation under section 143(1) of the Act and was not a variation proposed by the AO in the draft assessment order passed under section 144C(1) of the Act. The learned DRP noted that the CPC determined the disallowance, not the AO, and since the DRP's jurisdiction is limited to the variations made by the AO, it cannot interfere in adjustments determined by the CPC. 29.1 The learned DRP emphasized that intimations under section 143(1) and regular assessments under section 143(3)/144C(1) of the Act are separate proceedings, and there is no automatic merger between them. ITA No.912/Hyd/2024 13 Since the disallowance was made at the CPC level and not part of a scrutiny assessment, the assessee's recourse lies in filing of an appeal before the ld. CIT(A) rather than seeking relief from the DRP. In holding so, the learned DRP relied on a decision by the Hon’ble Bangalore ITAT in the case of Areca Trust vs. CIT(Appeal Unit), NFAC, New Delhi, which clarified that an appeal against intimations under section 143(1) must be filed before CIT(A), not the ld. DRP. Based on this reasoning, the ld. DRP concluded that no interference was warranted and rejected the assessee’s claim. 30. Being aggrieved by the direction of learned DRP and assessment order, the assessee is in appeal before us. 31. The learned AR before us submits that the assessee had duly made the gratuity payment before the due date of filing the Return of Income (ROI), and as per section 43B of the Act, such expenses are allowable on a payment basis. However, the disallowance was made in the intimation issued under Section 143(1) of the Act, by the CPC, which is a prima facie adjustment and not a variation proposed by the AO. The learned AR argued that the DRP failed to adjudicate the matter properly, holding that the adjustment made by the CPC arises from a separate proceeding and does not automatically merge with the scrutiny assessment before the AO. This approach denied the assessee an effective opportunity to present its case, especially since no show cause notice was issued before making the variation in the intimation. The principles of natural justice have, therefore, been violated. 31.1 Further, the ld. DRP erred in not considering the documentary evidence submitted by the assessee, which substantiates that the gratuity payment was actually made. The AO also failed to appreciate that the adjustment made in the intimation pertains to a payment that qualifies for deduction under section 43B of the Act. The learned AR emphasizes that once the payment has been made within the prescribed timeframe, the deduction should not have been disallowed. 31.2 The learned AR also submits that the DRP's conclusion that it lacks jurisdiction is incorrect, as the doctrine of merger of intimation order ITA No.912/Hyd/2024 14 with the assessment order should have been applied in this case. The learned AR, therefore, urges us to grant appropriate relief by directing the AO to allow the deduction and rectify the unjust disallowance. 32. On the contrary the learned DR before us vehemently supported the order of the authorities below. 33. We have heard the rival contentions of both the parties and perused the materials available on record. Upon careful consideration of the rival submissions and the material available on record, we find that the key issue for adjudication revolves around whether the disallowance of gratuity expenses made in the intimation issued under section 143(1) of the Act can be raised and addressed in an appeal arising from an assessment under section 143(3) of the Act, especially when the disallowance was not re-iterated by the AO) in the draft assessment order. 33.1 In the present case, the assessee declared a total income of ₹ 58,27,68,190/- in its return, which was processed under section 143(1) of the Act by the CPC, resulting in a disallowance of ₹5,13,01,761/- towards gratuity expenses under section 43B of the Act. This adjustment increased the assessee’s income to ₹ 63,40,69,950/-. Subsequently, the case of the assessee was selected for scrutiny, and a draft assessment order under section 143(3) r/w Section 144C(1) of the Act was passed, which did not propose any variation with respect to the gratuity disallowance. However, while computing the total income, the AO mechanically adopted the adjusted income from the intimation under section 143(1) of the Act, which included the disallowed gratuity expense. 