Halliburton Technology India Private Limited Vs ACIT (Bombay High Court)
Conclusion: High Court quashed the adjustment made in the intimation under Section 143(1) disallowing deduction under Section 10B and declared the rectification order to be null and void as allowability of deduction under Section 10B was examined during regular assessment proceedings and accepted, and therefore the intimation under Section 143(1) stood merged with and superseded by the assessment order under Section 143(3).
Held: Assessee was an exporter of IT-enabled services and an eligible Export Oriented Unit, filed its return of income for A.Y. 2008–09 claiming deduction under Section 10B. Due to an apparent technical error in the e-filing utility, the ITR-V reflected the total income without giving effect to the Section 10B deduction. The return was processed under Section 143(1), disallowing the Section 10B deduction and raising a demand. Assessee promptly filed rectification applications under Section 154, which were never disposed of. Subsequently, a regular assessment under Section 143(3) was completed after scrutiny of the Section 10B claim, with no adverse inference and nil demand under MAT. Despite this, audit objections were raised alleging excess deduction, leading to initiation of rectification proceedings. However, both AO and the Principal Commissioner later accepted that the deduction under Section 10B was correctly claimed, and the audit objection was formally dropped. Years later, the Revenue sought to recover the old demand by adjusting refunds of subsequent assessment years and relied on an uncommunicated rectification order allegedly passed in 2015 but served only in 2022. Assessee contended that the deduction under Section 10B was properly claimed in the return; that the disallowance under Section 143(1) was impermissible as the issue was debatable and required detailed examination; that the regular assessment under Section 143(3) superseded the intimation under Section 143(1); that the rectification order dated 20.07.2015 was never served, had become redundant, and was barred by limitation under Section 154(7); and that recovery by adjustment of refunds without valid subsisting demand was unlawful. Revenue argued that assessee had not claimed deduction under Section 10B in the return; that no disallowance was made under Section 143(1); that the rectification order was valid; and that the demand arose from the returned income as reflected in the ITR-V. The Court held that assessee had unequivocally claimed deduction under Section 10B in the return of income and that the contrary stand taken by the Revenue was factually incorrect and internally inconsistent. The error in the ITR-V was held to be a technical glitch not attributable to assessee. It was further held that the allowability of deduction under Section 10B was examined during regular assessment proceedings and accepted, and therefore the intimation under Section 143(1) stood merged with and superseded by the assessment order under Section 143(3). The Court reiterated that debatable issues involving factual and legal examination could not be subjected to prima facie adjustment under Section 143(1). The rectification order dated 20.07.2015, communicated only in 2022, was held to be non est, infructuous, and barred by limitation under Sections 154(6) and 154(7), particularly since the Revenue itself had subsequently accepted the correctness of the deduction and the audit objection had been withdrawn.
