The Income Tax Appellate Tribunal, Kolkata, has clarified that an intimation under Section 143(1) of the Income-tax Act, 1961, loses all legal validity once a notice under Section 143(2) has been issued for scrutiny assessment. This ruling reinforces the procedural hierarchy between summary processing and detailed scrutiny, offering critical guidance to assessors and taxpayers alike.
Background & Facts
The Dispute
The assessee, Gokhale Memorial Girls School, filed its return of income for Assessment Year 2024-25 on 16.10.2024, declaring total income at ₹ Nil. It claimed exemption under Section 10(23C)(vi) of the Income-tax Act, 1961, for income derived from educational activities. The Assessing Officer (AO) selected the case for scrutiny on 26.04.2025 to examine the validity of the trust constitution and the claim for exemption. Despite this, the Centralized Processing Centre (CPC) issued an intimation under Section 143(1) on 22.12.2025, rejecting the exemption on the ground that Form 10B was filed belatedly. The assessee challenged this adjustment before the Commissioner of Income-tax (Appeals), who upheld the CPC’s order.
Key Facts
- Return filed: 16.10.2024
- Scrutiny notice issued under Section 143(2): 26.04.2025
- Intimation under Section 143(1) issued: 22.12.2025
- Exemption claimed: Section 10(23C)(vi)
- Ground for rejection: Late filing of Form 10B
- Appeal filed before CIT(A): After 22.12.2025 intimation
- CIT(A) order: 07.02.2026, upholding the intimation
- Appeal filed before ITAT: 16.06.2026
Procedural History
- 16.10.2024: Assessee filed ITR declaring income at ₹ Nil
- 26.04.2025: Notice under Section 143(2) issued for scrutiny of trust constitution and exemption claim
- 22.12.2025: CPC issued intimation under Section 143(1), disallowing exemption due to belated Form 10B
- 07.02.2026: CIT(A) dismissed appeal, upholding Section 143(1) intimation
- 09.06.2026: Hearing before ITAT, Kolkata
- 16.06.2026: ITAT pronounced order allowing appeal
Relief Sought
The assessee sought quashing of the Section 143(1) intimation dated 22.12.2025, restoration of the exemption under Section 10(23C)(vi), and direction to the CPC to process the return in accordance with law after completion of scrutiny proceedings.
The Legal Issue
The central question was whether an intimation under Section 143(1) of the Income-tax Act, 1961, can be validly issued after a notice under Section 143(2) has been served, initiating scrutiny assessment proceedings.
Arguments Presented
For the Appellant
The appellant contended that once a notice under Section 143(2) is issued, the statutory framework mandates that the assessment must proceed exclusively under Section 143(3). Relying on C.E.S.C. Ltd. v. DCIT [2004] 134 TAXMAN 647 (Cal.) and Vodafone Idea Limited v. ACIT (424 ITR 664), the appellant argued that Section 143(1) is a summary, non-substantive process that cannot coexist with scrutiny proceedings. The intimation under Section 143(1) was not merely erroneous - it was jurisdictionally void, as the AO had no authority to act under that provision once scrutiny was triggered.
For the Respondent
The Revenue argued that Section 143(1) is a mandatory, automatic process that must be completed irrespective of subsequent scrutiny. It contended that the intimation was a procedural formality and that the rejection of exemption on technical grounds (late Form 10B) was valid even if scrutiny was pending. The Revenue further submitted that the CIT(A) had correctly applied the law and that the assessee’s remedy lay in challenging the final assessment under Section 143(3), not the intimation.
The Court's Analysis
The Tribunal examined the statutory scheme of Section 143 and the jurisprudence developed by the Calcutta High Court and the Supreme Court. It noted that Section 143(1) is a mechanical, non-adversarial process designed for quick adjustments based on apparent discrepancies in the return. In contrast, Section 143(2) triggers a full-fledged scrutiny proceeding under Section 143(3), which involves detailed inquiry, opportunity of hearing, and substantive determination.
"The exercise of power under sub-sections (2) and (3) of Section 143 of the Act is thus premised on non-acceptance of what is evident from the return itself and to ensure that there is no avoidance of tax in any manner. The dimension of such power is far greater and deeper than mere adjustments to be made in respect of what is available from the return. Once such scrutiny is undertaken and proceedings are initiated by issuance of a notice under sub-section (2) of Section 143, it would be anomalous and incongruent that while such proceedings so initiated are pending, the return be processed under sub-section (1) of Section 143..."
The Tribunal emphasized that the Supreme Court in Vodafone Idea Limited had explicitly held that the processing under Section 143(1) must await the outcome of scrutiny under Section 143(3). To permit parallel processing would create legal inconsistency and undermine the integrity of the scrutiny process.
The Tribunal further relied on the Calcutta High Court’s decision in C.E.S.C. Ltd., which held that once a notice under Section 143(2) is issued, the AO loses jurisdiction to pass any order under Section 143(1). The Tribunal also cited its own coordinate bench’s decision in MP Madhyam v. DCIT (CPC), which had reached the same conclusion for identical facts.
The Tribunal concluded that the intimation under Section 143(1) dated 22.12.2025 was issued after the initiation of scrutiny proceedings on 26.04.2025 and was therefore without jurisdiction. It further held that such an intimation, once issued post-scrutiny notice, ceases to be operative and merges into the final assessment under Section 143(3), if any.
The Verdict
The appeal was allowed. The ITAT quashed the intimation under Section 143(1) dated 22.12.2025, holding it to be invalid and without jurisdiction. The Tribunal directed the CPC to refrain from making any adjustment under Section 143(1) in respect of the return for AY 2024-25 and to await the outcome of the scrutiny assessment under Section 143(3). The claim for exemption under Section 10(23C)(vi) shall be decided during the scrutiny assessment.
What This Means For Similar Cases
Intimation Under Section 143(1) Is Not a Standalone Final Order
- Practitioners must treat Section 143(1) intimations issued after Section 143(2) notices as legally void ab initio
- Any adjustment made under Section 143(1) post-scrutiny notice cannot be relied upon in any subsequent proceeding
- Taxpayers may file objections to such intimations even before the final assessment under Section 143(3)
Scrutiny Notice Triggers Exclusive Jurisdiction Under Section 143(3)
- Once a notice under Section 143(2) is issued, the AO’s jurisdiction is confined to Section 143(3)
- The CPC must halt all Section 143(1) processing upon receipt of a scrutiny assignment
- Revenue authorities must ensure that Section 143(1) processing is completed before any scrutiny notice is issued
Merger Doctrine Applies to Invalid Intimations
- Even if an intimation under Section 143(1) is issued after scrutiny, it merges into the final assessment under Section 143(3)
- The final assessment under Section 143(3) supersedes all prior Section 143(1) adjustments
- Taxpayers should not be penalized for procedural errors by the CPC if scrutiny was initiated lawfully