33.2 The learned DRP refused to adjudicate the assessee’s objection to this disallowance on the ground that the adjustment originated from the CPC’s intimation under section 143(1) of the Act, and not as a variation proposed by the AO under section 144C(1) of the Act. The learned DRP held that it lacks jurisdiction over such matters and relied on the decision of the Hon’ble Bangalore ITAT in Areca Trust vs. CIT (Appeal Unit), NFAC, ITA No.912/Hyd/2024 15 which held that adjustments made under section 143(1) of the Act can only be appealed before the ld. Commissioner (Appeals), not the DRP. 33.3 However, we are of the considered view that such a mechanical segregation between proceedings under sections 143(1) and 143(3) of the Act ignores the principle of merger of orders. In our considered view once a regular assessment under Section 143(3) is made, the intimation under section 143(1) ceases to be relevant and merges with the assessment order, unless expressly sustained or modified by the AO. In this regard, we find support and guidance from the order of the coordinate bench of ITAT Delhi in case of South India Club vs. ITO reported in 163 taxmannn.com 479 wherein it was held as under: 12. Further we observe that the statutory notice u/s 143(2) was issued on 22.09.2019. Further notices u/s 142(1) were issued in order to proceed with the regular assessment. Accordingly, the assessment u/s 143(3) was completed. When regular assessment was completed and the relevant intimation issued u/s 143(1) will automatically merges with the assessment passed u/s 143(3). Therefore, it loses its relevance once the regular assessment is processed, and it is only an intimation towards the accuracy of the information submitted by the assessee. In the given case, the assessee has claimed deduction u/s 11 and failed to file the form 10B along with the ROI. Based on the above observation, the claim of the assessee was denied by the AO in sec.143(1) proceedings. Therefore, there is no denial of fact that AO can make the above disallowance, however, the validity of the intimation issued u/s 143(1) is limited to mere intimation of correctness and accuracy of the income declared in ROI and its accuracy based on the information submitted along with the ROI. It does not carry the legitimacy of an assessment. When the assessment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the findings of Ld CIT(A) that the intimation u/s 143(1) merges with the order passed u/s 143(3) of the Act and the appeal against the above intimation becomes infructuous. In our view, he should have ITA No.912/Hyd/2024 16 stopped with the above findings and should not have proceeded to decide the issue on merits, because it is brought to his knowledge that the assessee has filed appeal against the regular assessment order. Therefore, he has travelled beyond the mandate. The issue of allowability of section 11 is already considered in the regular assessment and that issue is already in appeal before FAA. Therefore, reviewing the same is uncalled for. 13. Coming to the submissions of the Ld AR, the assessee also not disputing the fact that the intimation merges with the regular assessment when the proceedings are initiated u/s 143(3) of the Act. Therefore, the admitted fact that the appeal against the intimation is infructuous. The grievance of the assessee is that Ld CIT(A) has not stopped with the findings but gave findings on the merits. After considering the submissions, we are also of the view that the findings on allowability u/s 11 is uncalled. Particularly when the issue under consideration is under challenge before another Appellate Authority. 33.4 The Hon’ble Kolkata High Court in CIT v. Coventory Spring & Co. Ltd. 257 ITR 632 had taken the view that “initial intimation merges into regular assessment and once proceedings for regular assessment under section 143(3) are commenced, there cannot be any recourse to bring into existence any order under section 143(1)(a) whether originally or by rectification”. In the instant case, the AO, while finalizing the assessment under section 143(3) of the Act, adopted the total income computed in the intimation issued under section 143(1) of the Act. By doing so, the AO has effectively incorporated the disallowance into the assessment order. Therefore, the assessee is justified in raising the ground of appeal against the said disallowance before the appellate authority, including the DRP if the assessment route involved section 144C of the Act. 33.5 Moreover, the disallowance of gratuity expenses was factually and legally flawed. Section 43B allows deduction for gratuity expenses paid before the due date of filing return under section 139(1) of the Act. The assessee has provided evidence that the payment was made on 15th September 2020, i.e., before the due date, and the same is duly reported ITA No.912/Hyd/2024 17 in the Tax Audit Report. The failure to consider this evidence, coupled with the absence of a show cause notice or opportunity of hearing, amounts to a breach of natural justice. The CPC as well as the AO should have taken into account this compliance before disallowing the expense. 