Clean scrutiny order u/s 143(3) by Assessing Officer to override Tax Adjustment from intimation order u/s 143(1) by CPC

 In Standard Castings Private Limited v. ITO, the Hon’ble ITAT Delhi allowed the assessee’s appeal and set aside a demand that had continued to stand merely because it was raised in a CPC intimation under section 143(1), despite a complete and clean scrutiny assessment under section 143(3) accepting the returned income. The dispute arose from a typographical error during e-filing, where capital gains were inadvertently entered in the wrong row of Schedule BP. The CPC, while processing the return treated the figure as ‘income from other sources,’ and raised a demand. The assessee filed a rectification application under section 154, but CPC transferred rectification rights to the Jurisdictional Assessing Officer.

During scrutiny proceedings, the Assessing Officer examined the capital-gains computation, accepted the assessee’s position in full, and completed the assessment under section 143(3) without making any addition. Despite this, the AO inexplicably allowed the incorrect 143(1) adjustment to survive and retained the demand. The CIT(A), relying on an earlier coordinate bench decision, dismissed the assessee’s challenge as not maintainable. On further appeal, the ITAT analysed the entire sequence and held that the AO ought to have rectified the apparent error and ensured that the intimation did not independently continue once the assessment under section 143(3) had accepted the correct computation.

The Tribunal reiterated that an intimation under section 143(1) is merely a mechanism for processing returns and cannot operate to the prejudice of the taxpayer once a regular assessment under section 143(3) has been completed on the same subject matter. Given that the error was clerical, had been specifically brought to the department’s notice through a rectification request, and was implicitly cured when the AO accepted the capital-gains computation during scrutiny, the retention of the demand as per the intimation was found to be unwarranted and negligent. The ITAT accordingly directed the AO to rectify the mistake and delete the demand raised at the CPC stage.

The ruling strongly reinforces the doctrine of merger. Where an intimation under section 143(1 ) is followed by assessment under section 143(3), the later assessment ordinarily supersedes the intimation. Summary, system-driven adjustments cannot be allowed to persist alongside a reasoned, completed assessment. In the faceless and automated processing environment, this decision underscores that statutory safeguards such as rectification under section 154, the right to be heard during scrutiny, and the merger of overlapping orders remain firmly applicable.