KAILASH NARAYAN SHRIDHAR,VADODARA V. DEPUTY CIT CIRCLE 4(1), VADODARA

ITA 979/AHD/2024

AI Insights

The case involves Kailash Narayan Shridhar, who appealed against the order of the Commissioner of Income Tax (Appeals) which upheld the adjustments made by the CPC to his income tax return for the Assessment Year 2022-23. The CPC had restricted Shridhar's claim of exemption under section 10(10AA)(ii) of the Income-tax Act, 1961, without issuing a prior notice, leading to an increased tax liability. The Tribunal's decision focused on the procedural impropriety of the CPC in not providing the assessee an opportunity to respond before making the adjustments, as required by the statutory provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772640 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2022-2023
• Other Referred Cases: Devendra Singh Bhaskar v. DCIT, Arham Pumps Vs. DCIT, Khilav Rajendrakumar Joshi v. DCIT, CPC
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHIJIT
• Assessee Lawyers: KRUTARTH DESAI
• Keywords: Opportunity of being heard; Revised return; Question of law; Principle of natural justice; TDS
• Section: 154; 234B; 10; 10AA; 10(10AA)

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद Ɋायपीठ “B”, अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD ŵी संजय गगŊ, Ɋाियक सद˟ एवं ŵीमकरंद वसंत महादेवकर, लेखा सद˟ क े समƗ। BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER I.T.A. No.979/Ahd/2024 (Assessment Year: 2022-23) Kailash Narayan Shridhar, C-30, Shubh Duplex, Op. Novino Makarpura Road, Gujarat-390010 Vs. Deputy Commissioner of Income Tax, Circle-4(1), Vadodara [PAN No.AJOPS2884D] (Appellant) .. (Respondent) Appellant by : Shri Krutarth Desai, C.A. Respondent by: Shri Abhijit, Sr. DR Date of Hearing 21.08.2025 Date of Pronouncement 26.08.2025 O R D E R PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, transferred to the office of the Additional/Joint Commissioner of Income Tax (Appeals)-1, Nashik [hereinafter referred to as \"the CIT(A)\"], dated 13.03.2024, passed under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], for the Assessment Year 2022–23. The impugned order arises from the intimation issued by the Centralized Processing Centre, Bengaluru (“CPC”) under section 143(1) dated 06.03.2023. Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 2– Facts of the Case 2. The relevant facts of the case are that the assessee, an individual resident, filed his original return of income for A.Y. 2022–23 in ITR-3 on 30.07.2022 declaring total income at Rs. 1,09,84,741/-. Thereafter, a revised return of income was filed on 10.11.2022 declaring total income of Rs. 1,09,81,920/- wherein the assessee claimed refund of Rs. 69,250/-, primarily on account of claim of relief under section 89(1) amounting to Rs. 64,857. Subsequently, the Assistant Director of Income Tax rectified the order dated 07.12.2022 suo motu under section 154 on 28.12.2022. The assessee then filed a re-revised return of income on 29.12.2022 declaring total income of Rs. 95,10,910/-, claiming exemption of Rs. 17,71,010 under section 10(10AA)(ii) of the Act on account of leave encashment received at the time of retirement from Life Insurance Corporation of India (LIC). It was the case of the assessee that the exemption was allowable in full as the receipt was at the time of superannuation and that LIC being a statutory corporation, the limit of Rs. 3,00,000 was not applicable. 3. The return so filed was processed by the CPC, Bengaluru, under section 143(1) of the Act vide intimation dated 06.03.2023. In the said intimation, CPC restricted the assessee’s claim of exemption under section 10(10AA)(ii) to Rs. 3,00,000/- as against Rs. 17,71,010/- claimed, thereby disallowing Rs. 14,71,010/-. Consequently, the income under the head “Salaries” was enhanced from Rs. 72,98,447/- to Rs. 87,69,457/-, resulting in increase of gross total income from Rs. 98,73,885/- to Rs. Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 3– 1,13,44,895/-. After allowing deductions under Chapter VI-A of Rs. 3,62,975/-, the total income was determined at Rs. 1,09,81,920/- as against the returned income of Rs. 95,10,910/-. 4. On the above computation, CPC determined tax liability at Rs. 37,06,276/- as against Rs. 30,40,284/- declared in the return. Interest under sections 234B and 234C aggregating to Rs. 47,585/- was also levied as against Rs. 2,490/- shown by the assessee. Against total taxes paid of Rs. 37,55,014/- (advance tax Rs. 4,00,000/-, TDS Rs. 29,42,544/- self- assessment tax Rs. 4,12,470/-), CPC determined net refund of Rs. 1,153/- as against refund of Rs. 7,12,240/- claimed. After adjustment of Rs. 71,880 towards earlier refund, net demand of Rs. 70,730/- was raised. the assessee preferred appeal before the CIT(A), challenging the action of CPC, Bengaluru. The grounds of appeal raised before the CIT(A) broadly challenged: (i) adjustment without issuance of mandatory notice under section 143(1)(a) thereby violating natural justice, (ii) lack of jurisdiction of CPC to decide