Case Law Details
MSTC Ltd. Vs Jurisdictional Assessing Officer (ITAT Kolkata)
Conclusion: Doctrine of merger did not apply because AO had accepted the returned income, thereby implying that no addition was made on account of the reasons for which the case was selected under scrutiny but the adjustment made to the income vide intimation issued by the CPC had been retained.
Held: Assessee had been mainly providing e-platform for conducting e-auction, e-procurement services for disposal of scrap arisings, surplus stores, etc. from PSUs and Government Departments including Defence. It also looked after the procurement of industrial raw materials in bulk for its customers. The items that were procured include Coke, Coal, etc., which were mainly consumed by the Power and Steel industry in the country. Assessee company filed its return of Income for the A.Y. 2021-22 declaring total income at ‘Nil’. However, assessee contended as per the statement of fact filed before CIT(A) that “the Assessee company filed its return for the Assessment Year 2021-22 vide Acknowledgement Number 938675410170122 on 17.01.2022, well within the extended due date for filing of return which stood extended till 15.03.2022, declaring Loss of Rs.36282050 and carry forward of such loss and claiming refund of Rs. 144150124 arising out of TDS and TCS effected for Rs.110856751 and Rs. 793373, respectively along with Advance Tax paid for Rs. 32500000. Hence refund of Rs. 144150124 with interest stood payable to Assessee.” The return of the assessee had been processed and income computed u/s 143(1)(a) at the total income of Rs. 223,14,77,950/- raising a demand of Rs. 81,85,97,786/-. Against this intimation, assessee filed an appeal before CIT(A) on 18.10.2022 and rectification petition u/s 154 of the Act through online grievance before CPC-ITR 27.10.2022 and rectification petition u/s 154 through online grievance before AO NaFAC on 04.11.2012, which were still pending. Subsequently, the case had been selected under scrutiny for the reason “Very Low PBDIT ratio in specific business code and turnover range where deficiency was reported in audit report. Therefore, the reason for low PBDIT to turnover ratio may be verified”. AO concluded that no adverse inference was warranted, finalizing the assessment at ₹2,231,477,950. CIT(A) reviewed and dismissed assessee’s appeal, prompting the current appeal before the tribunal. It was held that the addition made in the intimation u/s 143(1)(a) by the CPC had not been reversed by AO in the order u/s 143(3) passed subsequently and the income as per the intimation had only been retained, therefore, the doctrine of merger did not apply. AO had accepted the returned income, thereby implying that no addition was made on ac-count of the reasons for which the case was selected under scrutiny but the adjustment made to the income vide intimation issued by the CPC had been retained. Hence, all the grounds of appeal in this regard were dismissed and the appeal of the assessee was liable to be dismissed. Assessee might pursue the other modes of relief in respect of the addition made in the intimation under section 143(1)(a).
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Ap-peals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “the Ld. CIT(A)” passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2021-22 dated 27.02.2024, which has been passed against the assessment order u/s 143(3) read with sec-tion 144B of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) by the Assessing Officer, Assessment Unit, Income Tax Department, dated 26.12.2022.
2. The grounds of appeal raised by the assessee are reproduced as under:
“1 For that without prejudice to any other ground taken, the Ld. Commissioner of Income- tax (Appeals), Income Tax Department hereinafter referred to as CIT (A), erred both in law and in the facts and circumstances of the case to have dismissed the appeal.
2. For that without prejudice to any other ground taken, the Ld. CIT (A) erred both in law and in the facts and circumstances of the case to have shied away and avoided adjudicating on the aspect of correct computation of Total Income even after recording cog-nizable errors and anomalies within his own order pertaining to the originating order passed by Asst. Director of Income tax, CPC, Bangalore, hereinafter referred to as “AO” u/s 143(3), as well as when the Ld. CIT(A) had cogent grounds and reasons to do the same.
3. For that without prejudice to any other ground taken, the Ld. CIT (A) erred both in law and in the facts and circumstances of the case to not have dealt with and arrived at determination of Total Income, in spite of clear, unambiguous narrative mentioned within the order u/s 143(3) itself as well as the documents and submissions submitted before him on 22/09/2023 and 23/02/2024 and the Assessing Officer, couching his plea on the aspect that since the appellant has already preferred rectification petition u/s 154, “the AO shall be at liberty to con-sider the adjustments under the various sections of the Act should any discrepancy be found”.
