Section 143(1)(a) adjustments made without prior show-cause

Section 143(1)(a) adjustments made without prior show-cause notice are invalid and liable to be quashed.

Issue

Whether an intimation issued under Section 143(1)(a) of the Income-tax Act, 1961 making statutory adjustments to a return of income is legally valid if passed without issuing a prior show-cause notice to the assessee.

Facts

Return of Income: For Assessment Year 2017–18, the assessee filed its return of income in Form ITR-7 declaring its income and claiming credit for Tax Deducted at Source (TDS).
CPC Processing & Adjustments: The Central Processing Centre (CPC) processed the return under Section 143(1) and made specific adjustments, including the disallowance of current year losses deemed ineligible and partial allowance of the claimed TDS credit.
Procedural Omission: The CPC issued the intimation containing these adjustments directly, without giving prior intimation or issuing a show-cause notice to the assessee inviting objections.
Legal Challenge: The assessee challenged the validity of the Section 143(1)(a) intimation on the ground that the mandatory procedural requirement of prior intimation/notice before making adjustments was violated.

Decision

Mandatory Prior Notice: The tribunal/court held that it is compulsory for the Revenue to issue a prior show-cause intimation to the assessee before executing any adjustments under Section 143(1)(a).
Lack of Merit in Adjustment: Passing an adjustment intimation under Section 143(1)(a) without giving advance notice deprives the assessee of an opportunity to respond, making the Assessing Officer’s order legally unsustainable [Para 7.1].
Intimation Quashed: Due to the failure to issue a mandatory pre-adjustment show-cause notice under Section 143(1), the impugned intimation was declared invalid and quashed in favour of the assessee [Para 7.1].

Key Takeaways

Mandatory Natural Justice Requirement: The proviso to Section 143(1)(a) mandates that no adjustments—such as loss disallowance or TDS credit adjustments—can be made unless the assessee is given prior notice seeking a response.
Jurisdictional Defect: Processing a return with adjustments without providing prior intimation creates a fatal procedural defect, rendering the resulting Section 143(1) intimation void ab initio.
Protection Against Unilateral CPC Adjustments: Taxpayers are statutorily protected against automated or unilateral additions and disallowances made by the CPC without an opportunity to clarify discrepancies.

IN THE ITAT KOLKATA BENCH ‘A’

Bengal Chamber of Commerce & Industry

Income-tax Officer (Exemption)^*

Duvvuru RL Reddy, Vice President
and Rajesh Kumar, Accountant Member

IT Appeal No. 2028 (Kol.) of 2026
[Assessment year 2017-18]

AUGUST 27, 2026

S.K. Tulsiyan, Adv., Ms. Puja Somani, C.A. and Vivek Jalan, FCA for the Appellant. Sobhan Sutradhar, Sr. D.R. for the Respondent.

ORDER

Duvvuru RL Reddy, Vice-President.- The present appeal is directed at the instance of assessee against the order of ld. Addl./Joint Commissioner of Income Tax (Appeals)-1, Visakhapatnam dated 6^th March, 2026 passed under section 250 of the Income Tax Act, 1961 in Assessment Year 2017-18.

2. The facts in brief are that the assessee filed its original return of income in ITR 7 on 31.10.2017 declaring gross income of Rs.1,11,15,332/-. The return was processed by CPC on 30.03.2019 and exemption claimed by the assessee was allowed as per Income Tax Act disallowing ineligible losses of current year of Rs.79,93,201/-. In the processing, TDS credit of Rs.20,22,621/-was only allowed out of total TDS claimed of Rs.27,05,552/-. Being dissatisfied, the assessee filed rectification petition dated 30.03.2019 being dissatisfied with intimation passed under section 143(1) and the issues raised in the rectification petition have been examined and verified. Necessary rectification order was passed by the ld. Assessing Officer under section 154 of the Income Tax Act, 1961 on 26.07.2022 with total income of Rs.70,28,681/. In this order, a refund of Rs.1,15,471/- was determined to the assessee. However, the said refund was not credited to the account of the assessee due to some technical glitches in the system. The assessee filed grievance for issuance of refund. The ld. Assessing Officer passed order under section 154/143(1) dated 05.09.2023 determining the refund amount of Rs.1,15,471/-. Thereafter, the ld. Assessing Officer passed rectification order denying the deduction of deficiency/deficit claimed of Rs.39,06,550/- in terms of section 44A of the Income Tax Act, 1961 being the amount received during the previous year falls short of the expenditure incurred during the previous year resulting to excess amount applied towards charitable purposes over its receipts and TDS credit of Rs.6,82,931/-. The ld. Assessing Officer determined the total assessed income of the assessee at Rs.70,28,681/- and demanded penalty of Rs.12,18,658/-. Being aggrieved, the assessee preferred an appeal before the ld. CIT(A).

3. The appeal filed before the ld. Addl./JCIT(Appeals) is delayed by 415 days. The appellant has not sought condonation of delay in Form 35 with documentary evidence. The ld. Addl./JCIT(Appeals) was of the opinion that in absence of any substantiation, the grounds for condonation of delay as mentioned by the assessee, is merely a bald assertion without any basis, which is not supported by cogent and proper evidence and the same would not, as such, constitute ‘sufficient cause’ within the meaning of section 249(3) of the Act. The ld. Addl./JCIT(Appeals) did not condone the delay and without condoning the delay dismissed the appeal of the assessee and without going into merits of the case as there was no sufficient cause for condonation of the delay in filing of the appeal as well as negligent attitude on the part of the appellant by mentioning that this case is not fit for condonation of delay within the specified time limit before him. Moreover, after considering the submissions made by the assessee, the ld. CIT(Appeals) observed that the original cause of action in the present case had arisen at the stage of the proceedings under section 143(1) and not under section 154. The appellant was trying to make a back-door entry by filing an appeal against the order under section 154. Therefore, the ld. CIT(Appeals) opined that this issue cannot be adjudicated upon in the present appeal, and dismissed the grounds raised by the assessee. On being aggrieved, the assessee preferred appeal before the ITAT.

4. The assessee filed additional grounds of appeal before the Tribunal, which read as under:-

(i)

That on the facts of the case and in law, the ld. AO CPC in the intimation issued u/s 143(1) of the Act dated 30.03.2019 erred in not following the mandat4e as required by first proviso to section 143(1) of the Act, which says that no such adjus4tment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode.

(ii)

That on the facts of the case and in law, the petition filed by the assessee u/s 154 of the Act dated 05.01.2022 seeking to recall the intimation passed u/s 143(1) of the Act dated 03.03.2019 wherein impugned variations were made, being in harmony with the adjustment made in the intimation u/s 143(1) of the Act, was unfairly rejected by the lower authorities”.

5. At the time of hearing, it was the submission of the ld. Counsel for the assessee that the ld. CIT(Appeals) dismissed the appeal of assessee for not furnishing satisfactory explanation before him within the stipulated period of time. The appellant had demonstrated sufficient cause i.e. the cessation of employment of the Head of Finance who exclusively managed tax matters, and the delay was neither deliberate nor negligent. The CIT(Appeals) just simply upheld the order of ld. Assessing Officer and without going into merit of the case. The ld. Counsel for the assessee also pleaded that the ld. Assessing Officer in making the impugned adjustment while processing the return under section 143(1) of the Act without issuing any notice or intimation as mandated in first proviso to section 143(1)(a) thereby rendering the adjustment arbitrary, illegal and which is liable to be deleted. The ld. Counsel relied on the judgment of the Hon’ble Supreme Court in the case of Jute Corpn. of India Ltd. v. Commissioner of Income-tax [1991] 187 ITR 688 (SC) as well as the judgment in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC) (SC) (SC). Therefore, ld. counsel prayed before the Bench to set aside the order passed by the revenue authorities.

