Introduction
The ‘Doctrine of Merger’ has gained significance in its applicability to the taxation laws, drawing the attention of various Courts and Tribunals. It is a common law doctrine that is based on the simple logic that there cannot be more than one operative order on a particular subject matter at any given point.
The Hon’ble Supreme Court in the Kunhayammed v. State of Kerala[1] has aptly summed up the doctrine as follows:
‘Where an appeal or revision is provided against an order passed by a court, tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of the law.’
Therefore, the Doctrine of Merger simply means that when an order passed by a lower court, tribunal or authority is subjected to the remedy of appeal available under a statute before a superior court, and the superior court either affirms or modifies the order, the order of the lower court, tribunal or authority merges with the order of the superior court.
With this background on the Doctrine of Merger, the authors in this article will be dealing with the issue of whether an intimation under Section 143(1) of the Income Tax Act, 1961 (‘IT Act’) will automatically merge with an assessment order under Section 143(3) of the IT Act.
Brief background
Once an assessee files his/her Return of Income (‘RoI’) under Section 139 of the IT Act, the RoI is processed by the Centralized Processing Centre and an intimation under Section 143(1) of the IT Act is issued to the assessee. At this stage, there are two outcomes:
(i) The income returned by the assessee is accepted.
(ii) The income returned by the assessee is not accepted and certain adjustments are made.
As per the proviso to Section 143(1)(a), no such adjustments can be made without providing an opportunity to the assessee to provide a response. Assuming if an adjustment is made and the intimation is issued, the same constitutes an appealable order and hence, is appealable before the Commissioner of Income Tax (Appeals)/National Faceless Assessment Centre (‘NFAC’) under Section 246A of the IT Act.
However, it is pertinent to note that a scrutiny for the same assessee could be picked for the same Assessment Year by issuing a Notice under Section 143(2) of the IT Act wherein the Assessing Officer has powers to scrutinize any issue. Under the scrutiny assessment, the Assessing Officer may pick up issues, seek replies from the assessee, consider the responses for the same and pass an assessment order under Section 143(3) of the IT Act.
Merger of intimation under Section 143(1) with assessment order under Section 143(3) of the IT Act
At this juncture, it is essential to analyse whether an intimation under Section 143(1) of the IT Act would automatically merge with the assessment order under Section 143(3) of the IT Act in all cases. This question is of utmost significance because both the intimation under Section 143(1) and the assessment order under Section 143(3) of the IT Act are independent appealable orders under Section 246A of the IT Act before the CIT(A)/NFAC. Therefore, the question is could there be instances where there is no merger of the intimation and the assessment order, and consequently, both are required to be challenged in appeal separately.
The concept of merger between an intimation and an assessment has been dealt with by various Courts and Tribunals. To begin with, the authors would be discussing decisions wherein the Courts have taken a view the Doctrine of Merger will apply in of the context of orders passed under Section 143(1) and Section 143(3).
The Hon’ble High Court of Madras in Tamil Nadu Magnesite Ltd. v. CIT and others[2] held that after passing of an order under Section 143(3) of the Act, the intimation under Section 143(1)(a) of the Act gets merged with the order under Section 143(3) of the Act and the intimation under Section 143(1)(a) of the Act does not any more independently survive for rectification by the Assessing Authority under Section 154 of the Act. Therefore, the Hon’ble High Court held that after an order has been passed in terms of Section 143(3) of the Act, no rectification order under Section 154 could be passed to rectify the intimation under Section 143(1)(a) of the Act.
The Hon’ble High Court of Calcutta in C.E.S.C. Ltd. v. DCIT[3] dealt with a similar issue. The Court held that when what was accepted in the intimation has been reversed in the regular assessment and the assessee has preferred an appeal which is pending, the theory of merger is bound to apply in the present case for the reason that the intimation issued under Section 143(1)(a) is no longer operative. It was further observed that the only order which is effective, and operative is the one passed under Section 143(3) of the IT Act.
The Bangalore ITAT in South India Club v. ITO[4] dealt with a similar issue. The assessee claimed exemption under Section 11 while filing the RoI. The said exemption was denied vide the intimation under Section 143(1). The assessee filed an appeal before the CIT(A) against the said intimation. Subsequently, the case of the assessee was picked up for scrutiny and the Assessing Officer also denied the same exemption in the assessment order under Section 143(3) of the IT Act. The Hon’ble Tribunal held that in the present case the intimation under Section 143(1) of the IT Act merges with the assessment order under Section 143(3), the said intimation becomes inoperative. Therefore, the appeal filed against such an intimation would also become infructuous.
The other decisions on this point are:
1. CIT Amritlal Bhogilal & Co[5]
2. Coats of India Ltd. DCIT[6]
However, an interesting question that arises is when the subject matter of adjustment/additions under Section 143(1) and Section 143(3) are different, can the principle of Doctrine of Merger be applied and even if the adjustments made under Section 143(1) are not agitated separately, can they be agitated along with the additions made under Section 143(1) of the IT Act? The cases cited above do not deal with this scenario.
