Case Law Details
DCIT Vs Corteva Agriscience Services India Private Limited (ITAT Hyderabad)
No ‘Deemed Payment’ Under Section 43B: Transfer of Employee Liabilities on Slump Sale Not Enough — ITAT Hyderabad Reverses CIT(A)
The Hyderabad ‘B’ Bench of the Income Tax Appellate Tribunal, Hyderabad Bench allowed the Revenue’s appeal for AY 2019-20 and held that employee-related liabilities transferred under a slump sale do not qualify for deduction under section 43B in the absence of actual payment.
The assessee, Corteva Agriscience Services India Pvt. Ltd., had transferred one of its business undertakings on a slump sale basis with effect from 01.04.2019. As part of the transfer, liabilities relating to bonus, leave encashment and gratuity were also transferred to the transferee company. The assessee claimed deduction of ₹2.84 crore under section 43B, contending that transfer of liabilities amounted to “deemed payment”, especially since the transferee had discharged the liability and had not claimed deduction.
The Tribunal rejected this theory and held that section 43B allows deduction only on actual payment made by the assessee on or before the due date under section 139(1). There is no concept of “deemed payment” for employee dues merely because liabilities are contractually transferred to another entity. Statutory obligations under section 43B cannot be shifted by agreement. The Bench relied heavily on the Supreme Court decision in Exide Industries Ltd. and distinguished cases relating to conversion of interest into loans or debentures.
The ITAT further held that whether the transferee paid the employees or claimed deduction is irrelevant for determining the assessee’s eligibility under section 43B. Rule of consistency was also rejected, observing that each assessment year is independent and an erroneous allowance in a subsequent year cannot justify relief.
On the assessee’s Rule 27 application, the Tribunal admitted the application but rejected both grounds. It held that (i) disallowance under section 43B is not a debatable issue and hence permissible as a prima facie adjustment under section 143(1)(a), and (ii) the CPC had followed due process while making the adjustment.
Accordingly, the order of the CIT(A) was set aside and the adjustment made by the CPC/AO disallowing deduction under section 43B was restored. The Revenue’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the Revenue is directed against the order of the learned Addl/Joint Commissioner of Income Tax (Appeals) – 9, Mumbai, (for short “Ld. CIT(A)”) dated 05.02.2025, pertaining to the assessment year 2019-20.
2. The grounds raised by the Revenue read as under :
“1. The. ADDL/JCIT(A) erred on the facts and in the circumstances of the case and in law.
2. On the facts of the case, the Ld.ADDL/JCIT(A) has erred in allowing relief to the assessee in respect of deduction claimed u/s. 43B of Rs.2,84,07,995/- which was not paid by it.
3. As per the provisions of Section 43B of the Income Tax Act, 1961, certain deductions shall be allowed only if such sum is actually paid by the assessee during the previous year. Thus, the Ld.ADDL/JCIT(A) ought not have allowed the deduction claimed u/s. 43B, as the same was not paid by the assessee.
4. Any other ground that may be urged at the time of hearing.”
3. At the outset, there is a delay of 35 days in filing the present appeal by the Revenue before the Tribunal. The Revenue has filed an affidavit of Sri B. Narsing Rao, Deputy Commissioner of Income Tax, Circle-1(1), Hyderabad, explaining the reasons for the delay, wherein it was submitted that, the order passed by the ADDL/JCIT(A)-9, Mumbai, dated 05.02.2025, was received in the office of the Pr. CIT-1, Hyderabad on 07.02.2025, and the time limit for filing the appeal before the Tribunal was to expire on 29.04.2025. It was submitted that, due to heavy work pressure, the matter inadvertently escaped attention and the proposal for filing further appeal was submitted belatedly for obtaining authorization from the Pr. CIT-1, Hyderabad. It was submitted that, in view of the above circumstances, the appeal could not be filed within the prescribed time. It was further submitted that, the delay was neither willful nor deliberate, but occurred due to administrative reasons, and therefore, the delay may kindly be condoned in the interest of justice.
4. The counsel learned for the assessee, on the other hand, did not seriously oppose the request for condonation of delay, in view of the reasons explained by the Ld. Sr.A.R. for the Revenue.
