Exemption under Section 10(23EA) cannot be denied via

Exemption under Section 10(23EA) cannot be denied via Section 143(1) adjustments on debatable issues without prior intimation.

Issue

Whether the Central Processing Centre (CPC) is justified in making adjustments under Section 143(1) to deny an exemption under Section 10(23EA) without issuing a prior intimation of the proposed adjustment, and whether a debatable issue involving Section 11(7) falls outside the purview of prime facie adjustments under Section 143(1).

Facts

Status and Filing: The assessee is a trust operating as an Investor Protection Fund that filed its returns of income for the Assessment Years 2020-21 and 2021-22.
Exemption Claimed: For AY 2020-21, the assessee declared “Nil” income and claimed an exemption of approximately ₹26.38 crores under Section 10(23EA) regarding statutory contributions.
AY 2020-21 CPC Action: The return was processed under Section 143(1) by the CPC, which denied the exemption without sending any prior intimation or notice of the proposed adjustment to the assessee.
AY 2021-22 CPC Action: The CPC again processed the return under Section 143(1) and denied the Section 10(23EA) exemption, this time by invoking the restrictive provisions of Section 11(7).
First Appeal: The Commissioner of Income-tax (Appeals) [CIT(A)] accepted the assessee’s contentions for both years, deleted the CPC’s adjustments, and allowed the exemptions.

Decision

Violation of Natural Justice (AY 2020-21): The adjustments made by the CPC were held to be incorrect and liable to be dismissed because the mandatory prior intimation outlining the proposed adjustments was never issued to the assessee.
Debatable Issue Outside Section 143(1) (AY 2021-22): The invocation of Section 11(7) to deny an explicit statutory exemption under Section 10(23EA) is a highly debatable legal issue.
Scope of Adjustments: Because the issue is highly debatable, it cannot be classified as an “incorrect claim apparent from the face of the return,” thereby removing it entirely from the limited jurisdiction of Section 143(1) adjustments.

Key Takeaways

Mandatory Prior Notice: The CPC cannot make ad-hoc adjustments or disallowances under Section 143(1) without providing the assessee an explicit opportunity to respond via a prior intimation notice.
No Adjustments on Debatable Issues: Section 143(1) is strictly reserved for clear-cut, apparent clerical errors or arithmetic mistakes. Complex legal interpretations—such as the interplay between Section 10(23EA) and Section 11(7)—require regular assessment procedures and cannot be summarily decided.

IN THE ITAT MUMBAI BENCH ‘B’

Deputy Commissioner of Income-tax

National Stock Exchange Investor Protection Fund Trust^*

SAKTIJIT DEY, Vice President
and Prabhash Shankar, Accountant Member

ITA No.8231, 8256 (MUM) of 2025
[Assessment years 2020-21 and 2021-22]

MAY 21, 2026

Amit Kumar Singh, CIT-DR for the Appellant. Jehangir Mistri, Sr. Adv. and Harsh Kapadia for the Respondent.

ORDER

Prabhash Shankar Accountant Member.- The above captioned appeals have been preferred by the Revenue against the orders of even date as passed by the Learned Commissioner of Income-tax, Appeal, ADDL/JCIT(A), Gwalior [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 143(1) of the Incometax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Years [A.Ys.] 2020-21 and 2021-22. Since the issues involved are common and also the fact that appeals were heard together, they are being taken up together for adjudication vide this composite order for the sake of brevity.

2. The grounds of appeal are as under:

ITA No. 8256/MUM/2025

On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the receipts of assessee from National Stock Exchange and its members are exempt for tax by virtue of notification u/s. 10(23EA) of the Act ignoring the provisions of section 11(7) ofthe Act [as applicable prior to its amendment by the Finance (No. 2) Act, 2024 w.e.f. 01.04.2025] wherein it was stipulated that once a trust OR institution is granted registration under section 12A/12AA/12AB and such registration is in force, no exemption under section 10 [other than those specified in clauses (1), (23C), (23EC), (46), and (46A)] can be availed, thereby, the benefit of exemption u/s. 10(23EA) shall not be available to a trust simultaneously registered u/s. 12A which is the case of the assessee.

On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the contribution received to the tune of Rs. 26,37,73,403/- is exempt under section 10(23EA) of the Income-tax Act, 1961 by virtue of CBDT Notification No 253/2005 F. NO 178/71/2000-ITA-I dated 29.11.2005 notifying the assessee trust for the purpose of section 10(23EA) ignoring that the assessee has not established that the impugned receipts relate to such notified category and the assessees fund were actually governed and operated in accordance with the conditions prescribed therein.

On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the adjustment made by the CPC u/s. i43(i)(a) denying exemption u/s. 10(23EA) was beyond the scope of section 143(1), despite the fact that the incorrect claim was apparent from the return of income itself.