4. For that without prejudice to any other ground taken, the Ld. CIT (A) erred both in law and in the facts and circumstances of the case to have penned dismissal of the appeal as the last line of his order u/s 250, yet directing the Assessing Officer as follows while dealing with Ground no. 5 to Ground No. 10 before him, “On the above grounds and as discussed above the AO is directed to verify the claim of the appellant as per law and the same may be allowed if the said expenses and deductions pertains to this relevant year under consideration for which the claims has been made”.
5. For that without prejudice to any other ground taken, the Ld. CIT (A) erred both in law and in the facts and circumstances of the case to have dismissed the appeal filed by the appellant on the ground that “the issue/s are pending before the AO by virtue of rectifi-cation application u/s 154 of appellant assessee.”
6. For that without prejudice to any other ground taken the Ld. CIT (A) erred both in law and in the facts and circumstances of the case to not have quashed the as-sessment order of the AO u/s 143(3) of the Income Tax Act, 1961 on 26th December, 2022, deter-mining Total Income at Rs. 2,23,14,77,950/- as against returned loss of Rs.3,62,82,050/- and de-manding net payment of income tax and interest of Rs. 81,85,97,786/-whereas refund of Rs. 14.41,50,124/- is due to the appellant assessee with interest.
7. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to have not adequately dealt with the fact that the AO stated in order u/s 143(3) that the assessee has filed NIL return of income whereas the assessee had filed return of loss for Rs. 3,62,82,050/- and carry forward of loss for simi-lar amount.
8. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to have not appropriately dealt with the fact in his order that the AO passed order u/s 143(3) on 26.12.2022 after obtaining in full satisfaction, response to all queries on 4/8/2022, arbitrarily decided, WITHOUT SEEKING clarifi-cation from assessee on the issue of Contingent Liability of Rs. 2,26,77,60,000/- being added to in-come interim vide intimation u/s 143(1) on 22/09/2022 against which both appeal before CIT(A) and rectification u/s 154 before AO were filed and were/are pending disposal before the order u/s 143(3) was passed.
9. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to not have appropriately dealt with fact in his order, that the AO acted in the manner he has, by simply referring to intimation u/s 143(1) he blatantly added income of Rs 2,26,77,60,000/-, which as per Balance Sheet Note No. 35(a) exhibits list of Contingent Liabilities, which the assessee neither ever claimed deduction nor ever expensed off it in its Accounts and is only shown as a disclosure as per statute and hence the question of it being added back cannot arise at all.
10. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to have ignored the fact that the AO denied natural justice to the assessee in as much as amongst other issues, the AO never even intimated assessee and/or enquired from the assessee as to the import and impact of contin-gent liability which, he in his wisdom decided to add back to income.
11. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to have not appropriately accepted the return of loss for Rs. 3,62,82,050/- and allowing of carry forward of loss for Rs. 3,62,82,050/-.
12. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to not have appropriately dealt with levying of income tax of Rs. 66,94,43,385/-, Surcharge of Rs. 8,03,33,206/- and Cess of Rs. 2,99,91,064/- aggregating to Rs. 77,97,67,655/-on the assessee as against refund of Rs. 14,41,50,124/- claimed by the assessee, coupled with the issue that no cognizance has been taken of the deductions under Chapter VI-A of the Income Tax Act to the tune of Rs. 54,00,000/- u/s 80G and Rs. 10,00,20,000/- u/s 80M as per Income Tax Return by the AO.
13. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to not have dealt with in-vocation of Section 234A, 234B and Section 234C of the Income Tax Act, 1961 on disputed addi-tions and levying interest of Rs. 1,90,68,525/-, Rs. 13,34,79,675/- and Rs. 3,04,32,052/-respectively on the assessee by the AO whereas the assessee had filed a return of loss for Rs. 3,62,82,050/- well within the extended time of filing its return and has a case of refund for Rs. 14,41,50,124/-.
14. For that without prejudice to any other ground taken here-inbefore and hereinafter, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case in not dealing appropriately with non-passing order of refund for Rs. 14,41,50,124/- along with interest by the AO.
15. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in facts and circumstances of the case in not taking appropriate cog-nizance of the fact that the AO had stated within his order u/s 143(3) in the concluding line of Para 3.3 that In view of the above, no adverse inference is drawn and assessment is completed on re-turned income, but strangely in Para 5, Sl 2, AO goes on to state Income as computed u/s 143(1)(a) Rs. 2,23,14,77,950/-and adopts the same as assessed income without any discussion or reference in the assessment order.
16. For that without prejudice to any other ground taken, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case in not taking appropriate cognizance of the fact that the AO within his order u/s 143(3) in Para 4, NOT APPLICA-BLE wherein AO is to state details of CASES WHERE VARIATION IS MADE, but strangely in Para 5, Sl 2, AO goes on to state Income as computed u/s 143(1)(a) Rs. 2,23,14,77,950/- and adopts the same as assessed income without any discussion or reference in the assessment order.
17. For that without prejudice to any other ground taken here-inbefore and hereinafter, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to not have appropriately taken cognizance of the fact that the AO had denied natural justice by not confronting the assessee with AO’s intention to add to income an addition made u/s 143(1) which is under appeal before CIT(A) as well as under application for rectification u/s 154 before AO, both pendente lite and without going into the issue of the addition of contingent liability when AO had the full opportunity to do so in the scrutiny proceedings.
18. For that without prejudice to any other ground taken here-inbefore and hereinafter, the Ld. CIT(A) erred both in law and in the facts and circumstances of the case to not have taken due cognizance of the fact that an intimation u/s 143(1) gets subsumed in an assessment order u/s 143(3) and hence the order u/s 143(3) ought to have been appropriately dealt with and quashed.
19. For that without prejudice to any other ground taken here-inbefore and hereinafter the appellant craves leave to submit the governing documents before and during the course of hearing of the appeal as the situation may warrant to facilitate jus-tice.
20. For that the appellant craves leave to add, supplement, modify and or amend the grounds stated hereinbefore before and during the course of hearing of the appeal as the situation may warrant to meet the ends of justice.
TOTAL TAX EFFECT: Rs. 97,54,26,306/- as per detail be-low:
a. 79,24,46,054/- on account of Notional Tax @30% + Sur-charge @12% + Cess @4% on disputed income/addition of Rs. 2,26,77,60,000/-)
b. 1,90,68,525/- on account of Disputed Interest u/s 234A
c. Rs 13,34,79,675/-on account of Disputed Interest u/s 234B
d. 3,04,32,052/-on account of Disputed Interest u/s 234C”
3. Although the assessee has taken 20 grounds of appeal, however, the main grievance of the as-sessee is that the addition made in the intimation u/s 143(1) of the Act should have been deleted in the appeal decided u/s 143(3) of the Act by the Ld. CIT(A).
4. Brief facts of the case as culled out from the order of the Ld. AO and the Ld. CIT(A) are that the assessee has two core business segments namely e-commerce and Trading. The assessee company provides e-commerce services in various commodities. It has also under taken e-auction of land, buildings, apartments, banks’ NPAs and also assets under DRT, organic agri produce etc. The as-sessee is engaged in trading business as facilitator for procurement of raw materials on behalf of buyers. The Assessee has been mainly providing e-platform for conducting e-auction, e-procurement services for disposal of scrap arisings, surplus stores, etc. from PSUs and Government Departments including Defence. It also looks after the procurement of industrial raw materials in bulk for its cus-tomers. The items that are procured include Coke, Coal, etc., which are mainly consumed by the Power and Steel industry in the country. The assessee company filed its return of Income for the A.Y. 2021-22 on 17.01.2022 declaring total income at ‘Nil’ as mentioned in the assessment order. How-ever, the assessee contends as per the statement of fact filed before the Ld. CIT(A) that “the Assessee company filed its return for the Assessment Year 2021-22 vide Acknowledgement Number 938675410170122 on 17.01.2022, well within the extended due date for filing of return which stood extended till 15.03.2022, declaring Loss of Rs.36282050 and carry forward of such loss and claiming refund of Rs. 144150124 arising out of TDS and TCS effected for Rs.110856751 and Rs. 793373, respectively along with Advance Tax paid for Rs. 32500000. Hence refund of Rs. 144150124 with interest stood payable to the Assessee.” The return of the assessee has been processed and income computed u/s 143(1)(a) of the Act on 22.09.2022 at the total income of Rs. 223,14,77,950/- raising a demand of Rs. 81,85,97,786/-. Against this intimation, the assessee filed an appeal before the Ld. CIT(A) on 18.10.2022 and rectification petition u/s 154 of the Act through online grievance before CPC-ITR 27.10.2022 and rectification petition u/s 154 of the Act through online grievance before the Ld. AO NaFAC on 04.11.2012, which are still pending. Subsequently, the case has been selected under scrutiny for the reason “Very Low PBDIT ratio in specific business code and turnover range where deficiency is reported in audit report. Therefore, the reason for low PBDIT to turnover ratio may be verified”. The Ld. AO, after issuing statutory notic-es observed as under in the assessment order u/s 143(3) of the Act:
“In the instant case, reply filed by the assessee was perused, the PBDIT for the year under consideration is much more than what shown by the assessee for the A.Y. 2021-22.