5. We have heard both the parties and perused the petition and affidavit filed by the Revenue seeking condonation of delay in filing the appeal. We find that, the reasons explained by the Revenue constitute ‘reasonable cause’. The Hon’ble Supreme Court in the case of Collector, Land Acquisition Vs. MST. Katiji [1987] 167 ITR 471 (SC) has held that, a liberal and pragmatic approach should be adopted while considering applications for condonation of delay, so that substantial justice is not defeated on technical grounds. Similar view has been taken by the Hon’ble Karnataka High Court in CIT & Anr. Vs. ISRO Satellite Centre [2013] 263 CTR (Kar) 549 and by the Hon’ble Jurisdictional ITAT in Srimaan Industries Private Limited Vs. ITO [2022] 217 TTJ (Hyd) 120. Respectfully following the aforesaid judicial precedents, and considering the bona fide reasons explained by the Revenue, we condone the delay in filing the appeal and admit the appeal for adjudication.
6. The brief facts of the case are that, the assessee “Corteva Agri-Science Services India Private Limited”, is engaged in providing administrative support services to “Corteva Group” and filed its return of income for A.Y. 2019-20 on 30.11.2019, declaring total income of Rs. 3,18,05,640/-. The assessee company, in pursuant to its business transfer agreement dated 26.02.2019, transferred one of its business undertakings along with certain employees on a slump sale basis to Performance Specialty Products (India) Private Limited w.e.f. 01.04.2019 for a consideration of Rs. 30,56,51,397/-, which included certain liabilities on account of bonus to employees, leave encashment, and provision for gratuity relating to the transferred undertaking. The assessee had claimed deduction towards leave encashment of Rs. 71,09,132/- and bonus payment of Rs. 2,12,98,863/- under Section 43B of the Income-tax Act, 1961, on the ground that, the liability arising out of provisions made for the financial year 2018-19 had been paid on 01.04.2019, which was on or before the due date for filing the return of income under Section 139(1) of the Act. The return of income filed by the assessee was processed and an intimation under Section 143(1)(a) of the Act, dated 18.03.2021 was issued by the A.O./CPC, determining the total income at Rs. 16,91,21,700/- after making an adjustment of Rs. 2,84,07,995/-towards the deduction claimed under Section 43B of the Act in respect of leave encashment and bonus payment.
7. The assessee challenged the order passed by the A.O. under Section 143(1) of the Act, and filed an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee challenged the additions made by the A.O. towards disallowance of liabilities, in respect of leave encashment and bonus payment under Section 43B of the Act, on the ground that, upon transfer of the business undertaking w.e.f. 01.04.2019, the liabilities related to the business undertaking in respect of employees’ leave encashment, bonus, and provision for gratuity had been transferred to the transferee entity, and upon such transfer of said liability, the assessee company had discharged the liability due to the employees and thus, it amounted to deemed payment of liability for the purpose of Section 43B of the Act. The Ld. CIT(A), after considering the relevant submissions of the assessee, deleted the additions made by the A.O. towards disallowance of liabilities under Section 43B of the Act, by holding that, the assessee had submitted correspondence with the transferee company, including the tax audit report of the transferee company, wherein it was clearly mentioned that, the impugned liability was paid by them and that no deduction was claimed in their return of income. It was further noted that, a similar liability claimed by the assessee for A.Y. 2020-21 had been examined by the A.O. and the deduction was allowed. Accordingly, the Ld. CIT(A) deleted the adjustment made by the A.O. under Section 43B of the Income-tax Act, 1961.
8. Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.
