CPC’s Power Under Section 143(1) Is Limited: ITAT Kolkata Rules in Favour of Mudiali Club
The Kolkata Bench “C” of the Income Tax Appellate Tribunal, in the case of Mudiali Club vs. ITO, Ward-1(4), Exemption (ITA No.2443/KOL/2025, AY 2018-19), has categorically held that the Centralized Processing Centre (CPC) exceeded its authority by disallowing the entire expenditure claimed by the assessee while processing the return under Section 143(1) of the Income Tax Act 1961, solely because the audit report was not furnished within the prescribed time.
This decision reaffirms that the scope of adjustments permissible at the stage of processing under Section 143(1) is narrow and strictly defined, and does not permit wholesale disallowance of expenses merely due to delay or non-filing of audit report.
Background of the Dispute
Appeal Before ITAT Kolkata
The assessee, a club, challenged the appellate order dated 18.06.2024 passed by the Addl./JCIT(A)-4, Mumbai for Assessment Year 2018-2019. The primary grievance was against the intimation issued under Section 143(1) by CPC, where the entire expenditure claimed in the return had been disallowed.
The CPC’s disallowance was based on a single ground:
- The audit report, though required, had not been filed within the time prescribed under the Act.
Delay in Filing Appeal
The assessee’s appeal before the Tribunal was filed with a delay of 59 days. Along with the appeal, the assessee submitted a condonation petition, explaining the reasons for the delay and seeking condonation on the basis of “sufficient cause”.
The Revenue, represented by the Ld. Sr. DR, did not strongly oppose this request. Considering the explanation submitted and absence of serious objection from the Department, the Tribunal condoned the delay of 59 days and proceeded to adjudicate the appeal on merits.
Note: Procedural delay, when justified with reasonable cause and not mala fide, is generally condoned to enable adjudication on substantive legal issues.
Core Issue Before the Tribunal
The central question before the ITAT was:
Whether CPC, while processing a return under
Section 143(1), can disallow the entire expenditure claimed by the assessee only because the audit report was not filed within the prescribed time limit.
This raised a larger legal issue regarding:
- The nature and extent of powers conferred on CPC under
Section 143(1); and - Whether such a blanket disallowance falls within the category of adjustments permitted at the processing stage.
Arguments on Behalf of the Assessee
Challenge to the CPC Adjustment
The Ld. AR for the assessee submitted that:
- The return of income for AY 2018-19 was processed by CPC and an intimation under Section 143(1) was issued.
- In the said intimation, all expenditure claimed by the assessee-club in its income and expenditure account had been disallowed in full.
- The only reason cited for such disallowance was that the assessee’s audit report had not been filed within the statutory time.
The assessee contended that: