ITAT Rules Against Unjustified Tax Adjustments, Reinforces Due Process [Read Order]

The Income Tax Appellate Tribunal (ITAT) Bangalore Bench has ruled against the automatic tax adjustments made under Section 143(1) of the Income Tax Act, 1961. The Tribunal stated that such modifications, made without proper notice to the taxpayer, violate the principles of natural justice.

The case involved a company engaged in IT infrastructure management services,Microland Limited. The company filed its income tax return for Assessment Year 2023-24, declaring an income of Rs.154 crore and a tax liability of Rs.35 crore.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

A revised return was later submitted, reducing the tax liability to Rs.35 crore and claiming a refund of Rs.19 lakh. The Centralized Processing Center (CPC) made adjustments under Section 143(1), adding Rs.14 crore as Income Computation and Disclosure Standards (ICDS) adjustments and disallowing a deduction of Rs.1 crore under Section 80JJAA. This resulted in an additional tax demand of Rs 4.5 crore.

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The ITAT bench, comprising Waseem Ahmed (Accountant Member) and Keshav Dubey (Judicial Member), ruled that these adjustments were not legally justified. The Tribunal observed that the Rs.14 crore ICDS adjustment was related to accounting policies and exchange rate changes. Since these adjustments were already reported in the audit report under Form 3CD, they did not require further modification under Section 143(1).

The Tribunal upheld the decision of the Commissioner (Appeals) to remove this addition.

The Tribunal also ruled that the disallowance of the Section 80JJAA deduction was incorrect. The Revenue had argued that the taxpayer opted for the concessional tax regime under Section 115BAA, making the deduction inapplicable.

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However, the Tribunal found that companies choosing this regime are still eligible for deductions under Section 80JJAA. Since the claim was valid and filed within the due date, the Tribunal stated that its denial lacked legal merit.

The Tribunal also criticized the CPC for making adjustments without issuing a prior notice. It stated that Section 143(1)(a) requires tax authorities to inform the taxpayer before making such changes. The failure to do so rendered the tax demand legally unsustainable.

In Conclusion, the appeal filed by the Revenue is dismissed and the Cross-Objection filed by the assessee is allowed.

To Read the full text of the Order CLICK HERE

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