9. The learned Senior A.R., Dr. Sachin Kumar, appearing for the Revenue, submitted that, the Ld. CIT(A) erred in deleting the adjustment made by the A.O. towards employees’ liabilities under Section 43B of the Act, even though the assessee has not proved the actual payment of the said liabilities on or before the due date prescribed for filing the return of income under Section 139(1) of the Act. The learned Senior A.R. for the Revenue further submitted that, the Ld. CIT(A) has allowed relief only on the basis of confirmation from the transferee company that, it has not claimed deduction towards the said liability and further on the ground that, the A.O. has allowed similar deductions for A.Y. 2020-21. However, as per the provisions of Section 43B of the Act, in order to claim deduction towards the liabilities referred to therein, including liabilities towards employees’ dues, the same can be allowed as deduction only if such liability is actually paid on or before the due date prescribed for filing the return of income under Section 139(1) of the Act. In the present case, the assessee claims that, it has transferred the said liabilities to the transferee company upon transfer of the business undertaking w.e.f. 01.04.2019 and that once the liability has been transferred to the transferee company, it amounts to deemed payment of the said liability, as required under the statute and, therefore, the assessee is entitled to claim deduction under Section 43B of the Act. However, the law is very clear in as much as, for claiming deduction under Section 43B of the Act, the actual payment of the said liability should be made on or before the due date. Since the assessee has not proved the actual payment of the said employees’ liabilities on or before the due date, the question of claiming deduction does not arise. Therefore, he submitted that, the Ld. CIT(A), without appreciating the relevant facts, simply deleted the additions made by the A.O.
10. The learned counsel for the assessee, Shri Rohit Mittal, C.A. and Shri Sandeep Bansal, C.A. on the other hand, supporting the order of the Ld. CIT(A), submitted that, the assessee company has discharged the liability on 01.04.2019, which is before the due date for filing the return of income, and the said liability has been discharged by transferring the liability to the transferee company in terms of the business transfer agreement dated 26.02.2019, from the appointed date i.e. 01.04.2019. Once the assessee has transferred the liability to the transferee company, then it amounts to deemed payment of the said liability, as required under the relevant statutes, and therefore, the assessee can claim deduction under Section 43B of the Act. In this regard, he relied upon certain judicial precedents, including the decision of the Hon’ble Supreme Court in the case of WT Suren & Co. Vs. CIT reported in 230 ITR 643 (SC) and the decision of the Hon’ble Madras High Court in the case of Sri Akhilandeswari Mills Pvt. Ltd. Vs. DCIT reported in 145 taxmann.com 474. The learned counsel for the assessee further, referring to the decision of the ITAT Mumbai Bench in the case of J.R. Diamonds Ltd. Vs. ACIT reported in 70 ITD 42, submitted that, under a similar set of facts, the Tribunal has examined the issue relating to transfer of business undertaking and transfer of liabilities and held that, once the liabilities have been transferred to the transferee undertaking, then it amounts to actual payment of liability for the purpose of Section 43B of the Act, and deduction can be allowed towards employees’ liabilities. In the present case, the assessee has obtained confirmation from the transferee undertaking, wherein it has certified that, although it has discharged the liability in respect of leave encashment and bonus payment to the employees, the deduction has not been claimed while computing income from business and profession, as the said liability had not been incurred by the transferee company. In this regard, he relied upon the decision of the Hon’ble Supreme Court in the case of M.M. Aqua Technologies Ltd. Vs. CIT (2021) 436 ITR 582 and also the decision of the Hon’ble Telangana High Court in the case of M/s. Frontier Information Tech Limited Vs. DCIT reported in (2025) 478 ITR 637. Therefore, he submitted that, since the assessee has discharged the liability upon transferring of liability to the transferee company, then it amounts to deemed payment of liability, as required under Section 43B of the Act, and the assessee has rightly claimed deduction towards the said liability while computing income from business and profession. The Ld. CIT(A), after considering the relevant facts, has rightly deleted the additions made by the A.O., and therefore, the order of the Ld. CIT(A) should be upheld.