Further, amount to be disallowed u/s 43B as per audit report on account of provision of gratuity and leave encashment amounting to R. 28,53,742/- and 1,53,10,574/- has been disallowed in computation of income. Further, 30% of amount paid on which TDS not made (as per audit report) has also been disallowed by the assessee.
In view of the above, no adverse inference is drawn and as-sessment is completed on returned income.”
5. In the computation of income, the income as per the return of income filed was taken as Rs. ‘Nil’ to which the income as computed u/s 143(1)(a) of the Act at Rs. 223,14,77,950/- was added and the variation in respect of issue for which the case was selected under scrutiny was taken as ‘Nil’ and the total income was determined as per the proposal at Rs. 223,14,77,950/- u/s 143(3) read with section 144B of the Act vide order dated 26.12.2022. Hence, although no addition was made on account of the reasons for which the case was selected under scrutiny, however, the disallowances made by the assessee in the return of income as well as the income computed as per the intimation u/s 143(1)(a) of the Act were retained in the computation of income u/s 143(3) of the Act.
6. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) raising as many as 14 grounds, who, after discussion dismissed the appeal. Aggrieved with the order of the Ld. CIT(A), the appeal has been filed before the Tribunal.
7. Rival contentions were heard and the paper book and the evidences filed have been examined. Although the assessee has taken as many as 20 grounds of appeal but the main grievance relates to the Ld. CIT(A) not deleting the adjustment made in the intimation u/s 143(1)(a) while deciding the appeal of the assessee. The operative portion of the order of the Ld. CIT(A) is as under:
Ground No. 1, 2, 3 & 4
1. For that without prejudice to any other ground taken herein below the Ld. Asst. Director of Income tax, CPC, Bangalore, hereinafter referred to as AO erred both in law and in the facts and circumstances of the case to have passed the assessment order us 143(3) of the Income Tax Act, 1961 on 26th December, 2022, determining Total Income at Rs. 2231477950 as against returned loss of Rs. 36282050 and demanding net payment of income tax and interest of Rs. 818597786 whereas refund of Rs. 144150121 is due to the assessee with interest, without con-forming to the laws of the land and hence the same ought to be quashed and set aside.
2. For that without prejudice to any other ground taken herein-before and hereinafter, the AO erred both in law and in the facts and circumstances of the case to have stated in order u/s 143(3) that the assessee has filed NIL return of income whereas the as-sessee had filed return of loss for Rs. 36282050 and carry forward of loss for similar amount.
3. For that without prejudice to any other ground taken herein-before and hereinafter, the Ld. AO erred both in law and in facts and circumstances of the case to have stated within his order u/s 143(3) in the concluding line of Para 3.3 that In view of the above, no adverse inference is drawn and assessment is completed on returned income, but strangely in Para 5, SI 2, he goes on to state Income as computed u/s 143(1)(a) Rs. 2231477950 and adopts the same as assessed income as against returned loss of Rs.36282050 without any discussion or refer-ence in the assessment order
4. For that without prejudice to any other ground taken herein-before and hereinafter, the Ld. AO erred both in law and in the facts and circumstances of the case to have stated within his order u/s 143(3) in Para 4, NOT APPLICABLE wherein he is to state details of CASES WHERE VARIATION IS MADE, but strangely in Para 5. Sl 2, he goes on to state Income as com-puted u/s 143(1)(a) Rs. 2231477950 and adopts the same as assessed income as against returned loss of Rs.36282050 without any discussion or reference in the assessment order.
In the present case it can be seen that the case was selected for scrutiny & notices were issued by the AO on various dates resulting in to on assessment order u/s 143(3) on 26.12.2022 at income of Rs. 2,23,14,77,950/-.
