Case Law Details
Gokhale Memorial Girls School Vs ITO (ITAT Kolkata)
The Income Tax Appellate Tribunal (ITAT), Kolkata, allowed the assessee’s appeal by holding that an intimation under Section 143(1) of the Income-tax Act could not be issued after the case had already been selected for scrutiny through a notice under Section 143(2).
The assessee filed its return of income for Assessment Year 2024-25 on 16.10.2024 declaring nil income. The return was selected for scrutiny to examine the issue relating to the constitution of the trust, and a notice under Section 143(2) was issued on 26.04.2025. Thereafter, the case was assigned to the Faceless Assessment Unit for completion of assessment. The assessee had claimed exemption under Section 10(23C)(VI). Subsequently, the Centralised Processing Centre (CPC) passed an intimation under Section 143(1) dated 22.12.2025 rejecting the exemption claim on the ground that Form No. 10B had been filed belatedly. The Commissioner (Appeals) upheld the action of the Assessing Officer.
Before the Tribunal, the issue was whether the intimation under Section 143(1), issued after the case had already been selected for scrutiny, was valid. The Tribunal noted that the notice under Section 143(2) had been issued on 26.04.2025, whereas the intimation under Section 143(1) was issued much later on 22.12.2025. It accepted the assessee’s contention that once scrutiny proceedings have commenced, an intimation under Section 143(1) cannot be issued thereafter.
The Tribunal relied on the coordinate bench decision in MP Madhyam v. DCIT (CPC), which had followed the decisions of the Calcutta High Court in CESC Ltd. v. DCIT, the Gujarat High Court in Gujarat Poly-AVX Electronics Ltd., and the Supreme Court in Vodafone Idea Ltd. v. ACIT. These decisions held that once proceedings under Section 143(3) are initiated through issuance of a notice under Section 143(2), the Assessing Officer has no jurisdiction to initiate parallel proceedings by processing the return under Section 143(1). The Tribunal also noted that the Supreme Court had observed that processing a return under Section 143(1) while scrutiny proceedings are pending would be anomalous and incongruent.
The Tribunal further noted that judicial precedents have held that once a regular assessment under Section 143(3) is undertaken, the order or intimation under Section 143(1) ceases to operate and merges with the assessment order. Following these binding precedents, it held that the intimation issued under Section 143(1) after commencement of scrutiny proceedings was invalid. Consequently, the Tribunal quashed the intimation passed under Section 143(1), allowed Ground No. 1 raised by the assessee, and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This is an appeal preferred by the assessee against the order of the Commissioner of Income-tax (Appeals)(hereinafter referred to as the “Ld. CIT(A)”] dated 07.02.2026 for the AY 2024-25.
2. The assessee has raised ground no.1 as under:-
“1. For that the Id. Appellate authority erred in confirming the intimation u/s 143(1) dated 22.12.2025 and making adjustment in the returned income which was bad in law since the return itself was already taken up for scrutiny by issue of notice u/s 143(2) dated 24.06.2025.”
3. The facts in brief are that the assessee filed the return of income on 16.10.2024, declaring total income at t Nil. The case of the assessee was selected for scrutiny to examine the issue of constitution of trust and accordingly, notice u/s 143(2) of the Income-tax Act, 1961 (the Act) was issued on 26.04.2025, which has been served upon the assessee. Thereafter, the case was assigned for completion of assessment to faceless assessment unit, after sending intimation to the assessee. On perusal of the ITR it is seen that the assessee has claimed exemption u/s 10(23C)(VI) of the Income-tax Act, 1961 (the Act). Pertinent to state that the Id. AO/ CPC passed the order u/s 143(1) of the Act dated 22.12.2025, by rejecting the exemption claimed by the assessee u/s 10(23C)(VI) of the Act on the ground that form 10B was belatedly filed.
4. The appeal was dismissed by the Id. CIT(A) by upholding the order of Assessing Officer.
5. We have heard the rival contentions and perused the materials placed before us carefully. The issue before us is whether the intimation passed by the AO CPC after selection of scrutiny is valid or not. Considering the facts of the case, we find merit in the contention of the assessee that the case of the assessee was selected for scrutiny on 26.04.2025, whereas the intimation u/s 143(1) was passed by AO/ CPC on 22.12.2025 post selection of scrutiny proceedings, which is invalid for the reason that once the case is fixed for scrutiny then no intimation u/s 143(1) can be passed. The case of the assessee is squarely covered by the decision of the coordinate Bench in the case of MP Madhyam Vs. DCIT (CPC) in ITA Nos. 424 & 426/Ind/2022 for AYs 2016-17 and 2017-18 vide order dated 30.08.2023, wherein the co-ordinate Bench has decided the similar issue in favour of the assessee after following the decision of jurisdictional High Court in case of C.E.S.C. Ltd. Vs. DCIT [2004] 134 TAXMAN 647 (CAL.) vide order dated 22.04.2003 and various other decisions. The operative part whereof is extracted below:-
“5. After the AO issued the notices u/s 143(2) for A.Y.2016-17 & 201718 the CPC passed the impugned orders u/s 143(1) on 21.02.2018 & 31.03.2019 respectively. Therefore, the impugned orders passed by the CPC u/s 143(1) are subsequent to the returns of income already taken up for scrutiny by the AO. The Hon’ble Gujarat High Court in case of Gujarat Poli-Aux Electronics Ltd. vs. DCIT (supra) has held in para 15 & 16 as under:
“15. Mr. Shah, learned Counsel has placed reliance on the decision of Calcutta High Court in the case of Modern Fibotex India Limited v. Dy. C.I.T., 212 ITR 496. In view of the Calcutta High Court when once notice under Section 143(2) has been issued there is no scope for Assessing Officer either to make prima facie adjustment on the basis of the return as filed or issue intimation under Section 143(1)(a) of the Act. Emphasis is given to the omission by the legislature with regard to savings of powers as is found in sub-section (1) of Section 143. If issuance of notice under Section 143(2) would have been without prejudice to “intimation under Section 143(1) it could be said that parallel proceedings are permitted. The legislature specifically provided that issuance of intimation under Section 143(1)(a) would be without prejudice to provisions of Section 143(2). The provision is made so as to indicate the difference in the nature of two subsections. In view of Calcutta High Court the jurisdiction exercised under Section 143(1)(a) of the Act is a summary one. Looking to the language of Section 143(2) of the Act, it is clear that the Assessing Officer has to follow the procedure under Section 143(3) of the Act for making assessment. Mr. Shah, learned Counsel, submitted that in the instant case by issuing notice under Section 143(2) of the Act proceedings commenced under Section 143(3) of the Act. According to him, once the proceedings under Section 143(3) of the Act have commenced the Assessing Officer has no power to pass order under Section 143(1) of the Act. He submitted that order passed by Assessing Officer is without jurisdiction and, therefore, it must be quashed and set aside and the party should not be relegated to alternative forum. He pointed out the procedure and drew our attention to the decision of the Apex Court in the case of Calcutta Discount Company Limited v. ITO (4) ITR 191). The Court has held as under:
… though the writ or prohibition or certiorari would not issue against an order prohibiting an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. When the Constitution conferred on the High Courts the power to give relief it became the duty of the courts to give such relief in fit cases and the courts would be failing to perform their duty if relief were refused without adequate reasons.”
16. In this view of the matter, we are of the opinion that after issuance of notice under Section 143(2) of the Act, it is not open for the Assessing Officer to make adjustment or to pass order under Section 143(1) of the Act but has to make assessment in accordance with law, I.e., under Section 143(3) of the Act.”