11. The learned counsel for the assessee further, referring to the application filed by the assessee under Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, (for short “ITAT Rules, 1963”) submitted that, the assessee has supported the order of the Ld. CIT(A) by filing an application under Rule 27 of the ITAT Rules, 1963 and has taken a ground that, the adjustment made by the A.O. under Section 143(1)(a) of the Act, cannot be made when the issue involved is debatable in nature. He further submitted that, the CPC, erred both on facts and in law in making addition to the income without recording any specific satisfaction in the order passed under Section 143(1)(a) of the Income-tax Act, 1961, either regarding absence of a response or inadequacy of the response submitted by the assessee. The learned counsel for the assessee further, referring to various judicial precedents, including the decision of the Hon’ble Bombay High Court in the case of Peter Vaz Vs. CIT (2021) 128 taxmann.com 180, submitted that, the assessee can file an application under Rule 27 of the ITAT Rules, 1963, even if such ground was not raised before the Ld. CIT(A), and the ITAT should admit the application filed by the assessee and decide the issue challenged in the said application, in case, the said grounds are in support of the order of the Ld. CIT(A). In this regard, he relied upon the decision of the ITAT, Hyderabad Bench in the case of Incredible India Projects Pvt. Ltd. Vs. CIT (2024) 11 TMI 1096. Therefore, he submitted that, the application filed by the assessee under Rule 27 of the ITAT Rules, 1963 should be admitted and the grounds raised therein should be decided on merits.
12. The learned counsel for the assessee further, referring to the grounds raised by the assessee in the petition filed under Rule 27 of the ITAT Rules, 1963, submitted that, the issue considered by the A.O./CPC for making adjustment under Section 43B of the Act is a debatable issue and, once the issue is debatable, the same cannot be adjusted in the intimation issued under Section 143(1)(a) of the Act. In this regard, he relied upon the decision of the Hon’ble High Court of Telangana in the case of CIT Vs. GVK Industries Ltd. reported in (2022) (12) TMI 224, the decision of the Hon’ble High Court of Chhattisgarh in the case of Sanjay Kumar Sharma Vs. ITO reported in (2025) (5) TMI 1094, and also the decision of Bangalore Bench of the Tribunal in the case of Vikas Goyal Vs. DCIT reported in (2025) (12) TMI 1285. The learned counsel for the assessee further, referring to ground No. 2 of the application filed under Rule 27 of the ITAT Rules, 1963, submitted that the A.O. has not arrived at the satisfaction as required under law before making the adjustment, which is evident from the order passed under Section 143(1) of the Act, wherein the A.O., without striking off the inapplicable portion, has proposed the adjustment which is against the principles of natural justice and makes it difficult to defend its case before the higher forum. Therefore, he submitted that, the adjustment made by the A.O. in the intimation issued under Section 143(1)(a) of the Act, without even arriving at satisfaction, should be deleted. In this regard, he relied upon the decision of the Mumbai Bench of the Tribunal in the case of Kalpesh Synthetics Pvt. Ltd. Vs. DCIT reported in (2022) (5) TMI 461 and also the decision of Bangalore Bench of the Tribunal in the case of Itek Packz Vs. ITO (2022) (12) TMI 1384
13. The learned Senior A.R. for the Revenue, on the other hand, strongly opposed the application filed by the assessee under Rule 27 of the ITAT Rules, 1963, and submitted that, as per Rule 27 of the ITAT Rules, 1963, the respondent can support the order passed by the Ld. CIT(A) on an issue which has been decided against the respondent by the first appellate authority, however, there is no scope for the respondent to file an application by raising new legal grounds which were not taken before the Ld. CIT(A). Further, assuming for a moment, the assessee can raise the grounds by filing an application under Rule 27 of the ITAT Rules, 1963, but still the grounds raised by the assessee in the petition/application are not maintainable, because the issue considered by the A.O./CPC for adjustment under Section 43B of the Act, is neither debatable nor there is requirement of satisfaction from the A.O. before making such an adjustment. Therefore, he submitted that, the grounds raised by the assessee should be rejected.
14. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. We have also carefully considered the relevant written submissions filed by the assessee dated 16.01.2025 after the hearing of appeal on 12.01.2026 and also perused various case laws referred to by the learned counsel for the assessee in support of his submissions on the issue of adjustment made towards employees’ dues under section 43B of the Income Tax Act, 1961. We have also carefully considered the relevant case laws referred to by the learned Senior A.R. for the Revenue, including the decision of Hon’ble Supreme Court in case of Union of India Vs. Exide Industries Limited, (2020) 425 ITR 1 (SC) and also the decision of ITAT, Mumbai Bench in the case of Pembril Engineering Private Limited Vs. DCIT, (2015) 61 taxmann.com 222 (Mumbai Tribunal). The solitary issue that needs to be adjudicated in the present appeal filed by the Revenue is, whether the assessee can claim deduction towards liabilities referred to under section 43B of the Act, including liabilities towards employees’ leave encashment, bonus, and gratuity provision, without there being any actual payment of the said liability on or before the due date provided under section 139(1) of the Act, and further on the ground of deemed payment of said liability by transferring the said liability to another entity. Admittedly, the assessee has transferred its business undertaking along with certain employees on a slump sale basis to M/s. Performance Specialty Products (India) Private Limited pursuant to a business transfer agreement dated 26.02.2019 w.e.f. 01.04.2019. As part of slump sale, certain liabilities on account of bonus to employees, leave encashment, and provision for gratuity relating to the transferred undertaking were also transferred to the transferee undertaking. The assessee has claimed deduction towards leave encashment, bonus payment under section 43B of the Act, amounting to Rs. 2,84,07,995/- on the basis of deemed payment of said liability to the employees as on 01.04.2019 and the said claim was made on the basis of business transfer agreement dated 26.02.2019. The assessee has transferred the liabilities to the transferee company w.e.f. 01.04.2019. In other words, the liability outstanding in the books of accounts of the assessee company has been transferred to the transferee company from 01.04.2019. The assessee has assumed that, transfer of liabilities related to employees’ dues to another company amounts to deemed payment of said liability, as required under relevant statutes, which govern leave encashment, bonus payment and gratuity provisions. The assessee had argued the issue at length in support of certain judicial precedents, including the decision of Hon’ble Supreme Court in the case of WT Suren & Company vs. CIT (supra) and also the decision of Hon’ble Madras High Court in the case of Sri Akhilandeswari Mills Pvt. Ltd. vs. DCIT (supra) and other cases and claimed that, once a liability is transferred to another entity, upon transfer of business undertaking on slump sale basis, then it amounts to deemed payment of said liability on or before the due date and the assessee company is entitled to claim deduction under section 43B of the Income-tax Act, 1961.
15. We have gone through the relevant arguments of the counsel for the assessee in light of various case laws, including the decision of Hon’ble Supreme Court in the case of W.T. Suren and Co. Vs. CIT (supra), and we ourselves do not subscribe to the reasons given by Ld. CIT(A) for the simple reason that, there is no concept of deemed payment of liability referred to under section 43B of the Act for claiming deduction towards said liability while computing the income from business or profession. As per the plain reading of section 43B of the Act, a deduction otherwise allowable under this Act, in respect of certain liabilities, including the liability relating to employees’ dues, shall be allowable irrespective of the previous year, in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him only in computing the income referred to under section 28 of the previous year in which such sum is actually paid by him. In other words, for claiming deduction under Section 43B of the Act towards any liability, there should be actual payment of the said liability to the concerned funds or persons, and such payment, if made on or before the due date for filing the return of income under Section 139(1) of the Act in terms of the proviso to Section 43B, shall be allowed as deduction. This legal principle is supported by the decision of Hon’ble Supreme Court in the case of Union of India Vs. Exide Industries Ltd. (supra), wherein it has been clearly held that, as per the settled principle of interpretation, a non obstante clause assumes an overriding character against any other provision of general application, and once the provision makes it clear that, any liability referred to therein is deductible upon actual payment, then it should be allowed only upon actual payment of said liability. A similar view has been taken by the Co-ordinate Bench of the Tribunal, ITAT, Mumbai, in the case of Pembril Engineering Pvt. Ltd. Vs. DCIT (supra), wherein it has been clearly held that, a person cannot, by contract, transfer or shift his statutory obligations to another and claim deduction under section 43B of the Act. The Tribunal further held that, in order to claim deduction under Section 43B of the Act, there should be actual payment of liability as stipulated thereon and such payment, if made on or before the due date for filing the return of income under Section 139(1) of the Act in terms of the proviso to Section 43B of the Act, is allowable as deduction.
16. In the present case, there is no dispute with regard to the fact that, the assessee has transferred the liability related to leave encashment, bonus payment of employees to the transferee undertaking w.e.f. 01.04.2019 and claimed that, upon transfer of said liability, the liability payable to the employees has been discharged by invoking a deeming fiction even though there is no provision under the Act, including section 43B of the Act, for deeming payment. Although the assessee has further strengthened his arguments in light of the fact that the transferee company has not claimed the deduction, in our considered view, the said argument does not hold good for the simple reason that, whether the transferee entity has paid the employees and claimed deduction towards the said liability while computing income from business or profession is not relevant to decide whether the assessee can claim deduction for the said liability under Section 43B of the Act, but what is required is actual payment of the said liability on or before the due date for filing the return of income under Section 139(1) of the Act in terms of the proviso to Section 43B of the Act. In our considered view, if the arguments of the counsel for the assessee is accepted that, upon transfer of said liability to any other entity or person, the assessee deemed to be discharged the said liability for the purpose of section 43B of the Act, then in all cases, the assessee will claim the benefit of deduction under section 43B of the Act, by incurring the liability and transferring the said liability to a third person either on account of business transfers or on account of any other reason. Therefore, in our considered view, this is not the intent of legislature going by the wording of section 43B of the Act, wherein it has been clearly laid down the law and as per which, for claiming deduction under section 43B of the Act, the liability referred to therein, including the liability towards employees’ dues, for leave encashment, bonus payment and gratuity provision, shall be allowed only upon actual payment of said liability and in the year of payment. In the present case, since the assessee has not proved the actual payment of said liability on or before the due date provided for filing of return of income, in our considered view, the assessee cannot claim deduction towards the said liability under section 43B of the Act, while computing income from business and profession.
17. In so far as the arguments of the counsel for the assessee that for similar liabilities claimed by the assessee for the subsequent assessment year 2020-21, the A.O. has examined the issue and allowed the deduction, and as per the rule of consistency, unless there is a change in facts, the A.O. cannot take a contrary view for the assessment year under consideration, in our considered view, the principles of res judicata are not applicable to the Income-tax proceedings. Although, the rule of consistency needs to be followed while considering the issues for the purpose of taxation, but the fact remains that if there are changes in facts and circumstances for the subsequent year, the A.O. is bound to follow the law instead of following the error committed in the earlier year because, each assessment year is independent and the A.O. is bound to examine the issues in the light of the relevant provisions of the Act. Therefore, in our considered view, the arguments taken by the learned counsel for the assessee in light of the fact that the A.O. has allowed a deduction towards similar liability in the subsequent assessment year 2020-21 does not help the assessee and thus, rejected.
18. In so far as various case laws relied upon by the assessee, including the decision of MM Aqua Technologies Limited Vs. CIT (supra) and the decision of the Hon’ble Telangana High Court in the case of M/s. Frontier Information Tech Limited Vs. DCIT (supra), in our considered view, the above two cases are concerned with the issue of deduction of interest liability under Section 43B of the Act, and in light of the above provisions, it was held that, once the interest liability was converted into a loan liability upon issuance of equity shares or debentures in lieu of interest, then it amounts to actual payment as contemplated under Section 43B of the Act and the assessee can claim deduction under Section 43B of the Act. In the present case, the issue involved relates to employees’ dues, such as leave encashment and bonus payment to employees as required under the law and further on or before the due date prescribed under Section 139(1) of the Act and therefore, in our considered view, the assessee cannot invoke the theory of deemed payment of said liabilities merely by transferring the liabilities to another company and claim deduction under Section 43B of the Act. Therefore, in our considered view, the case laws referred to by the learned counsel for the assessee are not applicable to the facts of the present case and thus, the same are rejected.
19. In this view of the matter and considering the facts and circumstances of the case, we are of the considered view that, the Ld. CIT(A), without appreciating the relevant facts, simply deleted the adjustment made by the A.O. towards liabilities under section 43B of the Act. Thus, we set aside the order of the Ld. CIT(A) and upheld the adjustment made by the A.O. towards liability under section 43B of the Act.
