Himanshu Gupta Vs ITO (ITAT Jaipur)
ITAT Jaipur held that addition by way of adjustment and intimation u/s 143(1) of the Act on debatable and controversial issue is beyond the scope of Section 143(1) of the Income Tax Act.
Facts-The assessee is a Doctor. For 3 years, the assessee did his internship with Medanta Hospital. Consequently, the assessee received the stipend for the same and the hospital deducted TDS on such payment. As per the case of the assessee, the payment of stipend is exempt as income and claimed credit of TDS which was deducted on the same.
However, it is important to mention the fact that out of 3 years, in one year and year three the assessee was allowed TDS credit and was accordingly issued a refund but in the subsequent year, the assessee received notice under section 143(1) of the Act intimating the assessee that the stipend is proposed to be added to the total income of the assessee.
Ignoring the response of the assessee and ignoring the fact that in two years the income was considered as exempt and without assigning any specific reason adjustment was made in the intimation order passed u/s 143(1) of the Act. Now the moot question before us is as to whether any addition by way of adjustment u/s 143(1) can be made on debatable issue or not.
Conclusion-In this very case, although in one year the same amount was treated as stipend exempt u/s 10(16) of the Act and in year two said amount was treated to be taxable income. Hence, issue was not simple but a debatable one and since the assessee filed rectification application u/s 154 of the Act for rectification of mistake apparent on record i.e. adjustment of debatable issue u/s 143(1) without assigning any reason for doing so. Hence, in view of the above discussions, the Bench is of the view that the addition by way of adjustment and intimation u/s 143(1) of the Act on debatable and controversial issue is beyond the scope of Section 143(1) of the Act and thus the Revenue was clearly in error in making aforesaid adjustments.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal filed by the assessee is directed against order of the ld. CIT(A) dated 27-09-2021, National Faceless Appeal Centre, Delhi [ hereinafter referred to as (NFAC) ] for the assessment year 2017-18 wherein the assessee has raised the following grounds of appeal
“1. In the facts and circumstances of the case and in law, the ld.CIT(A) has erred in confirming the action of the AO of treating stipend receipts as salary income of the assesse and there by confirming the addition of said income amounted to Rs.9,61,984/-. Action of ld. CIT(A) is illegal, unjust, arbitrary and against the facts of the case. Relief may please be granted by deleting the said addition of Rs.9,61,984/-.
2. In the facts and circumstances of the case and in law, the ld.CIT(A) has erred in not specifically adjuring the ground of the assessee wherein he objected that mistake apparent on record was not rectified by the AO u/s 154. Action of ld. CIT(A) is illegal, unjust, arbitrary and against the facts of the case. Relief may please be granted by allowing the rectification of apparent mistake
2.1 Apropos Ground No. 2 of the assessee, the facts of the present case are that the assessee is a Doctor. For 3 years, the assessee did his internship with Medanta Hospital. Consequently, the assessee received the stipend for the same and the hospital deducted TDS on such payment. As per the case of the assessee, the payment of stipend is exempt as income and therefore, the assessee declared the same as exempt income u/s 10(16) of the Act and claimed credit of TDS which was deducted on the same. However, it is important to mention the fact that out of 3 years, in one year and year three the assessee was allowed TDS credit and was accordingly issued refund but in the subsequent year i.e. the year under consideration (A.Y. 2017-18), the assessee received notice u/s 143(1) of the Act intimating the assessee that the stipend is proposed to be added to the total income of the assessee. As per records, in response thereto, the assessee categorically stated that said amount is not income but is exempt income u/s 10(16) of the Act being stipend. The said reply of the assessee has been placed on record in the PBP 22- 23. However, ignoring the response of the assessee and ignoring the fact that in two years the income was considered as exempt and without assigning any specific reason adjustment was made in the intimation order passed u/s 143(1) of the Act. Now the moot question before us is as to whether any addition by way of adjustment u/s 143(1) can be made on debatable issue or not. In this regard, the ld. AR of the assessee placed reliance on the decision of ITAT, Delhi Bench in the case of Garg Heart Centre and Nursing Home Pvt. Ltd. (ITA No. 1700/DEL/2022 whose relevant portion at para C.2(d) Page 25 is reproduced below.