33.6 We further note that identical issue was recently examined by this tribunal in the case of Ariba Technologies India Pvt Ltd vs. DCIT reported in 172 taxmann.com 304. The tribunal after examination of detailed decided the issue in favour of the assessee. The finding of the tribunal is extracted as under: 25. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that the controversy before us relates whether the adjustment made in the intimation order under section 143(1) of the Act can be agitated in the proceedings under section 143(3) of the Act or in the appeal proceeding arising out of assessment order under section 143(3) of the Act. In this regard, let us understand the scope of the provisions of section 143(1) of the Act. Section 143(1) of the Act deals with prima facie adjustments made during the processing of an income tax return before assessment. The adjustments that can be made under this section include: 1. Mathematical Errors - Correction of any arithmetical or clerical errors in the return. 2. Incorrect Claims - Disallowance of incorrect claims that are apparent from the information provided in the return. 3. Disallowance of Losses - If carried-forward losses or deductions are claimed without filing the required supporting documents or returns in previous years. 4. Deduction Disallowance - If any deduction under Chapter VI-A (like 80C, 80D, etc.) exceeds the permissible limit. ITA No.912/Hyd/2024 18 5. Mismatch in Income & Form 26AS/TDS Details - Any inconsistency between the income reported and the details in Form 26AS, AIS, or TDS certificates may be adjusted. 6. Disallowance of Exempt Income - If any income claimed as exempt does not meet the required conditions. 7. Mismatch in Tax Payments - Adjustments for advance tax, TDS, or self-assessment tax discrepancies. 25.1 The taxpayer is notified of any adjustments via an intimation under section 143(1) of the Act, and they are given an opportunity to respond before any demand is raised. 25.2 However, an intimation under Section 143(1) is not an assessment. It is merely a preliminary check of the return filed by the taxpayer and is done through an automated process. 25.3 In contrast, the Scrutiny Assessment under Section 143(3) is a detailed examination of the income tax return (ITR) by the AO to verify its correctness and ensure there is no understatement of income, overstatement of deductions, or tax evasion. To assess the correctness of income, deductions, exemptions, and tax liability, the AO issues several notices to the assessee in the form of questionnaire, show cause etc. The assessee is required to provide supporting documents, explanations, and evidence as demanded by the AO. This may include books of accounts, bank statements, invoices, agreements, etc. After examining all details, the AO may either accept the return as filed, or Make additions/disallowances, leading to higher tax liability. 25.4 From the above, there remains no ambiguity to the fact that the intimation under section 143(1) of the Act is not an assessment order. But any adjustment made under section 143(1) of the Act can be challenged either by filing rectification application under section 154 of the Act or by way of filing appeal before the learned CIT(A) under section 246 of the Act. Thus, as per the provisions of law the right course of action for the assessee is either to file ITA No.912/Hyd/2024 19 rectification application under section 154 of the Act or appeal under section 246 of the Act. The assessee is required to choose the right course of action diligently which depends upon different facts and circumstances. 25.5 Nevertheless, the object for making the adjustment in the intimation under section 143(1) of the Act or framing the assessment under section 143(3) of the Act is to determine the income and tax liability correctly as per the provisions of law. 25.6 It is also important to note that in the present case the adjustment made under section 143(1) of the Act has been incorporated in the assessment framed under section 143(3) r.w.s. 144C of the Act. Thus, a question arises whether there is double demand in the records of the Department for the adjustment made under the provisions of section 143(1) of the Act as well as in the assessment framed under section 143(3) of the Act. Certainly, there can't be double demand for the same item of the disallowance or the addition. 25.7 Admittedly the adjustments are made by the CPC under section 143(1) of the Act whereas the assessment is framed by NFAC. However, the NFAC is not unknown to the adjustment made by the CPC i.e. automated process under section 143(1) of the Act. Therefore, we are of the view that the NFAC should have taken into cognizance of the adjustment made by the CPC in the intimation generated under section 143(1) of the Act especially in the circumstances where the assessee has brought to the notice to the NFAC about such adjustment. By doing so, the multiple proceedings can be avoided which are certainly cumbersome for the assessee. 25.8 As regards the principles laid down by Bangalore Tribunal in the case of Areca Trust (supra), we note that the assessee in the said case has preferred an appeal before the learned CIT(A) against the adjustment made under section 143(1) of the Act which was subsequently withdrawn by the assessee as the case of ITA No.912/Hyd/2024 20 the assessee was picked up under scrutiny. In this background the Tribunal, has denied accepting the issue raised in the intimation under section 143(1) of the Act. It is because, once the assessee has withdrawn the appeal filed before the learned CIT(A), the issue arises from the intimation under section 143(1) of the Act reached to the finality. However, the facts of the case on hand are different in as much as the assessee has not filed any appeal before the learned CIT(A) under the bona fide belief that the matter may picked up under scrutiny. Furthermore, the assessee has brought to the notice of the NFAC about the adjustment made under section 143(1) of the Act which can be verified from the details available on pages 367 to 371 of the appeal set. 25.9 We further find that the Jodhpur Tribunal in the case of Akbar Mohammad v. ACIT [IT Appeal Nos. 108 & 109(Jodh) of 2021, dated 31-1- 2022] in the identical facts and circumstances held as under: 6. We have considered the submission of both the parties and perused the material available on record. In the present cases, it is not in dispute that the assessee deposited the contribution of PF & ESI belatedly in terms of section 36(1)(va) of the Act. However, the said deposits were made prior to filing of return of income u/s 139(1) of the Act. 6.1 Of course, it is a case in point that the assessee did not file any appeal against the intimations passed us 143(1) of the Act and the Ld. Sr. DR is right to the extent that the assessee cannot be given relief for that reason. However, it is also a settled law that the assessee cannot be taxed on an amount on which tax is not legally imposable. Although, the assessee might have chosen a wrong channel for redressal of his grievance, all the same, it is incumbent upon the Tax authorities to burden the assessee only with correct amount of tax and not to unjustly benefit at the cost of tax payer. Therefore, in the interest of substantial justice, we deem it expedient to restore the issue to the file of the Assessing officer with a direction to pass appropriate orders deleting the addition / disallowance after duly considering ITA No.912/Hyd/2024 21 the settled judicial position in this regard, which have been decided in the three cases as enumerated above in Para. 25.10 In view of the above, we are not inclined to encourage the assessee not to prefer separate appeal against the intimation generated under section 143(1) of the Act but in the interest of justice and fair play we accept the issue arising from intimation under section 143(1) of the Act in the proceedings arising under the provisions of section 143(3) r.w.s. 144C of the Act. 33.7 It is also pertinent to highlights that the statute does not permit the collection of tax beyond what is legitimately due from the assessee. Taxation must be based on liability established under the law, and merely because of a procedural lapse, an assessee cannot be compelled to pay tax that it is not legally required to pay. In this case, the assessee has provided documentary evidence showing that the gratuity payment was made before the due date of return filing, making it allowable under section 43B of the Act. Therefore, in our considered opinion merely the fact that the impugned disallowance was made in the intimation order u/s 143(1) of the Act and the assessee has not preferred appeal against the said intimation does means that assessee should be charged with taxes which he is not liable. 33.8 In view of the above detailed discussion and following the judicial precedence we hold that the disallowance made under section 143(1) of the Act, having been adopted and merged into the regular assessment under section 143(3) of the Act, is very much appealable in the context of the present proceedings. The disallowance of gratuity expenses is unjustified, both on merits and on procedural grounds. 33.9 Accordingly, we direct the AO to delete the disallowance of ₹5,13,01,761 made under section 43B of the Act towards gratuity expenses, as the payment was made within the statutory time and is otherwise allowable. Hence the ground of appeal of the assessee is hereby allowed.” ITA No.912/Hyd/2024 22 9.2 We have also gone through the para nos.6 to 8 of the order of this Tribunal in the case of Mantri Cosmos II Owners Welfare Association Vs. ACIT (supra), which is to the following effect : “ 6. We have considered the rival submissions as well as the relevant material available on record. As regards the issue of not challenging the order/intimation issued by the CPC u/s 143(1)(a) of the Act is concerned, it is pertinent to note that once the case of the assessee was taken up for scrutiny assessment and the order u/s 143(3) r.w.s. 144B of the I.T. Act, 1961 was passed by the Assessing Officer, then the intimation issued by the CPC u/s 143(1)(a) stands merged with the scrutiny assessment order passed by the Assessing Officer and should have no independent existence so long scrutiny assessment order is in existence. The Hon'ble Allahabad High Court in case of Khandelwal Rubber Products (P) Ltd vs. CIT (Supra) has an occasion to deal with this issue and held in para 21 to 23 as under: “21. On general principle, it is fundamental to the scheme of the Act, that there may only arise one assessment order for one assessment year in the case of any assessee. Once that assessment order came to be passed under Section 143(3) of the Act, it is the only that assessment order that may be enforced against the assessee. The intimation issued under Section 143(1) (a) of the Act, prior in time, lost its effect and stood subsumed in the subsequent scrutiny assessment order. Therefore, it could never be looked at independently for the purpose of imposition of demand of additional tax. 22. The decision in the case of Biland Ram Hargan Dass v. CIT [1987] Taxman 423/[1988] 171 ITR 390 (Allahabad) (35) is of no help to the revenue inasmuch as that was a case involving penalty under Section 271(1)(c) of the Act. That penalty being impossible for concealment of income consequent to scrutiny assessment ITA No.912/Hyd/2024 23 order under Section 143(3) of the Act, it has no application to the present facts involving demand of additional tax on simple processing of income. As noted above, processing of a return under Section 143(1)(a) of the Act is not an assessment order. 23. In view of the above discussion, the questions raised in the present appeal are answered, accordingly, i.e. favour of the assessee and against the revenue.” 7. Thus, it is clear that the Hon'ble High Court has held that intimation issued u/s 143(1)(a) would lose its effect and stands subsumed in the subsequent scrutiny assessment order and therefore, it could never be looked at independently for the purpose of raising of demand of tax. A similar view has been taken by the Delhi Benches of the Tribunal in case of South India Club vs. Income Tax Officer (Supra) in Para 12 as under: “12. Further we observe that the statutory notice u/s 143(2) was issued on 22.09.2019. Further notices u/s 142(1) were issued in order to proceed with the regular assessment. Accordingly, the assessment u/s 143(3) was completed. When regular assessment was completed and the relevant intimation issued u/s 143(1) will automatically merges with the assessment passed u/s 143(3). Therefore, it loses its relevance once the regular assessment is processed and it is only an intimation towards the accuracy of the information submitted by the assessee. In the given case, the assessee has claimed deduction u/s 11 and failed to file the form 10B along with the ROI. Based on the above observation, the claim of the assessee was denied by the AO in sec.143(1) proceedings. Therefore, there is no denial of fact that AO can make the above disallowance, however, the validity of the intimation issued u/s 143(1) is limited to mere intimation of correctness and accuracy of the income declared in ROI and its accuracy based on the information submitted along with the ROI. It does not carry the legitimacy of an assessment. When the assessment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the ITA No.912/Hyd/2024 24 findings of Learned CIT(A) that the intimation u/s 143(1) merges with the order passed u/s 143(3) of the Act and the appeal against the above intimation becomes infructuous. In our view, he should have stopped with the above findings and should not have proceeded to decide the issue on merits, because it is brought to his knowledge that the assessee has filed appeal against the regular assessment order. Therefore, he has travelled beyond the mandate. The issue of allowability of section 11 is already considered in the regular assessment and that issue is already in appeal before FAA. Therefore, reviewing the same is uncalled for.” 8. Accordingly, in view of the above cited judgement of the Hon'ble Allahabad High Court as well as the decision of the Delhi Benches of the Tribunal, we hold that the processing of the return of income by the CPC u/s 143(1)(a) of the Act got merged into scrutiny assessment order passed by the Assessing Officer and therefore, the appeal filed by the assessee against the scrutiny assessment ought to have been decided by the learned CIT (A) on the merits of the issue raised by the assessee.” 9.3 On perusal of above, we found that the Ld. DRP has rejected the claim of the assessee relying on the decision of the co-ordinate bench of ITAT in the case of Areca Trust Vs. CIT (Appellate Unit), (supra) and contended that the disallowance made by CPC u/s.143(1) of the Act should have been separately appealed and that, such an intimation u/s. 143(1) of the Act does not automatically merged with the final order u/s.143(3) of the Act. However, we find that the co- ordinate bench of Tribunal in the case of Toyota Boshoku ITA No.912/Hyd/2024 25 Automotive India Pvt. Ltd. Vs. DCIT (supra) has dealt with the case of Areca Trust Vs. CIT (Appellate Unit) (supra) and has categorically held that the intimation u/s.143(1) of the Act merged into the regular assessment u/s.143(3) of the Act. Further, this Tribunal in the case of Toyota Boshoku Automotive India Pvt. Ltd. Vs. DCIT (supra) has also held that the processing of ROI by CPC u/s.143(1) of the Act got merged into scrutiny assessment order passed by the Ld. AO. Therefore, considering the latest decision of the co-ordinate bench of Tribunal in the case of Toyota Boshoku Automotive India Pvt. Ltd. Vs. DCIT (supra) and Mantri Cosmos II Owners Welfare Association Vs. ACIT (supra), we hold that the intimation u/s.143(1) of the Act will merge in the order passed by the Ld. AO u/s.143(3) of the Act. Accordingly, the Ld. AO has to re-examine the correctness of the disallowances made by the CPC u/s.143(1) of the Act, although no appeal filed by the assessee against the intimation u/s.143(1) of the Act. Accordingly, this legal issue of the assessee is allowed. ITA No.912/Hyd/2024 26 10. Now coming to the merits of the case qua ground nos.3, 4 & 5 of the appeal, ground no.3 of the assessee is related to disallowance of exemption u/s.10AA of the Act amounting to Rs.19,98,93,744/-. 10.1 The Ld. AR submitted that, while processing the ROI u/s.143(1) of the Act, the CPC inadvertently disallowed the claim of exemption u/s.10AA of the Act of the assessee. He, further submitted that, the Ld. AO at page no.3 of the final assessment has specifically stated that, the submission of the assessee except on the issue covered under transfer pricing were found satisfactory and acceptable. Despite this, the Ld. AO erroneously adopted the income computed by CPC u/s.143(1) of the Act, thereby carry forward the disallowance of exemption claimed u/s.10AA of the Act. It was submitted that, this was a mistake apparent on record and the Ld. AO’s findings support the admissibility of the deduction. Accordingly, the Ld. AR prayed before the bench to delete the addition made by CPC u/s.143(1) of the Act on account of exemption claimed u/s.10AA of the Act. ITA No.912/Hyd/2024 27 10.2 Per contra, the Ld. DR placed the reliance on the order of Ld. AO. 10.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the relevant portion on page no.3 of the order of Ld. AO which is to the following effect : “ With respect to the issues other than those covered in the order u/s.92CA(3), the submission and the documents enclosed by the assessee are fully examined and considered. Based on the examination, the reply of the assessee is found satisfactory and acceptable. Going through the document / information available on the record of the ITBA and insight portal, no adverse inference is hereby drawn.” 10.4 On perusal of above, we found that the Ld. AO has clearly recorded that the assessee’s submission other than transfer pricing issue were verified and found acceptable. Despite this, the final computation mechanically adopted the total income as per intimation u/s.143(1) of the Act, including the disallowance of exemption claimed u/s.10AA of the Act. Accordingly, we set aside the issue to the file of Ld. AO to reconsider the claim of the assessee ITA No.912/Hyd/2024 28 and decide the same in accordance with law after due verification. Accordingly, the ground no.3 of the assessee is allowed for statistical purposes. 11. Ground no.4 of the assessee is related to disallowance made by CPC u/s.36(1)(va) of the Act amounting to Rs.53,68,126/- on account of disallowance of employees’ contribution to provident fund in spite of the fact that employees’ contribution to provident fund was paid within the due date under the respective law. However, the Ld. AO while framing the final assessment order inadvertently adopted the income determined by CPC u/s.143(1) of the Act without considering the submission of the assessee. Finally, the Ld. AR prayed before the bench to delete the disallowance made u/s.36(1)(va) of the Act for Rs.53,68,126/-. 