3. The assessee is a Trust and filed its return of income u/s 139(1) for relevant assessment year, declaring total income of Rs. Nil. The same was processed u/s 143(1) of the Act denying claim of exemption u/s 10(23EA) of the Act of Rs. 26,37,73,403/-. Therefore, the assessee filed appeal against intimation u/s 143(1) of the Act before the ld.CIT(A) contending that the said adjustment is beyond the scope of section 143(1)(a) of the Act. Further, the CPC Bengaluru has not issued any intimation of proposed adjustment. The contention of the assessee was found to be correct while the adjustment made by CPC was incorrect by the ld.CIT(A) who directed to delete the above adjustment and allow exemption u/s 10(23EA).

4. Before us, the ld.DR has relied on the grounds of appeal claiming that the adjustment was rightly done. However, he did not controvert the factual aspect that no show cause notice was issued by the CPC before resorting to the above adjustment u/s 143(1) of the Act.

5. With regard to validity of intimation order u/s 143(1)(a) of the Act, we deem it fit to reproduce the provisions as under:-

“Section 143(1) in The Income Tax Act, 1961 (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:-

(a) the total income or loss shall be computed after making the following adjustments, namely:-

(i) any arithmetical error in the return,

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under subsection (1) of section 139;

(iv) disallowance of expenditure [or increase in income) indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.-Deductions in respect of certain incomes”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode:

Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:

Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;”

5.1 It is, thus, clear from the provisions of section 143(1)(a) of the Act as reproduced above that no such adjustment as mentioned in the said section including the disallowance of loss claimed shall be made unless an intimation is given to the assessee of such adjustment, either in writing or in electronic mode. It is undisputed that no such intimation has been given to the assessee before making the aforesaid adjustment. We find that similar issue has been considered in favour of the assessees in a plethora of decisions by various coordinate benches of ITAT across the country, some of which are narrated for the sake of clarity. In the case of Onkar Society for Engineering and Technological Research and Development v. ITO (Kolkata – Trib.),it was observed as below:

“7. After hearing the rival contentions, perusing the material on record and also the proviso to section 143(1)(a) of the Act, we find that the ld. Assessing Officer CPC, before making any adjustment/disallowance to the returned income as per the return of income filed by the assessee is duty bound to intimate the same to the assessee either in writing or in the electronic mode. However, we find that no such intimation has been given to the assessee before making the said adjustment or disallowance either in writing or in electronic mode. We have also examined the records assessment proceedings on e-portal relating to the assessee as placed before us and observe that the ld. Assessing Officer, CPC has not followed the mandate of first proviso of section 143(1)(a) of the Act and consequently , the order passed under section 143(1) of the Act is not as per the mandate of provisions of the Act and has to be quashed.”

5.2 The case of the assessee finds force from the coordinate bench decision of Ahmedabad ITAT in the case of Arham Pumps v. Dy. CIT 195 ITD 679 (Ahmedabad – Trib.)/ITA No.206/Ahd/2021 as extracted below:-

“7. On going through the above section and proviso attached therein, the total income or loss shall be computed after making following adjustment mainly of any arithmetical error in the return. Incorrect claim, if such incorrect claim is apparent from any information in the return, etc. Thus, it is clear that a return can be processed u/s.143(1) by making adjustments on six types of adjustments only. The first proviso to section 143(1)(a) make it very clear that no such adjustment shall be made unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Apparently in the case of the assessee, no intimation had been given to the assessee for making any adjustment or disallowance either in writing or in electronic mode. Thus, the CPC center has not followed the first proviso to section 143(1)(a) of the Act. This position was not controverted by the ld. DR also. Assuming a moment, if such an intimation is given to the assessee as per first proviso, then the second proviso stipulates that if any response is received from the assessee, the same should be considered before making any adjustment or disallowance, and also in a case where no response is received, then within thirty days of the issue of such intimation, department is free to make such adjustment.

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(l)(a), and therefore, the entire 143(1) proceedings is invalid in law.

9. We also observe that the Id. NAFC has not looked into this fundamental principle of “audi alterm partem”, which has not been provided to the assessee as per the 1^st proviso of section 143(1) of the Act, but proceeded with the case on merits and a confirmed the addition made by the CPC. The ld. NFAC 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”.

6. After hearing the rival contentions, perusing the material on record and also the relevant provisions of the Act, we find that the CPC, before making any adjustment/disallowance to the returned income as per the return of income filed by the assessee, is duty bound to intimate the same to the assessee either in writing or in the electronic mode. However, we find that no such intimation has been given to the assessee before making the said adjustment or disallowance in any made. Therefore, we hold that the CPC has not followed the mandate of first proviso of section 143(1) of the Act and consequently, the intimation order making adjustment to the income is not as per the said provisions of the Act. Accordingly, we are of the considered opinion that the adjustments made by the CPC are not correct and liable to be deleted. The ld.CIT(A) rightly held that since no intimation was issued to the assessee prior to making adjustments u/s 143(1), therefore, the impugned adjustments are not correct and are liable to be dismissed. Therefore, we do not find any infirmity in his order which is upheld dismissing the grounds of appeal.