The assessment u/s 143(3) of the Act, dated 26.12.2022 DIN ITBA/AST/S/143(3)/2022-23/1048225343(1) was completed at Rs. 2,23,14,77,950/- Whereas in the assessment order the AO has concluded with the remark that “no adverse inference is drawn and assessment is completed on returned income.” and in computation the AO has taken returned income as NIL and the appellant income u/s 143(3) was assessed at Rs. 2,23,14,77,950/-instead of nil income, resulting in demand of Rs. 81,85,97,786/-
7.1 After reproducing the provision of section 143(1) of the Act and 143(3), the Ld. CIT(A) continues as under:
The case of the appellant assessee was processed u/s 143(1) by the CPC dated 22.09.2022 raising a demand of Rs. 81,85,97,786/-.
Section 143(3) is a detailed assessment and is referred to as scrutiny assessment, at this stage, a detailed scrutiny of the return of income will be carried out. The scrutiny is carried out to confirm the correctness and genuineness of various claim, deductions, etc., made by the taxpayer in the return of income.
Even the time permissible for above has been given in the Act. Summary assessment precedes scrutiny assessment and converges in it. As such the summary as-sessment intimation should not only precede the order of scrutiny but should also merge in that. The income/loss computed in the computation sheet annexed with order u/s 143(3) has already been sought to be subjected to rectification by the appellant assessee by virtue of application u/s 154 before the AO. The appellant assessee has already done that.
Since the scrutiny assessment was completed considering the reason for selection of the case, the AO shall be at liberty to consider the adjustments under the var-ious sections of the Act should any discrepancy be found.
Ground No. 5,6,7,8,9, & 10
5 For that without prejudice to any other ground taken herein-before and hereinafter, the Ld. AO erred both in law and in the facts and circumstances of the case to have denied natural justice by not confronting the assessee with his intention to add to income an addition made u/s 143(1) which is under appeal before CIT(A) as well as under application for rectifi-cation u/s 154 before AO, both pendente lite and without going into the issue of the addition of contingent liability when he had the full opportunity to do so in the scrutiny proceedings.
6. For that without prejudice to any other ground taken herein-before and hereinafter, the AO erred both in law and in the facts and circumstances of the case to have passed order u/s 143(3) on 26.12.2022 after obtaining in full satisfaction, response to all que-ries on 4/8/2022, arbitrarily decides, WITHOUT SEEKING clarification from assessee on the issue of Contingent Liability of Rs.2267760000 being added to income interim vide intimation u/s 143(1) on 22/09/2022 against which both appeal before CIT(A) and rectification u/s 154 before AO were filed and were/are pending disposal before the order u/s 143(3) was passed.
7 For that without prejudice to any other ground taken herein-before and hereinafter, the AO erred both in law and in the facts and circumstances of the case to have acted in the manner he has, by simply referring to intimation u/s 143(1) he blatantly added income of Rs.2267760000, which as per Balance Sheet Note No. 35(a) exhibits list of Contingent Liabilities, which the assessee neither ever claimed deduction nor ever expensed off it in its Accounts and is only shown as a disclosure as per statute and hence the question of it being added back cannot arise at all.
8. For that without prejudice to any other ground taken herein-before and hereinafter, the AO erred both in law and in the facts and circumstances of the case to have denied natural justice to the assessee in as much as amongst other issues, the AO never even intimated assessee and/or enquired from the assessee as to the import and impact of contingent liability which, he in his wisdom decided to add back to income
9. For that without prejudice to any other ground taken herein-before and hereinafter, the AO erred both in law and in the facts and circumstances of the case to have disallowed the return of loss for Rs.36282050 and to have disallowed carry forward of loss for Rs. 36282050
10 For that without prejudice to any other ground taken here-inbefore and hereinafter, the AO erred both in law and in the facts and circumstances of the case to have levied income tax of Rs. 669443385, Surcharge of Rs. 80333206 and Cess of Rs. 29991064 aggregating to Rs.779767655 on the assessee as against refund of Rs. 144150124 claimed by the assessee Further, no cognizance has been taken of the deductions under Chapter VI-A of the Income Tax Act to the tune of Rs 5400000 u/s 80G and Rs 100020000 u/s 80M as per Income Tax Re-turn.