At this juncture, it would be interesting to analyse certain recent decisions of the ITAT wherein it has been held that an intimation under Section 143(1) will not automatically merge with an assessment order under Section 143(3) of the IT Act.
The Bangalore ITAT in Areca Trust v. CIT (Appeals), NFAC[7], dealt with a similar issue. In the present facts, the assessee being a trust filed its RoI declaring the total income as Nil. The RoI was processed by the Assessing Officer and an intimation u/s 143(1) of the Act was issued considering an amount of Rs. 23,29,62,417 as the income chargeable to tax under Section 115BB of the IT Act. The assessee filed a rectification application against the said intimation under Section 154 of the IT Act. Subsequently, the case of the assessee was picked up for scrutiny and the assessment order u/s 143(3) was passed by assessing the total income at INR 23,29,62,417 as per the intimation issued u/s 143(1). The Assessing Officer merely adopted the assessed figures mentioned in the intimation and passed the assessment order. The assessee preferred an appeal against the Order under Section 143(3) before the CIT(A). The CIT(A) held that appeal filed by the assessee against the Order under Section 143(3) is not maintainable since the Assessing Officer did not adjudicate the matter on merits and merely concluded the assessment by incorporating adjustments from the intimation under Section 143(1). On appeal, the Tribunal made the following observations:
(i) Though, Section 143(4) of the IT Act mentions that the tax paid by the assessee u/s 143(1) of the Act shall be deemed to have been paid towards the regular assessment u/s 143(1) or 144 of the Act, that by itself does not mean there is a merger of intimation u/s 143(1) with that of regular assessment u/s 143(3) or 144 of the Act, unless the issues have been discussed and adjudicated in regular assessment u/s 143(3)/144.
(ii) Since, the assessment is completed under Section 143(3) by merely adopting the assessed figures mentioned in the Intimation, no cause of action arises against the said Order and the assessee ought to have appealed against the Intimation under Section 143(1) of the IT Act.
The Delhi ITAT in Orient Craft Ltd. v. DCIT[8] dealt with the issue of whether Doctrine of Merger will apply in a case where the intimation and the assessment order are on different issues. The assessee in the present case filed its RoI and the same was processed by the CPC wherein an intimation was issued making additions w.r.t to the delay in depositing employee contributions of PF/ESI and house property income. The assessee preferred an appeal against the intimation which was later withdrawn by the assessee since the case of the assessee was selected for scrutiny assessment u/s 143(3) of the IT Act. The assessment order u/s 143(3) was passed by the Assessing Officer wherein additions were made on various grounds other than those mentioned in the Intimation passed u/s 143(1). The assessee preferred an appeal against the assessment order under Section 143(3) of the IT Act wherein it also challenged the additions made in the intimation under Section 143(1) of the IT Act. The ITAT relying on the decision of Areca Trust (supra) held that since the additions made under the intimation under Section 143(1) and the assessment order under Section 143(3) are on different issues, the intimation under Section 143(1) of the IT Act stood final after withdrawal of appeal by the assessee and there was no merger of two orders.
A similar view has also been taken by the Hon’ble Chennai ITAT in Global Entropolis (Vizag) Private Limited v. AO, NFAC[9].
One may infer from the above decisions that an intimation under Section 143(1) will not automatically merge with the assessment order under Section 143(3) in the following cases:
1. The issues dealt with in the intimation and the assessment order are different.
2. The assessment order without providing any discussion/reasoning has merely adopted the figures from the intimation under Section 143(1) of the IT Act.
However, it is essential to note that the abovementioned decisions of the Hon’ble ITAT do not make any reference to the decisions of the Hon’ble High Courts discussed above.
Conclusion
At the outset, one may be able to conclude that every intimation under Section 143(1) would automatically merge with the assessment order under Section 143(3) of the IT Act. However, the Tribunals vide their recent decisions have viewed the applicability of Doctrine of Merger from a different spectrum when it comes to Section 143(1) and Section 143(3). On a reading of the Tribunal decisions discussed above, it can be inferred that a strait jacket formula cannot be adopted for applying the Doctrine of Merger for an initiation under Section 143(1) and the assessment order under Section 143(3).
In view of the divergent views discussed above, while the taxpayers should continue to agitate all issues while filing appeal against regular assessment including issues arising in an intimation, they must also consider challenging the intimation independently in appeal wherever the issues dealt with in the intimation and the assessment order are different in order to avoid any challenge on non-applicability of Doctrine of Merger.
[The authors are Principal Associate and Associate, respectively, in Direct Tax practice at Lakshmikumaran & Sridharan Attorneys]
[1] (2000) 113 Taxman 470 (SC)
[2] W.P. No. 17819 of 2001
[3] (2004) 134 Taxman 647 (CAL.)
[4] (2024) 163 taxmann.com 479 (Delhi - Trib.)
[5] (1958) 34 ITR 130
[6] (1995) 214 ITR 498
[7] (2024) 117 ITR (Trib) 264 (ITAT[Bang])
[8] (2024) 158 taxmann.com 1124 (Delhi - Trib.)
[9] 2023 (8) TMI 81 – ITAT Chennai