6. At the time of hearing, it was the submission of the Id. Departmental Representative that the assessee failed to offer any explanation/supporting documents in respect of the grounds of appeal raised by it before the ld. Assessing Officer as well as ld. CIT(Appeals). The assessee also not filed any documentary evidence in support of delay in filing appeal before the ld. CIT(Appeals) and for this reason, ld. CIT(Appeals) dismissed the appeal of assessee for not furnishing satisfactory explanation before him for delay within the stipulated period of time. He also contended that the ld. CIT(Appeals) dismissed the appeal filed by the assessee saying for lack of two conditions, i.e. (i) proven absence of negligence and (ii) presence of satisfactory levels of diligence and by relying on the following decisions:-

(i)

Ramlal, Motilal and Chhotelal v. Rewa Coalfields Ltd. AIR 1962 SC 361 and Jt. CIT v. Tractors & Farm Equipments Ltd. [2007] 104 ITD 149/[2006] 105 TTJ 705 (Chennai) ;

(ii)Brijinders

Singh v. Kanshi Ram AIR 1917 PC 156, Baroda Rayon Corporation Ltd. v. Commissioner of Sales Tax (1992) 87 STC 266, M. Krishna Rao D. Phalke v. Trimbak AIR 1938 NAG. 156, Baldeo Lal Roy v. State of Bihar (1960) 11 STC 104 (Pat);

(iii)

Mrs. Anita Chadha v. CIT (P&H),

(iv)

CIT v. Maharashtra State Govt. Employee Confederation [Appeal No. CC3159-3160 of 2009 23.03.2009] (SC).

Therefore, the ld. D.R. pleaded to uphold the order passed by the ld. Addl./JCIT(Appeals).

7. We have heard both the sides and perused the material available on record. We find that the AO-CPC passed intimation order under section 143(1) of the Act making certain adjustments to the returned income. The assessee filed appeal before the ld. Addl/JCIT(Appeals) with a delay of 415 days. The assessee due to non-availability of accounts, remained unaware of the intimation under section 143(1) of the Act having been passed. Ultimately the assessee came to know about the demand and thereafter steps were taken and an appeal was filed with a delay of 415 days. The claim of the assessee is that since no statutory notice was ever served and the entire proceedings were conducted ex-parte without its knowledge, the delay in filing the appeal arose from circumstances entirely beyond its control, constituting sufficient cause under section 249(3) of the Act, which hindered the appellant to access the impugned order and failed to substantiate its claim by uploading relevant documents. Due to that reason, the delay occurred. Considering the facts and circumstances, the delay of 415 days in presenting appeal before the ld. CIT(Appeals) is condoned.

7.1. Now we proceed to decide the issue on merit. We note that in terms of provisions of section 143(1)(a) of the Act, any adjustment as contemplated the provision of section 143(1)(a)(vii) of the Act cannot be made unless intimation is given to the assessee of such adjustment either in writing or in electronic mode. The assessee also placed before us, therefore, ld. AR submitted that since the intimation under section 143(1)(a) of the Act has been passed without giving any intimation to the assessee of such adjustment, the order of ld. Assessing Officer has no merit. A perusal of intimation under section 143(1) of the Act also does not show of any show-cause notice being issued to the assessee before making such adjustment. Even the ld. Addl./JCIT(Appeals) has not taken into consideration the fact that no show-cause notice has been issued to the assessee before making adjustment in the order passed under section 143(1) of the Act by the ld. AO-CPC. A perusal of the provisions of section 143(1) of the Act shows that it is compulsory for the revenue to issue show-cause notice before making any adjustment in the intimation under section 143(1) of the Act. This being so, as no show-cause notice under the provisions of section 143(1) of the Act has been issued before making adjustment, the intimation issued u/s 143(1) of the Act is invalid and stands quashed. In consequence thereof, the order passed by the ld. Addl./JCIT(Appeals) is unsustainable.

8. In the result, the appeal of the assessee is allowed.