The Income Tax Appellate Tribunal, Kolkata, has reaffirmed a fundamental procedural safeguard in income tax assessments: no adjustment under Section 143(1) of the Income Tax Act, 1961, may be made without issuing a prior show cause notice to the assessee. This ruling invalidates automated adjustments by the Centralized Processing Centre that bypass statutory due process, reinforcing the principle that even ministerial actions must comply with natural justice.
Background & Facts
The Dispute
The appellant, Hooghly Alloy & Steel Co. Pvt. Limited, filed its return of income for Assessment Year 2021-22 on 09.03.2022, declaring a total income of ₹82,87,411. The return was processed by the Centralized Processing Centre (CPC) under Section 143(1) of the Income Tax Act, 1961, on 11.11.2022. The CPC made an addition of ₹18,70,576 on account of duty drawback, which the statutory auditor had reported as an amount not credited to the Profit and Loss Account. The assessee contended that the drawback amount had, in fact, been correctly included in the sales turnover and was not an unaccounted receipt.
Key Facts
- The assessee filed its income tax return on 09.03.2022
- The return was processed by CPC under Section 143(1) on 11.11.2022
- The CPC made an addition of ₹18,70,576 relating to duty drawback
- The statutory auditor had flagged the drawback as not credited to P&L account
- The assessee had included the drawback amount in sales turnover, as per its books
- The assessee was not issued any show cause notice, intimation, or opportunity to explain prior to the adjustment
- The e-proceeding sheet from the department’s portal confirmed no prior intimation was sent
Procedural History
- 09.03.2022: Assessee filed return of income for AY 2021-22
- 11.11.2022: CPC issued intimation under Section 143(1) making addition of ₹18,70,576 without notice
- 08.07.2025: Commissioner of Income-tax (Appeals), Thiruvananthapuram, dismissed the assessee’s appeal
- 10.06.2026: Hearing before ITAT Kolkata
- 16.06.2026: ITAT pronounced order allowing the appeal
Relief Sought
The assessee sought quashing of the CPC’s order dated 11.11.2022, deletion of the addition of ₹18,70,576, and restoration of the return as filed.
The Legal Issue
The central question was whether the Centralized Processing Centre could lawfully make an adjustment under Section 143(1) of the Income Tax Act, 1961, without issuing a prior show cause notice to the assessee, as mandated by the first proviso to that provision.
Arguments Presented
For the Appellant
The assessee’s authorized representative argued that the CPC’s adjustment was procedurally invalid because no show cause notice was issued prior to the intimation under Section 143(1). Reliance was placed on the first proviso to Section 143(1), which mandates that no adjustment shall be made unless the assessee has been given an opportunity to be heard. The assessee submitted the e-proceeding sheet as evidence that no intimation or notice was ever issued. The appellant also relied on a recent co-ordinate bench decision in Binay Jaiswal v. ITO (ITA No. 910/KOL/2025), where the ITAT Kolkata had held that failure to issue a show cause notice renders the intimation under Section 143(1) void ab initio.
For the Respondent
The Revenue Department did not produce any show cause notice or evidence of prior intimation. The Departmental Representative conceded during hearing that no such notice was issued and could not produce any record of communication to the assessee. No legal argument was advanced to justify the omission.
The Court's Analysis
The Tribunal examined the language of Section 143(1) and its first proviso, which states: "No adjustment shall be made under this sub-section unless the assessee has been given an opportunity of being heard." The Court emphasized that this is not a mere procedural formality but a substantive right grounded in the principles of natural justice. The Tribunal noted that the CPC’s automated system cannot override statutory mandates designed to protect the assessee’s right to be heard.
"A perusal of provisions of section 143(1) of the Act shows that it is compulsory for the revenue to issue show cause notice before making any adjustment in the intimation u/s.143(1) of the Act. This being so, as no show cause notice under the provisions of section 143(1) of the Act has been issued before making adjustment, the intimation issued u/s.143(1) of the Act stands quashed."
The Tribunal relied on its own recent decision in Binay Jaiswal v. ITO, which had squarely addressed the same issue and held that the absence of a show cause notice renders the entire intimation legally unsustainable. The Court observed that the Revenue’s failure to produce any record of notice, despite being asked to do so, was fatal to its case. The Tribunal rejected the notion that CPC’s automated processing could dispense with statutory procedural requirements.
The Verdict
The appeal was allowed. The ITAT set aside the CPC’s order dated 11.11.2022, deleted the addition of ₹18,70,576, and restored the assessee’s return as filed. The Tribunal directed that the assessment for AY 2021-22 be recomputed without the impugned adjustment. No costs were awarded.
What This Means For Similar Cases
Show Cause Notice Is Non-Negotiable Under Section 143(1)
- Practitioners must now verify whether a show cause notice was issued before any CPC adjustment is accepted as valid
- Any adjustment under Section 143(1) without prior notice is void and can be challenged at any stage, even before the Commissioner (Appeals)
- The burden of proving issuance of notice lies squarely on the Revenue; failure to produce it results in automatic quashing
Automated Processing Cannot Override Statutory Rights
- The ITAT has made clear that technological efficiency cannot override statutory safeguards
- Revenue authorities cannot rely on system-generated adjustments as a substitute for due process
- Taxpayers should request e-proceeding records to confirm whether notices were issued, especially in cases involving CPC adjustments
Precedent Now Binding Across ITAT Benches
- The Binay Jaiswal precedent, now reaffirmed, establishes a binding principle for all ITAT benches
- Similar appeals against CPC adjustments without notice should be argued on this ground alone
- Practitioners may now file applications for recall or rectification of CPC orders on this ground, even after the time limit for appeal has expired, if the notice defect is proven