debatable issues, (iii) the intimation being non-speaking, (iv) wrongful restriction of exemption under section 10(10AA)(ii) to Rs. 3,00,000/- relying on CBDT Notification dated 31.05.2002, and (v) alternatively, claim for relief under section 89(1) on the taxed portion of leave encashment exceeding Rs. 3,00,000/-. The assessee also filed a detailed statement of facts and written submissions. The CIT(A), however, dismissed the appeal. In so far as the objection to non-issuance of notice u/s 143(1)(a) was concerned, it was held to be a hyper-technical plea since ample opportunity was given during Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 4– appellate proceedings, and the assessee was aware of the reasons of adjustment. On the jurisdictional plea, the CIT(A) observed that section 143(1) authorises CPC to make prima facie adjustments for incorrect claims apparent from return and restriction of exemption under section 10(10AA) falls within its purview. On merits, the CIT(A) held that exemption under section 10(10AA)(i) is applicable only to employees of Central or State Government, and LIC not being such an employer, the assessee’s case was governed by clause (ii), which restricts exemption to Rs. 3,00,000 as per CBDT Notification S.O. 588(E) dated 31.05.2002. As regards the alternative claim for relief under section 89(1), no directions were issued, and the ground was dismissed. In the result, the appeal was rejected in toto. 5. Aggrieved by the order of CIT(A), the assessee is in appeal before us raising following grounds of appeal: “1. 143 1 a The Ld Addl JCIT A grossly erred on facts and in law in dismissing the appeal without giving valid reason and relying upon inapplicable case law etc while adjudicating the preliminary issue raised regarding the violation of statutory provision of Sec 143 1 a of the Income tax Act 1961 the Act in the form of non issue and service of the notice by the AO u s 143 1 a of the Act before making the adjustment of RS 1471010 2. 143 1 The Ld Addl JCIT A grossly erred on facts and in law in dismissing the ground no 2 raised in the appeal as regards jurisdiction of Ld AO to pass the order u s 143 1 making the addition to the declared income. 3. 143 1 Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 5– The Ld Addi JCIT A grossly erred on facts and in law in dismissing the ground no 3 that the order of the Ld AO appealed against is not a speaking order. 4. Sec 10 10AA ii wrongly disallowed The Ld Addl JCIT A has grossly erred in law and is not justified in confirming the addition made by the Ld AO without deciding the involved question of law and not allowing the exemption exceeding RS 3 lakhs u s 10 10 AA ii of the Act considering the invalid Gazette Notification No 50588 E dated 31 05 2002 issued by CBDT effective 01.04.1998 5. Sec 89 1 The Ld Addl JCIT A grossly erred in not adjudicating the raised ground in appeal to the effect that alternatively the taxed Leave Encashment amount exceeding RS 3 lakhs qualifies for relief u s 89 1 of the Act. 6. Sec Addition alteration of ground of appeal Your appellant craves leave to add amend alter withdraw any ground of appeal. 6. During the course of hearing before us, the Learned Authorised Representative (AR) of the assessee contended that the adjustment made by CPC in the intimation under section 143(1) is in gross violation of the statutory mandate and the principles of natural justice. It was submitted that the CPC, while restricting the claim of exemption under section 10(10AA)(ii), failed to issue any prior notice as required under the first proviso to section 143(1)(a) of the Act, thereby depriving the assessee of an effective opportunity to furnish explanation or evidence in support of his claim. The Learned AR further submitted that in the interest of justice, and in order to provide the assessee an effective opportunity of being heard, the matter may be restored back to the file of the Assessing Officer for fresh adjudication on merits. Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 6– 7. In reply, the Learned Departmental Representative (DR) supported the orders of the lower authorities. 8. We have carefully considered the rival submissions, perused the material placed on record, and duly taken note of the decisions placed before us. The limited issue before us is whether the CPC, while processing the return under section 143(1), was justified in making an adjustment to the assessee’s claim of exemption under section 10(10AA)(ii) without issuing any prior intimation as contemplated under the first proviso to section 143(1)(a). 9. On a plain reading of the statutory provision, it is manifest that no adjustment under section 143(1)(a) shall be made unless an intimation is first given to the assessee of the proposed adjustment, and the response, if any, received from the assessee is duly considered. This requirement is not merely procedural but goes to the root of the validity of the proceedings. In the present case, it is an admitted position that no such notice or intimation was given to the assessee before restricting the exemption claim. The assessee’s grievance, therefore, is squarely covered by decisions of Co-ordinate Benches. 