11.1 Per contra, the Ld. DR submitted that the issue requires verification from the books of account of the assessee and prayed for remand of the issue to the file of Ld. AO for verification. ITA No.912/Hyd/2024 29 11.2 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We observe that the disallowance u/s.36(1)(va) of the Act was carried over from intimation u/s. 143(1), despite the Ld. AO was having the opportunity to verify the actual payment. Therefore, we set aside the issue to the file of Ld. AO with a direction to verify whether the employees’ contribution to provident fund were paid within the due date under the relevant statute and decide the issue afresh in accordance with law after providing proper opportunity of being heard to the assessee. Accordingly, ground no.4 of the assessee is allowed for statistical purposes. 12. Ground no.5 of the assessee is related to disallowance made u/s.43B of the Act for Rs.14,92,81,093/- on account of amount payable towards provident fund, professional tax, bonus and leave encashment. 12.1 The Ld. AR submitted that, the disallowance of Rs.14,92,81,093/- u/s.43B of the Act was made by CPC u/s.143(1) of ITA No.912/Hyd/2024 30 the Act even though the assessee had made all said payments within the stipulated time. This disallowance was also inadvertently retained by the Ld. AO from the income computed u/s.143(1) of the Act. Accordingly, the Ld. AR prayed before the bench to delete the disallowance made u/s.43B of the Act. 12.2 Per contra, the Ld. DR submitted that, the issue involves verification on the part of Ld. AO and hence prayed before the bench to set aside the issue to the file of Ld. AO for verification of facts. 12.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We observed that the disallowance u/s.43B of the Act was carried over from intimation u/s. 143(1), despite the Ld. AO was having the opportunity to verify the actual payment. Therefore, we set aside the issue to the file of Ld. AO with a direction to verify whether the amounts payable towards provident fund, professional tax, bonus and leave encashment were paid within the specified due date and decide the issue afresh in accordance with law after ITA No.912/Hyd/2024 31 providing proper opportunity of being heard to the assessee. Accordingly, ground no.5 of the assessee is allowed for statistical purposes. 13. Ground nos.6 & 8 of the assessee are related to levy of interest u/s.234A & 234B of the Act. These grounds being consequential in nature and are disposed of accordingly with a direction that the Ld. AO shall recompute the interest u/s. 234A & 234B of the Act based on the outcome of the remand proceedings. 14. Ground no.7 of the assessee is related to levy of interest u/s.234C of the Act. 14.1 The Ld. AR submitted that, the Ld. AO levied the interest u/s.234C of the Act on the assessed income, whereas, as per the provisions of the Act, interest u/s.234C is to be computed on the returned income. Accordingly, the Ld. AR prayed before the bench to make suitable direction to the Ld. AO to calculate the interest u/s. 234C of the Act on the returned income. ITA No.912/Hyd/2024 32 14.2 Per contra, the Ld. DR did not raise any objection in this regard. 14.3 We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. We have gone through the relevant portion of provisions contained in section 234C of the Act which is to the following effect : “ Interest for deferment of advance tax. 234C. (1) Where in any financial year,— (a) an assessee, other than the assessee referred to in clause (b), who is liable to pay advance tax under section 208 has failed to pay such tax or— (i) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income; ITA No.912/Hyd/2024 33 (ii) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income: Provided that if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates;” 14.4 On perusal of above, we found that interest u/s.234C of the Act is to be computed on shortfall in advance tax vis-à-vis the returned income, and not assessed income. However, as submitted by Ld. AR, the Ld. AO has computed interest u/s.234C of the Act on the assessed income, which is contrary to the provisions of section 234C of the Act. Therefore, we direct the Ld. AO to recompute the interest u/s.234C of the Act strictly on the basis of returned income. Accordingly, ground no.7 of the assessee is allowed for statistical purposes. ITA No.912/Hyd/2024 34 15. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 30th June, 2025. Sd/- Sd/- (VIJAY PAL RAO) (MADHUSUDAN SAWDIA) VICE PRESIDENT ACCOUNTANT MEMBER Hyderabad. Dated: 30.06.2025. * Reddy gp Copy of the Order forwarded to : 1. M/s. F5 Networks Innovation Pvt. Ltd., Unit Nos.801 to 804, Divija Commercial Pvt Ltd, Skyview 20, Raidurg Village, Serilingampally Mandal, Shaikpet, Cyberabad S.O., Hyderabad-500 081 2. ITO, Ward 17(1), Hyderabad. 3. Pr.CIT, Hyderabad. 4. DR, ITAT, Hyderabad. 5. Guard file. BY ORDER, "