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

This appeal is filed by Aragorn Renewable Energy Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Addl/JCIT(A)-1 Ahmedabad (“Ld. First Appellate Authority ”) dated 08.10.2025 for the A.Y.2023-24.

2. The assessee has raised the following grounds of appeal:

Based of the facts and circumstances of the case and in law, Aragom Renewable Energy Private Limited (‘the Appellant’) respectfully craves leave to prefer an appeal against the order dated 8 October 2025 passed by the Learned Commissioner of Income-tax (Appeals), ADDUJCIT (A)-1 Ahmedabad (‘JCIT(A)’) under section 250 of the Income-tax Act, 1961 (‘the Act’) on following grounds, each of which are without prejudice to one another:

1. 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 (A0′) ought to have rectified it.

2. 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

3. 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

4. Whether on the facts and circumstances of the case and in law, the learned JCIT(A) erred in conferring the learned AO’s computation of interest under section 234B and sect on 234C of the Act

The Appellant prays that its grounds of appeal be allowed and consequential relief be granted.

3. The brief facts of the case are that the assessee is a company incorporated for the purpose of generation of electricity. The assessee filed its return of income for Assessment Year 2023–24 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 Act”). 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%.

4. Aggrieved by the said intimation of CPC, the assessee filed an application for rectification under section 154 of the Act on 20.06.2024 before the CPC. The CPC passed an order under section 154 of the Act dated 27.08.2024, again denying the benefit of concessional tax rate under section 115BAB of the Act and sustaining the tax at the rate of 30%.

5. Against the said rectification order of the CPC, the assessee preferred an appeal before the Ld. First Appellate Authority. The Ld. First Appellate Authority upheld the action of the CPC and dismissed the appeal of the assessee.

6. Aggrieved by the order of the Ld. First Appellate Authority the assessee is now in appeal before this Tribunal. The Learned Authorized Representative (“Ld. AR”) submitted that the CPC, while processing the return of the assessee under section 143(1) of the Act, has denied the concessional tax rate 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 Ld. AR invited our attention to the intimation issued under section 143(1) of the Act for the immediately preceding Assessment Year 2022–23 and submitted that the assessee had already exercised the option for concessional tax rate under section 115BAB of the Act in that year. It was submitted that once such option is exercised, the same continues to apply for subsequent years and there is no requirement to file Form 10-ID again in the year under consideration. It was further submitted that the CPC has made an adjustment while processing the return under section 143(1) of the Act by denying the concessional rate of tax without issuing any prior intimation to the assessee as mandated under the first proviso to section 143(1)(a) of the Act. It was contended that such failure to provide an opportunity renders the intimation invalid in law. The Ld. AR, in support of his contention, relied upon the decision of the Hon’ble Bombay High Court in the case of Bax India Ventures Pvt. Ltd. Vs. CPC (183 taxmann.com 395), dated 02.02.2026, wherein under similar circumstances, the Hon’ble High Court has set aside the intimation issued under section 143(1) of the Act for non-compliance with the requirement of prior intimation. The Ld. AR also placed reliance on the decision of the Ahmedabad Bench of the Tribunal in the case of GFCL EV Products Ltd. Vs. ACIT for Assessment Year 2023–24 dated 08.10.2025 (180 Taxmann.com 17) and prayed that the intimation issued by CPC under section 143(1) of the Act be set aside.

7. The Learned Departmental Representative (“Ld. DR”), on the other hand, relied upon the orders of the lower authorities. The Ld. DR submitted that mere filing of Form 10-ID is not sufficient to claim the concessional tax rate under section 115BAB of the Act. It was contended that the assessee is required to satisfy the condition of commencing manufacturing or production of an article or thing on or before 31.03.2024. It was submitted that since the assessee has not commenced manufacturing or production during the year under consideration, 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. Accordingly, it was prayed that the orders of the lower authorities be upheld.

8. We have heard the rival submissions and perused the material available on record including the case laws relied upon. 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. In this regard, we have gone through the provisions of section 143(1) of the Act, which is to the following effect:

“143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:—

(a) the total income or loss shall be computed after making the following adjustments, namely:—

(i) any arithmetical error in the return;

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;

(iv) disallowance of expenditure ⁹⁷[or increase in income] indicated in the audit report but not taken into account in computing the total income in the return;

(v) disallowance of deduction claimed under ⁹⁸[section 10AA or under any of the provisions of Chapter VI-A under the heading “C.—Deductions in respect of certain incomes”, if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return:

Provided 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:

Provided further that 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:

Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018;

(b) the tax, interest and fee, if any, shall be computed on the basis of the total income computed under clause (a);

(c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax, interest and fee, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under section 89, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax , interest or fee;

(d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and

(e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax, interest or fee is payable by, or no refund is due to, him:

Provided further that no intimation under this sub-section shall be sent after the expiry of ⁹⁹[nine months] from the end of the financial year in which the return is made.