On the above grounds and as discussed above the AO is di-rected to verify the claim of the appellant as per law and the same may be allowed if the said ex-penses and deductions pertains to this relevant year under consideration for which the claims, has been made
Ground No. 11 & 12
11. For that without prejudice to any other ground taken here-inbefore and hereinafter, the Ld Assessing Officer erred both in law and in the facts and circumstanc-es of the case in invoking Section 234A, 2348 and Section 234C of the Income Tax Act. 1961 on dis-puted additions and levying interest of Rs. 19068525, Rs. 133479675 and Rs.30432052 respective-ly on the assessee whereas the assessee had filed a return of loss for Rs.36282050 well within the extended time of filing its return and has a case of refund for Rs. 144150124
12 For that without prejudice to any other ground taken here-inbefore and hereinafter, the Ld. Assessing Officer erred both in law and in the facts and circum-stances of the case in not passing order of refund for Rs. 144150124 along with interest
Charging of interest u/s 234A, 234B & 234C and issuance of refund is concerned. they are consequential to the addition made and on the income assessed, therefore not adjudicated here.
Ground No. 13 & 14
13. For that without prejudice to any other ground taken here-inbefore and hereinafter the appellant craves leave to submit the governing documents at the time of hearing of the appeal.
14 For that the appellant craves leave to add, supplement, modify and/or amend the grounds stated hereinbefore at the time of hearing of the ap-peal
The above grounds are general in nature which does not require separate adjudication.
Therefore, considering the above factual and legal position, the appeal filed by the appellant is dismissed as the issue/s are pending before the AO by virtue of recti-fication application u/s 154 of appellant assessee.
In the result, the appeal is therefore, dismissed
7.2 It is the contention of the assessee that the intimation u/s 143(1) of the Act was merged in the order u/s 143(3) of the Act and, therefore, the additions made in the intimation should have been deleted by the Ld. CIT(A), which has not been done. Reasons have been mentioned as to how the addition was not warranted on contingent liabilities shown in the audited account but since we are not deciding the addition made in the intimation under section 143(1) of the Act, it will not be ap-propriate to discuss the merits of the addition as the issue is pending before both the Ld. AO and the Ld. CIT(A) in different proceedings, and both the channels of rectification and appeal have been availed by the assessee.
8. However, in this context, it is relevant to examine the doctrine of merger. The intimation u/s 143(1)(a) of the Act is separately appealable to the Ld. CIT(A) under section 246A(1)(a) of the Act. The same is also rectifiable u/s 154(1)(b) of the Act by the Ld. AO. The assessee has availed both the remedies, once by filing an appeal before the Ld. CIT(A) and another by filing two rectification appli-cations. All three are pending and the impugned appeal before the Ld. CIT(A) was in respect of the subsequent scrutiny assessment order u/s 143(3) of Act and neither against the intimation nor against the rectification order.
9. The right of appeal is a statutory right and the appeal before the Tribunal relates to the order of the Ld. CIT(A) passed u/s 250 of the Act against the scrutiny assessment of the Ld. AO. The assessee has relied upon the following two decisions in support of the claim that once the scrutiny assess-ment was made, the intimation was subsumed in the order under section 143(3) of the Act and the Ld. CIT(A) ought to have decided the issue and granted relief to the assessee. In the case of The South India Club Mandir Marg, Vs. Income Tax Officer Ward Exemption 2(3), New Delhi I.T.A. No. 354/Del/2024 ITAT Delhi Bench ‘G’ order dated 22.05.2024 relied upon by the assessee, though it is mentioned that the intimation order u/s 143(1) merged with the regular assessment passed u/s 143(3) of the Act but the issue was denial of registration under section 12A of the Act and the order is distinguishable on facts as is extracted below:
10. Considered the rival submissions and material placed on record. We observe that the issue raised by the assessee that the order passed u/s 143(1) of the Act, otherwise called as intimations, in which the CPC has denied the benefit claimed u/s 11 of the Act with the observation that the audit report in form 10B was not filed on time. This is fact on record that the assessee has not filed the form 1 0B along with the return of income due to the fact that it did not had the registration u/s 12A, and the assessee was claiming the benefits under the concept of mutuality. We observe that the assessee has applied for registration before filing the return of in-come for the current assessment year on 27.03.2019 and subsequently filed the ROI on 30.03.2019. The ROI was processed u/s 143(1) of the Act on 10.11.2019 and denied the benefit u/s 11 on the basis of not filing the Form 10B on time.
11. Further we observe that the statutory notice u/s 143(2) was issued on 22.09.2019. Further notices u/s 142(1) were issued in order to proceed with the reg-ular assessment. Accordingly the assessment u/s 143(3) was completed. When regular assessment was completed and the relevant intimation issued u/s 143(1) will automatically merges with the as-sessment passed u/s 143(3). Therefore, it loses its relevance once the regular assessment is pro-cessed and it is only an intimation towards the accuracy of the information submitted by the as-sessee. In the given case, the assessee has claimed deduction u/s 11 and failed to file the form 10B along with the ROI. Based on the above observation, the claim of the assessee was de-nied by the AO in sec.143(1) proceedings. Therefore, there is no denial of fact that AO can make the above disallowance, however, the validity of the intimation issued u/s 143(1) is limited to mere inti-mation of correctness and accuracy of the income declared in ROI and its accuracy based on the in-formation submitted along with the ROI. It does not carry the legitimacy of an assessment. When the assessment was processed under regular assessment then it loses its individuality and merges with the regular assessment. We are in agreement with the findings of Ld CIT(A) that the intimation u/s 143(1) merges with the order passed u/s 143(3) of the Act and the appeal against the above inti-mation becomes infructuous. In our view, he should have stopped with the above findings and should not have proceeded to decide the issue on merits, because it is brought to his knowledge that the assessee has filed appeal against the regular assessment order. Therefore, he has travelled be-yond the mandate. The issue of allowability of section 11 is already considered in the regular as-sessment and that issue is already in appeal before FAA. Therefore, reviewing the same is uncalled for.
12. Coming to the submissions of the Ld AR, the assessee also not disputing the fact that the intimation merges with the regular assessment when the proceedings are initiated u/s 143(3) of the Act. Therefore, the admitted fact that the appeal against the intima-tion is infructuous. The grievance of the assessee is that Ld CIT(A) has not stopped with the findings but gave findings on the merits. After considering the submissions, we are also of the view that the findings on allowability u/s 11 is uncalled. Particularly when the issue under consideration is under challenge before another Appellate Authority.
13. The next issue raised by the Ld AR is, the assessee was granted the 12A registration on 5.1.2021 and the notice u/s 143(2) was issued on 22.09.2019. At the time of grant of registration, the assessment was pending and the same was passed only on 8.2.2021. That is subsequent to grant of registration i.e., on 5.1.2021. He submitted that the as-sessee is eligible to claim exemption u/s 11 for the impugned assessment year also. This is accepted fact on record that the assessee is eligible to claim exemption after the introduction of first proviso to sec.12A(2) of the Act with the applicable conditions in Finance Act 2018. Since there is no change in the objects and activities in the case of the assessee, there is no doubt that the assessee is eligible to claim the benefit. However, in our view, this issue has to be raised before the FAA in the appeal against regular assessment passed u/s 143(3) of the Act. Since the issue is still under appeal before FAA, this issue can be decided by the FAA without taking any clue from the appeal decided u/s 143(1) of the Act by the present CIT(A). Therefore, the issue raised against the intimation order is decided in favour of the assessee and hold that the order passed u/s 143(1) is merged with the regu-lar assessment passed u/s 143(3) and it does not have legs to stand on its own once the regular as-sessment proceedings are initiated. At the same time, we are also hold that the findings of the Ld CIT(A) on the maintenance of the appeal as infructuous, hence, the demand raised in the 143(1) intimation does not survive.
10. Further, in the case of E.S.C. Ltd. v. Deputy Commissioner of Income-tax [2004] 134 TAXMAN 647 (CAL.) relied upon by the assessee, it has been held as under:
Admittedly, in case of all the four assessment years, notices un-der section 143(2) were issued and consequent thereto regular assessment in respect of the as-sessment years 1990-91 and 1992-93 had been completed. [Para 9]
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 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)(a) which according to the judg-ment of the Apex Court in the case of CIT v. Gujarat Electricity Board [2003] 260 ITR 84/ 129 Taxman 65 , is not permissible after issuance of a notice under section 143(2). [Para 11]
Regular assessment for the assessment years 1990-91 and 1992-93 under section 143(3) had been completed disallowing appropriation to con-tingency reserve as a business expenditure and appeals therefrom were pending. What was accepted in the intimation had been reversed in the regular assessment and the assessee had pre-ferred an appeal which was pending. The instant case was a case where the theory of merger was bound to apply because the intimation issued under section 143(1)(a ) was no longer operative in respect of the assessment years 1990-91 and 1992-93. The only order which was effective and operative was the one passed under section 143(3). The order passed under section 143(1)(a) ceased to be operative and merged in the final order. [Para 12]
{emphasis sup-plied}
In the case of Hindustan Aeronautics Ltd. v. CIT [2000] 243 ITR 808 / 110 Taxman 311, the Apex Court opined that where the Legislature intended to make a distinction as to where there will be no merger, the Legislature has made express provision therefor. There is no provision in section 143 that notwithstanding an order having been passed under section 143(3), an order passed under section 143(1) shall continue to subsist. [Para 15]
Section 154(1A) provides that the rectification has to remain restricted to the matter which has not been considered and decided either in appeal or revision. There is no reason why the same restriction would not apply to a summary assessment and regular assessment particularly when the appropriation to contingency reserve was allowed under section 143(1)(a ) but disallowed under section 143(3). [Para 16]
It followed that the effective and operative order was the one under section 143(3) and, therefore, the question of seeking rectification of the order under section 143(1)(a) could never arise. [Para 18]
For the aforesaid reasons, the notices under section 154 seek-ing to rectify the intimation under section 143(1)(a) for the assessment years 1990-91, 1992-93, 1993-94 and 1994-95 were to be quashed. [Para 21]
11. The doctrine of merger is a common law doctrine that is rooted in the idea of maintenance of the decorum of hierarchy of courts and tribunals, the doctrine is based on the simple reasoning that there cannot be, at the same time, more than one operative order governing the same subject matter as held in the case of Gojer Bros. (P) Ltd. v. Ratan Lal Singh, (1974) 2 SCC 453. The same was aptly summed up by the Supreme Court in the case of Kunhayammed v. State of Kerala [2000] 113 Taxman 470 (SC) when it described the doctrine so. To sum up, the conclusions were:
i. Where an appeal or revision is provided against an order passed by a Court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subor-dinate forum merges in the decision by the superior forum and it is the latter which subsists, re-mains operative and is capable of enforcement in the eye of law.
ii. The jurisdiction conferred by article 136 is divisible into two stages. First stage is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal.
iii. The doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under article 136, the Supreme Court may reverse, modify or affirm the judgment, decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to ap-peal. The doctrine of merger can, therefore, be applied to the former and not to the latter.
iv. An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case, it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal be-ing filed.
v. If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the state-ment of law contained in the order is a declaration of law by the Supreme Court within the meaning of article 141. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has merged in the order of the Supreme Court re-jecting special leave petition or that the order of the Supreme Court is the only order binding as res judicata in the subsequent proceedings between the parties.
vi. Once leave to appeal has been granted and appellate juris-diction of the Supreme Court has been invoked, the order passed in appeal would attract the doc-trine of merger; the order may be of reversal, modification or merely affirmation.
(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court, the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub-rule (1 ) of rule ( 1) of order 47 of the Code.
Thus, for the doctrine of merger to be applicable there must be a decision of a subordinate court/forum, in respect of which there exists a right of appeal/revi-sion which is duly exercised, and the superior forum before whom such appeal/re-vision is preferred must modify, reverse, and/or affirm the decision of the subordinate court/forum. The consequence of such modification, reversal, and/or affirmation is that the decision of the subordinate forum would merge with the decision of the superior forum, which in turn would be operative and capable of be-ing enforced.
12. Since, in the instant case, the addition made in the intimation u/s 143(1)(a) of the Act by the CPC have not been reversed by the Ld. AO in the order u/s 143(3) passed subsequently and the in-come as per the intimation has only been retained, therefore, the doctrine of merger does not apply. The Ld. AO has accepted the returned income, thereby implying that no addition was made on ac-count of the reasons for which the case was selected under scrutiny but the adjustment made to the income vide intimation issued by the CPC had been retained. Hence, all the grounds of appeal in this regard are dismissed and the appeal of the assessee is liable to be dismissed. The assessee may pur-sue the other modes of relief in respect of the addition made in the intimation under section 143(1)(a) of the Act.
13. As regards the retention of the addition made in the intimation u/s 143(1)(a) of the Act, since both the rectification as well as the appeal proceedings are pending, therefore, there does not arise any occasion for adjudication on the issue in this appeal against the scrutiny assessment order and the appeal is hereby dismissed and all other grounds of appeal are dismissed.
14. In the result, the appeal of the assessee is dismissed.
Order pronounced in the open court on 01.10.2024.
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