20. Coming back to the application filed by the assessee under Rule 27 of ITAT Rules, 1963. The assessee has filed an application under Rule 27 of ITAT Rules, 1963 and argued in light of certain judicial precedents, including the decision of Hon’ble Bombay High Court in the case of Peter Vaz Vs. CIT (supra) and also the decision of ITAT, Hyderabad Bench in the case of Incredible India Projects Pvt. Ltd., Vs. CIT (supra), that any legal issue can be raised in an application under rule 27 of ITAT Rules, 1933, even if the said issue was not raised before the first appellate authority and the assessee can still take a ground in support of the order passed by the Ld. CIT(A) on an issue which has not been decided by the first appellate authority. We find that, ITAT, Hyderabad Bench in the case of Incredible India Projects Pvt. Ltd. Vs. CIT (supra) had considered the issue and by following the decision of Peter Vaz (supra), has admitted the application filed by the assessee under Rule 27 of ITAT Rules, 1963 to decide the grounds raised by the assessee. Therefore, we admit the application filed by the assessee under Rule 27 of ITAT Rules, 1963 and the grounds raised thereon for adjudication.
21. The assessee has taken two grounds in the petition filed under Rule 27 of ITAT Rules, 1963. The first ground taken by the assessee is challenging the adjustment made by the A.O. towards liability under section 43B of the Act, in the intimation issued under section 143(1)(a) of the Act, is that, the said issue is debatable in nature and the same cannot be adjusted under section 143(1)(a) of the Act. The assessee has relied upon certain judicial precedents, including the decision of Hon’ble Telangana High Court in the case of CIT Vs. GVK Industries Limited (supra) and also the decision of Hon’ble Chhattisgarh High Court in the case of Sanjay Kumar Sharma vs. ITO (supra). We have carefully considered the relevant arguments of the assessee and also the case laws referred to in support of said arguments and we find that, the issue considered by the A.O. in the order passed under section 143(1)(a) of the Act, is not a debatable issue as claimed by the learned counsel for the assessee, but it is a prima facie adjustment, which can be decided on the basis of return of income filed by the assessee, because as per the provisions of section 143(1)(a) of the Act, an incorrect claim, if such incorrect claim is apparent from any information in the return, then the same can be adjusted while processing the said return of income. Since the issue related to deduction under section 43B of the Act, towards liabilities referred to therein, including the employees’ dues pertaining to leave encashment, bonus payment and gratuity provision, is an incorrect claim which is apparent from the return filed by the assessee, in our considered view, the arguments of the learned counsel for the assessee that, it is a debatable issue and the same cannot be adjusted under section 143(1)(a) of the Act, is incorrect and devoid of merit and cannot be accepted. Thus, we reject ground No. 1 of the assessee’s application filed under Rule 27 of ITAT Rules, 1963.
22. The assessee had also taken another ground in light of certain judicial precedents and held that, the A.O. has made adjustment by considering the standard reason that, as there was no response or the response given is not acceptable, the adjustment as mentioned below is being made to the total income as per the provisions of section 143(1) of the Act, and that without striking off the inapplicable portion, such a non-speaking order goes against the principles of natural justice and makes it challenging for the company to defend its case before the higher forum. In our considered view, once again the arguments of the counsel for the assessee is devoid of merit, going by the scheme of assessment provided under section 143(1) of the Act, where the A.O. needs to process the return of income and issue intimation on the basis of return of income filed by the assessee and further, if the A.O. finds any incorrect claim on the basis of return of income filed by the assessee, then the same needs to be adjusted in accordance with law while computing the income from business and profession. However, before making such adjustment, the only requirement is to give opportunity to the assessee to file its objections, if any. In the present case, the A.O./CPC, before making adjustment, has provided an opportunity to the assessee as provided under section 143(1) of the Act and the proviso provided therein and therefore, in our considered view, the arguments of the assessee that the A.O. has made adjustment without even striking off the ineligible or inapplicable part of the notice, renders the adjustment made by the A.O. as illegal, is devoid of merit and cannot be accepted. Therefore, we reject ground No. 2 of the assessee’s application filed under Rule 27 of ITAT Rules, 1963.
23. In the result, the appeal filed by the Revenue is allowed.
Order pronounced in the Open Court on 30th January, 2026.
Author Bio