6. Thus, the Hon’ble High Court has held that after issuing notice u/s 143(2) of the Act it is not open for the AO to make adjustment or to pass the order u/s 143(1) of the Act but has to make the assessment in accordance with provisions of section 143(3) of the Act. Therefore, once the proceedings u/s 143(3) are initiated by the AO by issuing notice u/s 143(2) then the AO has no jurisdictional to initiate parallel proceedings of processing the return u/s 143(1) of the Act. The Hon’ble Supreme Court in case of Vodafone Idea Limited vs. ACIT 424 ITR 664 has also observed in para 18 as under:
“18. The exercise of power under sub-sections (2) and (3) of Section 143 of the Act is thus premised on non-acceptance of what is evident from the return itself and to ensure that there is no avoidance of tax in any manner. The dimension of such power is far greater and deeper than mere adjustments to be made in respect of what is available from the return. Once such scrutiny is undertaken and proceedings are initiated by issuance of a notice under sub-section (2) of Section 143, it would be anomalous and incongruent that while such proceedings so initiated are pending, the return be processed under sub-section (1) of Section 143, which may in a given case, entail payment of refund. Logically, the outcome of the exercise initiated through notice under sub-section (2) of Section 143, must determine whether any refund is due and payable. If the return itself is under probe and scrutiny, such return cannot be the foundation to sustain a claim for refund till such scrutiny is not complete. Considering the nature of power exercisable under these two limbs of Section 143, the inescapable conclusion is that the processing of return under sub-section (1) of Section 143 must await the further exercise of power of scrutiny assessment under sub-sections (2) and (3) of Section 143. If the power under subsection (2) of Section 143 of the Act is initiated in a manner known to law, there cannot be any insistence that the processing under subsection (1) of Section 143 be completed and refund be made before the scrutiny pursuant to notice under sub-section (2) of Section 143 is over.”
7. Thus, the Hon’ble Supreme Court has held that once the scrutiny is undertaken and proceedings are initiated by issuance of notice u/s 143(2) it would be anomalous and incongruent that while such proceedings so initiated are pending, the return be processed u/s 143(1). The Hon’ble Calcutta High Court in case of CESC Ltd. vs. DCIT (supra) has also considered this issue in para 11 & 12 as under:
“11. The Division Bench judgment of this Court, quoted hereinabove, answers the controversy raised before me squarely. The decision of the Apex Court noticed above, in my view, takes the matter a step further inasmuch as resorting to summary procedure under section 143(1)(a) after issuance of a notice under section 143(2) for regular assessment has been forbidden. If the Department cannot, after issuing a notice under section 143(2) for regular assessment, resort to the summary procedure under section 143(1)(a) can it not be said that the rectification of an intimation issued under the aforesaid section is also not permissible because in either case it would amount to activating section 143(1) of the Act which according to the judgment of the Apex Court is not permissible after issuance of a notice under section 143(2).
12. Regular assessment for the assessment years 1990-91 and 199293 under section 143(3) has been completed disallowing appropriates contingency reserve as a business expenditure and appeals therefrom are pending. A further question therefore arises whether assessment or the provisional assessment or to be more precise, the assessment made on the basis of the return itself under section 143(1)(a) the Act accepting appropriation to contingency reserve as an allowable expenditure merged in the order passed under section 143(3) of the wherein the aforesaid appropriation to contingency reserve was disallowed ? What was accepted in the intimation has been revered in regular assessment and the assessee has preferred an appeal which is pending. I am firmly of the view that this is a case where the theory merger is bound to apply because the intimation issued under section 143(1)(a) is no longer operative in respect of the assessment years 1991 and 1992-93. The only order which is effective and operative is the one passed under section 143(3) of the Act The order passed under section 143(1)(a) ceased to be operative and merged in the final order. I am supported in my view by the following judgments.”
8. The Hon’ble High Court has held that once the assessment u/s 143(3) has been completed then the order passed u/s 143(1)(a) merges with the order passed u/s 143(3) of the Act. Therefore, the order passed u/s 143(1) of the Act ceased to be operative. Accordingly in the facts and circumstances of the case as well as various binding precedents on the point we hold that the order passed u/s 143(1) by CPC after the scrutiny assessment proceedings were initiated by the AO for A.Ys.2016-17 & 2016-18 are not valid and liable to be set aside. We order accordingly.
9. In the result, appeals of assessee for A.Y.2016-17 & 2017-18 are allowed.”
6. Accordingly, we hold that the order passed u/s 143(1) of the Act cease to be operative as the same is passed after the date of fixing the case for scrutiny by issuing notice u/s 143(2) of the Act. Consequently, we quash the intimation passed by the AO u/s 143(1) of the Act. Ground no.1 raised by the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
Order pronounced on 16.06.2026.
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