Explanation.—For the purposes of this sub-section,—

(a) “an incorrect claim apparent from any information in the return” shall mean a claim, on the basis of an entry, in the return,—

(i) of an item, which is inconsistent with another entry of the same or some other item in such return;

(ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or

(iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;

(b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a).

9. 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. In this regard, we have gone through para nos. 8 to 14 of the judgment of the Hon’ble Bombay High Court in the case of Bax India Ventures Pvt. Ltd. Vs. CPC (supra), which is to the following effect :

“8. As can be seen from the aforesaid reproduction, it is mandated by the legislature that, before any adjustment is made under Section 143(1)(a), an intimation is to be given to the assessee of such adjustment, either in writing or in electronic mode. This is clearly stipulated by the first proviso to Section 143(1)(a). The second proviso to Section 143(1)(a) further stipulates that the response received from the assessee, if any, to any intimation issued under the first proviso, has to be considered before making any adjustment. In a case where no response is received from the assessee within 30 days, then such adjustment can be made by the Department.

9. In the facts of the present case, admittedly, no intimation was given to the assessee as contemplated in the first proviso to Section 143 (1)(a). The first proviso, in our opinion, is clearly mandatory in nature, as it clearly stipulates that no adjustment ‘shall be made’ unless an intimation is given to the assessee of such adjustment either in writing or in electronic mode. Once this is a mandatory provision, no intimation order under Section 143(1)(a) can be passed, making any adjustment in the Return of Income filed by the assessee, unless such proposed adjustment is first intimated to the assessee and he has been given a chance to respond thereto.

10. As mentioned earlier, in the facts of the present case, no intimation as contemplated under the first proviso to Section 143(1)(a) was ever issued to the Petitioner. This is an undisputed fact. On this ground alone, the intimation order dated 1 st December, 2025, issued under Section 143(1)(a), is liable to be quashed and set aside. We are unable to agree with the submission of the learned Advocate appearing on behalf of the Revenue that this exercise would be an exercise in futility because in the facts of the present case, admittedly, Form 10-IC was not filed by the due date. There could very well be a case where, after belatedly filing a return and belatedly filing Form 10-IC, and before the intimation order is passed under Section 143 (1)(a), the Petitioner could have obtained an order seeking condonation of delay in filing form 10-IC under Section 119(2)(b) of the IT Act. This could possibly be the response that the assessee may give to the CPC in respect of the notice issued under the first proviso to Section 143(1)(a) and contend that the proposed adjustment ought not to be made. It is therefore incorrect to suggest that the intimation proposing an adjustment, as contemplated under the first proviso to Section 143(1)(a), would be an exercise in futility. Once we find that the said provision is mandatory in nature, the same has to be complied with by the Revenue. The Revenue cannot decide in which case it would be futile and in which case it would not.

11. In the conclusion we have reached, we find support from our Judgement in Rallis India Limited Vs. Central Processing Centre [Writ Petition (L) No. 37314 of 2025].

Paragraph 11 of the said Judgement is relevant and reads as under :

“11. It is apparent from a perusal of the above reproduction that the first and second proviso to Section 143(1) of the IT Act specifically provides that no adjustment shall be made unless an assessee is given an intimation of the adjustment either in writing or in electronic mode and the response received from the assessee must be considered before making any such adjustment. In the present case, admittedly the Petitioner has not been given any intimation of the ICDS adjustment before passing the impugned intimation. The proposed adjustment under Section 143(1)(a) of the IT Act on 14 December 2022 did not raise any issue with regard to the ICDS adjustment of Rs. 1284,66,97,880/-, and no opportunity of being heard was granted to the Petitioner on this issue before the intimation was passed. This is, therefore, a clear breach of the principles of natural justice, and in any event in contravention of the jurisdictional requirements laid down in the first and second proviso to Section 143(1) of the IT Act. Further, the department in their Affidavit-in-reply have accepted the fact that no notice for the proposed adjustment was issued on the ICDS adjustment. Hence, on this ground alone the adjustment made in the intimation in respect of the ICDS adjustment of Rs. 1284,66,97,880/- is liable to be quashed and set aside.”

12. In view of this foregoing discussion, the Petition succeeds and is allowed in terms of prayer clause (a) which read thus :

“(a) that this Hon’ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226 of the Constitution of India calling for the records of the case leading to passing of the impugned intimation order and after going through the same and examining the question of legality thereof quash, cancel and set aside the additions in the impugned intimation order dated December 1, 2025 (Exhibit-H):”

13. Rule is made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

14. We may hasten to add that the Revenue is free to now issue a notice to the assessee as contemplated under the first proviso to Section 143(1)(a) as well as take the response of the Petitioner, if any, into the consideration, and only thereafter pass a fresh intimation order as contemplated under Section 143(1)(a).”

10. On perusal of the above, 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), we 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.

11. 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. On these facts, 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.

12. Since we have allowed the appeal of the assessee on this legal issue, we are not inclined to adjudicate the other alternative grounds raised by the assessee and the same are left open.

13. In the result, the appeal of the assessee is allowed.

Order pronounced in the Open Court on 6th May, 2026.