10. In case of Devendra Singh Bhaskar v. DCIT (ITA No. 431/Ahd/2022, order dated 11.10.2023), the Co-ordinate Bench held that – “10.2. As per first proviso to section 143(1)(a), the total income or loss shall be computed after making following adjustments namely (i) arithmetical error in the return, (ii) incorrect claim which is apparent from any information in the return, then CPC is entitled to make adjustments as per 1st proviso of Section Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 7– 143(1)(a) by giving an intimation to the assessee either in writing or in electronic mode before making such adjustments. In response to first proviso, when the assessee replies the same shall be considered before making any adjustments u/s. 143(1)(a) and in case, the assessee fails to response within 30 days of issue of such intimation, the CPC is empowered to make such adjustments. Here, in this case, the assessee was not given any intimation as per 1st proviso to section 143(1)(a) of the Act and CPC straight away made adjustments in 143(1) proceedings and communicated to the assessee by reducing the refund claimed by the assessee. The assessee in his written submission also relied upon Co-ordinate Bench decision in the case of Arham Pumps Vs. DCIT in ITA No. 206/Ahd/2021 dated 27-04-2022 wherein it is held as follows: “….8. On going through the above intimation made under section 143(1), CPC has not followed the above provisos by giving proper opportunity to the assessee to defend its case as per the first proviso to section 143(1)(a) . Further, the NFAC order is also silent about the intimation to the assessee. Therefore, we find that intimation issued under section 143(1) dated 19.10.2019 is against first proviso to section 143(1)(a), and therefore, the entire 143(1) proceedings is invalid in law. 9. We also observe that the ld.NAFC has not looked into this fundamental principle of “audi alterm partem”, which has not been provided to the assessee as per the 1st proviso of section 143(1) of the Act, but proceeded with the case on merits and also confirmed the addition made by the CPC. The ld.NAFC is thus erred in conducting the faceless appeal proceedings in a more mechanical manner without application of mind. We therefore hereby quash the intimation issued by the CPC and allow the appeal filed by the assessee.” 11. Respectfully following the above decision of ours which was again challenged by the Revenue by way of an M.A. No. 59/Ahd/2022. The same was also dismissed by this Bench vide order dated 03-05-2023. Even in the present case, we notice that the intimation passed u/s. 143(1) dated 15-07-2021 is violation of 1st proviso to section 143(1)(a) of the Act by not offering hearing to the assessee. Therefore, the entire proceedings u/s. 143(1) is vitiated and invalid in law. Consequently, the intimation passed by CPC is hereby quashed. Thus we are not adjudicating the other grounds raised on merits of the case. 12. In the result, the appeal filed by the Assessee is allowed.” Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 8– 11. Similarly, in Khilav Rajendrakumar Joshi (Legal heir of Late Rajendrakumar S. Joshi) v. DCIT, CPC (ITA No. 33/SRT/2024, order dated 08.11.2024), the Co-ordiante Bench took the same view and quashed the intimation issued under section 143(1), holding that any adjustment without issuing prior intimation is contrary to the statutory mandate and violative of natural justice. 12. Respectfully following the aforesaid decisions of the Co-ordinate Benches, and in the absence of any contrary decision of jurisdictional High Court or higher forum brought to our notice, we hold that the intimation issued by CPC under section 143(1) dated 06.03.2023 is invalid in law. Consequently, the order of the CIT(A) upholding such intimation cannot be sustained. 13. We make it clear that since we have invalidated the intimation itself for non-compliance with the mandatory statutory requirement, we are not adjudicating upon the merits of the claim of exemption under section 10(10AA) or the alternative plea for relief under section 89(1). 14. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 26/08/2025 Sd/- Sd/- (SANJAY GARG) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad; Dated 26/08/2025 Manish TRUE COPY Printed from counselvise.com ITA No. 979/Ahd/2024 Kailash Narayan Shridhar vs. DCIT Asst.Year –2022-23 - 9– आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 22.08.2025(Dictated on dragon software by Hon’ble Member) 2. Date on which the typed draft is placed before the Dictating Member 22.08.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .08.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement .08.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 26.08.2025 7. Date on which the file goes to the Bench Clerk 26.08.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "