AO Isn’t Required to Pass Speaking Order for Adjustments Made in Sec. 143(1)(a) Intimation Based on Tax Audit Report

Case Details: Joyo Plastics vs. ACIT - [2024] 162 taxmann.com 836 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Om Prakash Kant, Accountant Member & Sunil Kumar Singh, Judicial Member
  • Ajay R. Singh & Akshay Pawar for the Appellant.
  • Ms Rajeshwari Menon, Sr. DR for the Respondent.

Facts of the Case

The CPC processed the return of income filed by the assessee under section 143(1). The assessee paid certain compensation in favour of a hospital and claimed the same as expenditure. However, said compensation was remitted for violation of patents/trademarks.

Assessing Officer (AO) issued an intimation calling for tax audit report. Pursuant to this, AO noted it under clause no. 21(a) of Form 3CD, a certain amount was listed under the entry of expenditure by way of penalty of fine for violation of the law. He proposed adjustment on the ground that expenditure was not disallowed by the assessee while filing the return. Thereafter, adjustment was made under section 143(1). Assessee contended that AO failed to pass the speaking order.

The matter was reached before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the Assessing Officer (AO) considered the assessee’s response for making adjustments to the return of income under various provisions of section 143(1) of the Act. Under the provisions of section 143(1) of the Act, the AO is required to compute the income after taking into consideration the adjustment as prescribed, subject to communication with the assessee.

In the instant case, the AO made an adjustment based on the entry made by the tax Auditor of the assessee under the row prescribed for expenditure by way of penalty or fine for violation of law for the time being in force. Out of the two items listed under this row in the tax audit report, the assessee already added one item to compute returned income, but the second item was omitted to include in the returned income. Based on the omission observed, the AO communicated the proposed adjustment and thereafter passed the intimation order along with the reasons for the adjustment, which was duly specified.

The Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316 (SC) had distinguished between intimation and assessment. It held that under intimation, the authority of the AO is limited to carry out adjustments based on the return of income or accompanying documents, and he can’t go beyond that and make adjustments on any debatable issue. In this case, the AO was not required to pass a speaking order for adjustments made, although he has duly proposed the adjustment twice to the assessee. Afterwards, in the intimation, he provided reasons for the adjustment.

Therefore, the assessee’s argument that the AO was required to pass a speaking order was incorrect.