‘’…(C2) In view of foregoing discussion , we come to the following conclusions:-
….
(d) Addition by way of adjustment and intimation u/s 143(1) of Income Tax Act on debtable and controversial issue is beyond the scope of Section 143(1) of Income Tax Act. Revenue was clearly in error in making the aforesaid adjustments..’’
Further reliance has been placed on the decision of Coordinate Bench of ITAT, Mumbai in the case of Kalpesh Synthetics (P) Ltd. vs DCIT (2022) 137 Taxmann.com 475 wherein it has been held that no adjustment u/s 143(1) can be made unless the objections raised by the assessee to proposed adjustment u/s 143(1) have been disposed off by the Assessing Officer, CPCP before proceeding further in the matter. The relevant extract is as under:-
‘’6……Coming to the mechanism of application of section 143(1), we find that the first proviso to section 143 (1) mandates 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” and, under the second proviso to section 143(1), “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. The scope of permissible adjustments under section 143(1)(a) now is thus much broader, and, as long as an adjustment fits the description under section 143(1)(a) (i) to (v), read with Explanation to section 143(1), such an adjustment, subject to compliance with first and second proviso to section 143(1), is indeed permissible. It is, however, important to take note of the fact that unlike the old scheme of ‘prima facie adjustments’ under section 143(1)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of ‘such adjustments’ [as proposed under section 143(1)], in writing or by electronic mode, and “the response received from the assessee, if any” to be “considered before making any adjustment” makes the process of making adjustments under section 143(1), under the present legal position, an interactive and cerebral process. When an assessee raises objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter-one way or the other, and such disposal of objections is a quasi judicial function. Clearly, the Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, once objections are raised before the Assessing Officer CPC and the Assessing Officer CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi judicial function that he is performing, and, in performing a quasi judicial function, he has to set out his specific reasons for doing so.
Disposal of objections cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out specific reasons for rejecting the same, Let us, in this light, set out the reasons for rejecting the objections. The Assessing Officer-CPC has used a standard reason to the effect that “As there has been no response/the response given is not acceptable, the adjustment(s) as mentioned below are being made to the total income as per provisions of section 143(1)(a)”, and has not ourselves, can such casually assigned reasons, which are purely on a standard template, can be said to be sufficient justifications for a quasi judicial decision that the disposal of objections inherently is? The answer must be emphatically in negative. It is important to bear in mind the fact that intimation under section 143(1) is an appealable order, and when consideration of objections raised by the assessee is an integral part of the process of finalizing the intimation under section 143(1) unless the reasons for such rejection are known, a meaningful appellate exercise can hardly be carried out. When the first appellate authority has no clue about the reasons which prevailed with the Assessing Officer- CPC, in rejecting the submissions of the assessee, because no such reasons are indicated by the Assessing Officer CPC anyway, it is difficult to understand on what basis the first appellate authority sits in judgment over correctness or otherwise of such a rejection of submissions. Whether the statute specifically provides for it or not, in our considered view, the need for disposal of objections by way of a speaking order has to be read into it as the Assessing Officer CPC, while disposing of the objections raised by the assessee, is performing a quasi judicial function, and the soul of a quasi judicial decision making is in the reasoning for coming to the decision taken by the quasi judicial officer. While on this aspect of the matter, we may usefully refer to the observations made by the Hon’ble Supreme Court, in the case of Union Public Service Commission v. Bibhu Prasad Sarangi [2021] 4 SCC 516. While these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon’ble Justice Chandrachud, Hon’ble Supreme Court has made the following observations:
’’Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations since what we have encountered in this case is no longer an isolated aberration. This has become a recurring phenomenon……How judges communicate in their judgments is a defining characteristics of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice being legitimacy of the judiciary.’’
