ITAT Delhi Holds Re‑examination of Section 10(23C)(iv) Exemption Invalid After Quashing Section 143(1) Adjustment

Background of the Dispute

The Delhi Bench of the Income Tax Appellate Tribunal in Hamdard Laboratories India Vs DCIT was called upon to decide whether the Commissioner of Income Tax (Appeals) [CIT(A)] could lawfully direct the Assessing Officer (AO) to once again scrutinize an exemption claim under Section 10(23C)(iv) after having already held that the intimation issued under Section 143(1) was unsustainable in law.

The matter pertained to Assessment Year 2023–24 and arose out of an intimation generated by the Centralized Processing Centre (CPC), Bengaluru, which determined the assessee’s taxable income at ₹112.15 crore despite a return declaring nil income on the basis of exemption claimed under Section 10(23C)(iv) of the Income Tax Act, 1961.

The Tribunal ultimately ruled in favour of the assessee, holding that:

  • Once the Section 143(1) intimation was held to be invalid for failure to grant an opportunity of being heard as mandated by the proviso to Section 143(1), the entire proceeding under that intimation effectively lapsed; and
  • In such a situation, the CIT(A) had no jurisdiction to issue directions for fresh or further examination of the exemption claim under Section 10(23C)(iv), particularly when a regular assessment under Section 143(3) had already examined the same issue.

Chronology of Events and Key Facts

Filing of Return and Claim of Exemption

  1. The assessee, Hamdard Laboratories India, filed its Return of Income on 24.11.2023 for AY 2023–24:

    • Income declared: Nil
    • Exemption claimed: Section 10(23C)(iv)

  2. Following a notice from the Revenue, the assessee submitted a revised return under Section 139(5) on 28.12.2023.

CPC Intimation Under Section 143(1)

  • The CPC, Bengaluru, processed the return and issued an intimation dated 18.11.2024 under Section 143(1).
  • In this intimation, the assessee’s total taxable income was computed at ₹112,15,57,160.
  • Effectively, the exemption claimed under Section 10(23C)(iv) was not granted in the processing, resulting in a substantial upward adjustment to income.

The assessee challenged this adjustment before the first appellate authority, contending, among other things, that:

  • No opportunity of being heard was given as required under the proviso to Section 143(1).
  • Therefore, the adjustment made by the CPC while processing the return was bad in law.

Appeal Before CIT(A) and Directions Issued

The CIT(A) agreed with the assessee’s core contention and held that:

  • Adjustments under Section 143(1) could not be made without providing an opportunity of being heard, in terms of the statutory proviso; and
  • On this basis, the addition made through the CPC intimation was liable to be deleted.

However, while granting relief on the Section 143(1) issue, the CIT(A) went a step further and issued additional directions to the AO to:

  • Re-examine the assessee’s claim of exemption under Section 10(23C)(iv) of the Act.

It was this direction to re-examine the exemption claim that ultimately became the subject of dispute before the ITAT.

Subsequent Regular Assessment Under Section 143(3)

Crucially, a regular assessment had already been completed under Section 143(3) on 26.03.2025 by the Assessment Unit. In that order: