ITAT Quashes Section 143(1) Adjustment as No Prior Notice Issued

Aragorn Renewable Energy Private Limited Vs DCIT (ITAT Hyderabad)

ITAT quashes adjustment u/s 143(1) for failure to issue prior intimation to assessee under first proviso to Section 143(1)(a)

Facts:

• The assessee, Aragorn Renewable Energy Private Limited, is a company incorporated for the purpose of generation of electricity. For Assessment Year 2023–24, the assessee filed its original return of income on 29.11.2023. Subsequently, the assessee filed a revised return of income on 30.12.2023 declaring total income of Rs.1,10,79,560/- and claiming concessional rate of tax under Section 115BAB of the Income-tax Act, 1961. The revised return filed by the assessee was processed by the Central Processing Centre (“CPC”) under Section 143(1) of the Act vide intimation dated 21.05.2024, wherein the claim of concessional tax rate under Section 115BAB of the Act was denied and tax was levied at the normal rate of 30%.
• Aggrieved by the aforesaid intimation issued by CPC, the assessee filed an application for rectification under Section 154 of the Act on 20.06.2024 before the CPC. However, the CPC passed an order dated 27.08.2024 under Section 154 of the Act once again denying the benefit of concessional tax rate under Section 115BAB of the Act and sustaining the tax rate at 30%. Against the said rectification order, the assessee preferred appeal before the learned First Appellate Authority. The learned First Appellate Authority, however, upheld the action of the CPC and dismissed the appeal preferred by the assessee. Aggrieved by the order passed by the First Appellate Authority dated 08.10.2025, the assessee preferred appeal before the Income Tax Appellate Tribunal, Hyderabad Bench.
• Before the Tribunal, the learned Authorised Representative appearing on behalf of the assessee submitted that while processing the revised return under Section 143(1) of the Act, the CPC had denied the concessional tax rate claimed under Section 115BAB of the Act without following the mandatory procedure prescribed under the first proviso to Section 143(1)(a) of the Act. The assessee contended that it had already exercised the option for concessional taxation under Section 115BAB in the immediately preceding Assessment Year 2022–23 and therefore there was no requirement to file Form 10-ID again for the year under consideration. It was further contended that the CPC had made an adjustment while processing the return under Section 143(1) by denying the concessional rate of tax without issuing any prior intimation or granting any opportunity of response to the assessee as mandated under the first proviso to Section 143(1)(a) of the Act. In support of the aforesaid contention, reliance was placed upon the judgment of the Hon’ble Bombay High Court in Bax India Ventures Pvt. Ltd. v. CPC (183 taxmann.com 395) dated 02.02.2026, as well as the decision of the Ahmedabad Bench of the Tribunal in GFCL EV Products Ltd. v. ACIT (180 Taxmann.com 17) dated 08.10.2025.
• On the other hand, the learned Departmental Representative relied upon the orders passed by the lower authorities and contended that mere filing of Form 10-ID was not sufficient to claim concessional tax rate under Section 115BAB of the Act. It was argued that the assessee was also required to satisfy the statutory condition of commencing manufacturing or production of article or thing on or before 31.03.2024 and since the assessee had not commenced such manufacturing or production during the relevant year, the CPC was justified in denying the concessional rate of tax while processing the return under Section 143(1) of the Act.

Issues:

• Whether on the facts and circumstances of the case and in law, the learned JCIT(A) ought to have appreciated that the intimation dated 21 May 2024 u/s 143(1) of the Act suffered from a mistake apparent on record and that the Deputy Director of Income Tax, CPC, Bengaluru (“AO”) ought to have rectified it.
• Whether on the facts and circumstances of the case and in law, the learned CIT(A) ought to have appreciated that the Appellant is eligible to avail the concessional tax rate of 22% under section 115BAA of the Act and that the learned AO was incorrect in not allowing the same.
• Whether on the facts and circumstances of the case and in law, the learned JCIT(A) ought to have appreciated that the Appellant satisfied the criteria to avail the 25% tax rate, as set out in Para E of Part I of First Schedule to Finance Act 2023, for the impugned assessment year and that the learned AO was incorrect in not allowing the same.
• Whether on the facts and circumstances of the case and in law, the learned JCIT(A) erred in confirming the learned AO’s computation of interest under section 234B and section 234C of the Act.

Observations:

• The Hon’ble Tribunal observed that the limited issue before us is whether the CPC was justified in denying the concessional rate of tax under section 115BAB of the Act while processing the return under section 143(1) of the Act without issuing prior intimation to the assessee as required under the first proviso to section 143(1)(a) of the Act. It is an undisputed fact that the CPC, while processing the return of income under section 143(1) of the Act, made an adjustment by denying the concessional rate of tax claimed by the assessee under section 115BAB of the Act and levied tax at the rate of 30%, without issuing any prior intimation to the assessee.
• The Hon’ble Tribunal held that on perusal of the above, we find that the first proviso to section 143(1)(a) of the Act mandates that no adjustment shall be made under clause (a) unless an intimation is given to the assessee of such adjustment, either in writing or in electronic mode.
• The Hon’ble Tribunal further observed that we find that under similar set of facts, the Hon’ble High Court has categorically held that the requirement of issuing prior intimation to the assessee, as contemplated under the first proviso to section 143(1)(a) of the Act, before making any adjustment, is mandatory in nature. The Hon’ble Court has further held that in the absence of such prior intimation and opportunity to the assessee to respond, any adjustment carried out in the intimation under section 143(1) of the Act is vitiated and liable to be quashed. In the present case, it is an admitted position that while processing the return under section 143(1) of the Act, the CPC denied the concessional rate of tax claimed by the assessee under section 115BAB of the Act and levied tax at the rate of 30% without issuing any prior intimation to the assessee as required under the first proviso to section 143(1)(a) of the Act. Therefore, respectfully following the ratio laid down by the Hon’ble Bombay High Court in the case of Bax India Ventures Pvt. Ltd. Vs. CPC (supra), the Tribunal hold that the adjustment made by the CPC in the intimation under section 143(1) of the Act is not sustainable in the eyes of law and is liable to be set aside.
• The Hon’ble High Court has also granted liberty to the Revenue to proceed afresh in accordance with law. However, in the present case, the Assessment Year involved is 2023–24 and as per the provisions of second proviso to section 143(1) of the Act reproduced herein above, the limitation period for issuing any intimation is 9 months from the end of the relevant assessment year, which in the present case was 31.12.2024.
• The Hon’ble Tribunal held that we find that the statutory time limit prescribed under section 143(1) of the Act for issuing a fresh intimation has already expired as on the date. Therefore, in view of the present factual position, any such liberty granted to the Revenue would be merely academic and incapable of implementation. Therefore, in the peculiar facts of the present case, no liberty can be granted to the Revenue to initiate the proceedings afresh. Accordingly, the impugned intimation passed by the CPC under section 143(1) of the Act is hereby quashed. Consequently, the rectification order passed under section 154 of the Act as well as the order of the Ld. First Appellate Authority are also set aside.
• The Hon’ble Tribunal allowed the appeal of the assessee on this legal issue and are not inclined to adjudicate the other alternative grounds raised by the assessee and the same are left open. In the result, the appeal of the assessee is allowed.

FULL TEXT OF THE ORDER OF ITAT HYDERABAD