7. In the result, the Revenue’s appeal stands dismissed.

8. ITA No. 8231/MUM/2025

On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the receipts of assessee from National Stock Exchange and its members are exempt for tax by virtue of notification u/s. 10(23EA) of the Act ignoring the provisions of section 11(7) of the Act [as applicable prior to its amendment by the Finance (No. 2) Act, 2024 w.e.f. 01.04.2025] wherein it was stipulated that once a trust OR institution is granted registration under section 12A/12AA/12AB and such registration is in force, no exemption under section 10 [other than those specified in clauses (1), (23C), (23EC), (46), and (46A)] can be availed, thereby, the benefit of exemption u/s. 10(23EA) shall not be available to a trust simultaneously registered u/s. 12A which is the case of the assessee.

On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in holding that the contribution received to the tune of Rs. 1731,48,49,214/- is exempt under section 10(23EA) of 253/2005 the Income-tax F. Act, 1961 by virtue of CBDT Notification No NO 178/71/2000-ITA-I dated 29.11.2005 notifying that the assessee trust for the purpose of section 10(23EA) ignoring the assessee has not established that the impugned receipts relate to such notified category and the assessees fund were actually governed and operated in accordance with the conditions prescribed therein.

9. Facts of the case are that the assessee is a Public Charitable Trust and filed its return of income u/s 139(1) for A.Y. 2021-22 on 20.12.2021 declaring Nil income. The same was processed u/s 143(1) on 19.10.2022 by denying claim of exemption u/s 10(23EA) of the Act amounting to Rs. 17,31,48,49,214/-. Therefore, the assessee filed appeal against intimation u/s 143(1) of the Act before the ld.CIT(A) submitting that CPC Bengaluru has made adjustment u/s 143(1) by denying exemption u/s 10(23EA) of the Act of Rs. 17,31,48,49,214/- by invoking the provision of section 11(7) of the Act. It was contended that the said adjustment was beyond the scope of section 143(1)(a) of the Act. In response to the proposed adjustment sent by CPC, the assessee submitted the response inter alia stating that it was not required to file Return of Income u/s 139(4C) as section 10(23EA) has not specified therein. The assessee filed Return of Income u/s 139(4A). Further, it submitted that contribution of Rs. 17,31,48,49,214/- received as per SEBI guidelines is exempt u/s 10(23EA), being notified under that section. The response submitted by the assessee was not considered by CPC. The contention of the assessee was found to be correct by the ld.CIT(A) who held that the adjustment made by CPC was incorrect and directed the AO to delete the adjustment made and allow exemption u/s 10(23EA) of the Act. The ld.DR on the other hand, relied on the orders of the CPC. He also did not controvert the submission of the assessee that the response of the assessee to the show cause issued by the CPC was not was not considered by it.

10. Before us, the ld. Counsel has submitted that the assessee claimed exemption in respect of statutory contributions received from recognised Stock Exchange and the members thereof. It also claimed exemption u/s 11(1) and 11(2) of the Act in respect of other residual income. Such income from property was also exempted u/s 11(1)/(2) and also eligible for general exemption u/s 10(23EA) of the Act. It is contended that in terms of section 12 of the Act, only voluntary contributions are taxable and not the statutory contributions as in the instant case. Reliance was placed on its own case in ITA No.1021/Mum/2014 which was also affirmed by the hon’ble Bombay High Court. Moreover, the issue involved is a debatable one and therefore, cannot be subject matter of any adjustments u/s 143(1) of the Act. Attention has been drawn to the detailed written submission made in this regard before the ld.CIT(A) dated 25.09.2024 where it was inter alia claimed that it response to the show cause by the CPC was not considered at all.

10.1 Without prejudice, it is submitted that the CPC is not permitted to make such adjustments on debatable issues. Reliance has been placed on the decisions in the cases of Vodafone Idea Ltd. v. Asstt. CIT (SC), Kamal Textiles v. ITO 189 ITR 339 (Madhya Pradesh), CIT v. C.S. Kothari [2006] 286 ITR 397 (Madras) etc.

11. The ld.DR on the other hand relied upon the orders of the authorities below.

12. We have considered the rival submissions and perused the records. The provisions of section 143(1) of the Act as reproduced in para 5 above provide for prima facie adjustment only in certain case i.e. any arithmetical error in the return; an incorrect claim, if such incorrect claim is apparent from any information in the return; disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; disallowance of expenditure [or increase in income) indicated in the audit report but not taken into account in computing the total income in the return; disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading “C.- Deductions in respect of certain incomes”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return.

12.1 On careful consideration of the reply of the assessee as reproduced in the appellate order, it is evident that none of such adjustments apply to the facts of the case, Rather, the issue in no manner can be construed as incorrect claim apparent from the return. In fact such an issue apart from being a debatable one, requires due deliberation and appreciation of entire factual matrix of the case. Therefore, the same could not be adjudicated in a summary manner and therefore, beyond the purview of section 143(1) adjustments. Accordingly, we do not find any infirmity in the appellate order which is therefore upheld.

13. In the result, the appeal of the Revenue is dismissed.

14. In the final summing up, both the above stated appeal of the Revenue are dismissed.