Section 143(1)(a) adjustment cannot be made on ground involving question of facts

Anita Seth Vs DCIT (ITAT Kolkata)

The question is limited as to whether the CPC u/s. 143(1)(a) of the Act can make any adjustment/addition in the aforesaid facts and circumstances. According to us, the CPC could not have made the adjustment since the question of fact arises on the factual matrix of this case as noted above. The assessee’s contention is that the amount of Rs. 31,21,167/- is included in the turnover of Rs. 52,81,344/-. Therefore, merely based on TDS entries given in Form 26AS for deduction of tax u/s. 194J, the adjustment could not have been made without conducting any enquiry, more particularly when the man power supply is not covered as a profession within the meaning of section 44AA of the Act read with relevant notifications. We find force in the contention of the Ld. AR that this particular issue could not have been decided by the CPC u/s. 143(1)(a) of the Act. In case, if the department finds that there is an anomaly, then it has liberty to do so by conducting scrutiny assessment under the provisions of law or to re-open the assessment u/s. 147 of the Act. Thus, we find that CPC had no jurisdiction to make impugned adjustment within the meaning of section 143(1)(a) of the Act.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This is an appeal preferred by the assessee against the order dated 13­12-2021 of the Learned Commissioner of Income-tax (Appeals), [in short, the ld. CIT(A)], National Faceless Appeal Centre (NFAC), Delhi dated 13-12-2021 for the assessment year 2017-18.

2. There is a delay of 13 days in filing the appeal. Application for condonation of delay is placed on record explaining the cause for delay. Ld. DR did not object on the delay being reasonable. Accordingly, considering the reasonableness for the cause, we condone the delay and take up the appeal for adjudication.

3. At the outset, Shri Miraj D.Shah, Learned Authorised Representative of the assessee has pointed out that the issue is regarding the adjustment made by the CPC, Bengaluru while processing the return of income filed by the assessee. According to him, as per section 143(1)(a) of the Income-tax Act, 1961 (in short, the ‘Act’), the jurisdiction of CPC is limited by clause (i) to (vi) of the said section. It is submitted by him that even if there is any adjustment, which needs to be done, it can be done only after providing reasonable opportunity to the assessee as referred in proviso to section 143(1)(a) of the Act. According to the Ld.AR, in this case, the assessee had two types of business: (i) Business of Confectionary (ii) Man Power Supply Business. The total turnover of Rs. 52.81 lakhs comprised of the turnover of the said two businesses for the year under consideration as – Rs. 21.60 lakhs for business of confectionary and Rs. 31.21 lakhs for the business of man power supply. Ld. AR stated that the assessee in her return of income opted for the presumptive taxation scheme u/s 44AD of the Act and disclosed a net income @ 18.40% on Rs.52.81 Lakh turnover and disclosed a business income at Rs.9,72,735, for both the businesses taken together. However, CPC while processing the return u/s 143(1) of the Act, determined the total income at Rs. 25,33,319/- by making an adjustment of adding 50% presumptive income u/s 44ADA on manpower supply turnover of Rs. 31.21 lakhs.

3.1 Ld. AR stated that the business of man power supply is not a profession within the meaning of Section 44AA of the Act read with all notifications issued by the CBDT in this regard. It was submitted by the Ld. AR that though supplying man-power, the assessee had fulfilled only its contractual obligation which does not involve any technical or professional service, while making payment against the bills, the clients deducted TDS u/s 194J of the Income Tax Act, 1961. Ld. AR contended that the assessee cannot control the affairs of its clients & specify under which head / section her clients will deduct TDS and the fact remains that the assessee did not provide any professional or technical service but simply “service” in the course of supplying man-power as per the requirement of the clients and that mere deduction of TDS by client under a particular section cannot determine the character of the income of the assessee. According to the Ld. AR, though the nature of service provided is nothing but labour supply, the clients deducted the TDS u/s 194J of the Act, over which assessee had no control and this resulted in the reflection of the same in Form 26AS statement. It is stated by Ld. AR that by making the adjustment while processing the return u/s 143(1), CPC erroneously taxed the income on manpower turnover twice by taking note of Form 26AS (TDS deducted u/s. 194J erroneously by deductor / payer), once by accepting the income of Rs.9,72,735 determined on the total turnover of Rs. 52.81 lakhs which included the man power business turnover and then again by making adjustment in towards presumptive income @ 50% on turnover of Rs. 31.21 lakhs of Manpower business.

3.2 According to the Ld.AR, this is an issue, which raises a question of fact and can be done only on scrutiny assessment u/s. 143(3) of the Act or by re­opening of assessment u/s. 147 of the Act. According to the Ld. AR, the CPC ought not to have made adjustment in the total income of the assessee by including additional turnover in respect of profession as Rs. 31,21,167/-. Section 143(1) of the IT Act, as amended vide Finance Act, 2016 empowers to make addition of income appearing in form 26AS which has not been included in computing the total income in the return. Though prima-facie it seems that the above was done in the process of making of such adjustment for the discrepancy between the gross income as per return & gross income as reflected in the 26AS statement, in fact it is not so. The clients of the assessee, to whom she raised bills for supplying the man-power, while making payment, deducted the TDS u/s 194J of the Act and on that basis it was assumed by AO CPC that the assessee earned a professional income assessable u/s 44ADA over & above her reported source i.e. Income from business. Such assessment is beyond the jurisdiction of assessment u/s 143(1) of the Act.

3.3 Ld. AR also contended that classification of income is a complex & debatable issue and therefore in absence of detailed scrutiny and examination of records, facts and details as it is done u/s 143(2) or 148 of the Act, it is not possible either on the part of the assessee nor by the department to adjudicate the issue in a fair, transparent & judicious manner.

4. Per contra, Shri Biswanath Das, Add.CIT/Ld. DR contended that when in Form 26AS, there has been deduction made by the payer, which bears the character of professional receipt (section 194J deduction) and there was no corresponding income shown under the head ‘profession’. Therefore, the CPC had rightly made the addition.

5. We have heard both the parties and perused the record. The question is limited as to whether the CPC u/s. 143(1)(a) of the Act can make any adjustment/addition in the aforesaid facts and circumstances. According to us, the CPC could not have made the adjustment since the question of fact arises on the factual matrix of this case as noted above. The assessee’s contention is that the amount of Rs. 31,21,167/- is included in the turnover of Rs. 52,81,344/-. Therefore, merely based on TDS entries given in Form 26AS for deduction of tax u/s. 194J, the adjustment could not have been made without conducting any enquiry, more particularly when the man power supply is not covered as a profession within the meaning of section 44AA of the Act read with relevant notifications. We find force in the contention of the Ld. AR that this particular issue could not have been decided by the CPC u/s. 143(1)(a) of the Act. In case, if the department finds that there is an anomaly, then it has liberty to do so by conducting scrutiny assessment under the provisions of law or to re-open the assessment u/s. 147 of the Act. Thus, we find that CPC had no jurisdiction to make impugned adjustment within the meaning of section 143(1)(a) of the Act. Accordingly, the adjustment made by the CPC stands deleted.

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

Order is pronounced in the open court on 18 April, 2022