2.2 During the course of hearing, the DR supported the order of the ld. CIT(A).
2.3 After considering the arguments of both the parties on this ground and after going through the decisions by the respective parties, the Bench finds that as per peculiar facts of the case that in one year, the same amount was treated as stipend exempt u/s 10(16) of the Act and in year two, said amount was treated to be taxable income. Hence, in my view, the issue is not simple but is debatable one and moreover no reason was assigned by the CPC for adjustment. Considering these facts, the Bench noticed that the assessee had filed rectification application u/s 154 of the Act for rectification of mistake apparent on record i.e. adjustment of debatable issue u/s 143(1) was without assigning any reason for doing so. The Bench from the records now reach to the conclusion that mechanism of application of Section 143(1) finds that the first proviso to Section 143(1) mandates 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’’and, under the second proviso to Section 143(1), ‘’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 adjustment shall be made’’. Thus, Bench is of the view that scope of permissible adjustment u/s 143(1)(a) is thus much broader, and, as long as an adjustments fits the description u/s 143(1)(a)(i) to (v) read with Explanation to Section 143(1), such an adjustment, subject to compliance with first and second proviso to Second provisos to Section 143(1), is indeed permissible. It is however, important to take note of the fact that unlike the old scheme of ‘prima facie adjustments’ u/s 143(1)(a), the scheme of present section 143(1) does not involve a unilateral exercise. The very fact that an opportunity of the assessee being provided with an intimation of ‘such adjustments’ [as proposed under section 143(1)], in writing or by electronic mode, and “the response received from the assessee, if any” to be “considered before making any adjustment” makes the process of making adjustments under section 143(1), under the present legal position, an interactive and cerebral process. Thus, as per the considered view of the Bench when an assessee raises objections to proposed adjustments under section 143(1), the Assessing Officer CPC has to dispose of such objections before proceeding further in the matter-one way or the other, and such disposal of objections is a quasi judicial function. Clearly, the Assessing Officer CPC has the discretion to go ahead with the proposed adjustment or to drop the same. The call that the Assessing Officer CPC has to take on such objections has to be essentially a judicious call, appropriate to facts and circumstances and in accordance with the law, and the Assessing Officer CPC has to set out the reasons for the same. Whether there is a provision for further hearing or not, the Bench is of the view that once objections are raised before the Assessing Officer CPC and the Assessing Officer, CPC has to dispose of the objections before proceeding further in the matter, this is inherently a quasi judicial function that he is performing and in performing a quasi judicial function, he has to set out his specific reasons for doing so. Disposal of objections in my view cannot be such an empty formality or meaningless ritual that he can do so without application of mind and without setting out specific reasons for rejecting the same. In this very case, although in one year the same amount was treated as stipend exempt u/s 10(16) of the Act and in year two said amount was treated to be taxable income. Hence, issue was not simple but a debatable one and since the assessee filed rectification application u/s 154 of the Act for rectification of mistake apparent on record i.e. adjustment of debatable issue u/s 143(1) without assigning any reason for doing so. Hence, in view of the above discussions, the Bench is of the view that the addition by way of adjustment and intimation u/s 143(1) of the Act on debatable and controversial issue is beyond the scope of Section 143(1) of the Act and thus the Revenue was clearly in error in making aforesaid adjustments.
Therefore, the Bench directs the Revenue to delete the addition so made and consequently the Ground No. 2 of the assessee is allowed.
3.1 Since the Bench has decided the Ground No. 2 and deleted the addition so made by the Revenue, therefore, it does not require to deal with the Ground No. 1 raised by the assessee. However, it is made clear that while deciding the Ground No.2, the Bench has not commented anything on the merits of the addition so made in Ground No. 1 and the decision of this Bench should not be taken as an expression on the merits of the addition made in Ground No. 1. Thus the appeal of the assessee is allowed.
4.0 In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 01/05/2023.