Adjustment of Stipend as Exempted Income u/s 143(1) Without Stating Reason is not Valid: ITAT Deletes Addition [Read Order]

The Jaipur bench of the Income Tax Appellate Tribunal (ITAT) has held that adjustment of stipend as exempted income under section 143(1) of the Income Tax Act, 1961 without stating the reason is not valid and deleted the addition by way of adjustment.

Shri Himanshu Gupta, the assessee is a Doctor. For 3 years, the assessee did his internship with Medanta Hospital. The assessee received the stipend for the same and the hospital deducted TDS on such payment.

The assessee stated that the payment of a stipend is exempt as income and declared the same as exempt income under Section 10(16) of the Income Tax Act. Further, the assessee claimed credit of TDS which was deducted on the same.

It was stated that out of 3 years, in one year and year three the assessee was allowed TDS credit and was accordingly issued a refund but in the subsequent year, the assessee received notice under section 143(1) of the Act intimating the assessee that the stipend is proposed to be added to the total income of the assessee.

It was evident that the addition by way of adjustment and intimation under Section 143(1) of the Income Tax Act on a debatable and controversial issue is beyond the scope of Section 143(1) of the Income Tax Act.

The ITAT found that the assessee had filed a rectification application under Section 154 of the Act for rectification of a mistake apparent on record i.e. adjustment of the debatable issue under Section 143(1) without assigning any reason for doing so.

The Bench viewed that the scope of permissible adjustment under Section 143(1)(a) is thus much broader, and if an adjustment fits the description under Section 143(1)(a)(i) to (v) read with Explanation to Section 143(1) of the Income Tax Act, such an adjustment, subject to compliance with first and second proviso to Second provisos to Section 143(1), is indeed permissible.

A Coram comprising of Shri Sandeep Gosain, Judicial Member observed that the addition by way of adjustment and intimation under Section 143(1) of the Income Tax Act on a debatable and controversial issue is beyond the scope of Section 143(1) of the Income Tax Act and thus the Revenue was clearly in error in making aforesaid adjustments. While allowing the appeal, the ITAT directed the Revenue to delete the addition made.

To Read the full text of the Order CLICK HERE

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