Facts of the Case

The assessee, Kapila Mahendra Patel, an individual deriving income from house property, capital gains and other sources, filed her return of income for Assessment Year 2024-25 on 21.07.2024 declaring total income of ₹1,70,94,750. The return was processed by the Centralised Processing Centre under Section 143(1) and intimation dated 18.06.2025 was issued determining total income at ₹1,81,76,250 by making an upward adjustment of ₹10,81,500 under the head “Income from House Property”.

The adjustment arose in respect of a property let out to M/s Befree Business Resource LLP, where CPC treated the assessee as 100% owner and brought the entire annual value to tax in her hands, after allowing standard deduction under Section 24. The assessee had responded to the notice issued under Section 143(1)(a) stating that there was no arithmetical or apparent error and that the income was correctly reported. The appeal before the CIT(A), Addl./JCIT(A)-2, Bengaluru was dismissed, holding that since 100% ownership was shown in the return, the adjustment was valid. Aggrieved, the assessee filed an appeal before the Tribunal.

Issues Involved

Whether the adjustment made under Section 143(1) enhancing income from house property was within the permissible scope of prima facie adjustments, whether income from jointly owned property could be fully taxed in the hands of one co-owner without factual verification, and whether the matter required restoration for fresh examination.

Petitioner’s Arguments

The assessee contended that the property in question was jointly owned by five co-owners and her actual ownership share was only 25%. It was argued that due to a clerical error, the ownership percentage for one rent receipt was inadvertently shown as 100% in the return, though only the correct 25% share of rental income was offered to tax. The assessee relied upon the co-ownership agreement, rent agreement, returns of income of other co-owners, and pointed out that a similar addition in the case of one of the co-owners had already been deleted by the CIT(A). It was submitted that such a debatable and fact-intensive issue could not be adjusted under Section 143(1).

Respondent’s Arguments

The Revenue relied upon the orders of CPC and the CIT(A) and contended that since the assessee herself had shown 100% ownership in the return, the CPC was justified in making the adjustment under Section 143(1).

Court Order / Findings

The ITAT Ahmedabad observed that the core dispute related to the correct ownership share of the assessee in the property and the corresponding rental income chargeable to tax. The Tribunal noted that the assessee’s claim of 25% co-ownership, clerical error in the return, and offering of balance income by other co-owners required proper factual verification. The Tribunal held that neither the CPC nor the CIT(A) examined the rent agreement, co-ownership documents, or whether the remaining income was offered to tax by other co-owners, and the matter was decided solely on the basis of the ownership percentage mentioned in the return.

The Tribunal held that such issues cannot be decided through prima facie adjustment under Section 143(1) and require detailed verification in accordance with Section 26 of the Act. Accordingly, the impugned order of the CIT(A) and the adjustment made by CPC were set aside and the matter was restored to the file of the jurisdictional Assessing Officer for fresh adjudication after verifying the factual aspects and granting reasonable opportunity of being heard to the assessee.

Important Clarification

The Tribunal clarified that adjustments under Section 143(1) are limited to apparent and undisputed issues. Where determination of income from house property depends upon verification of co-ownership, agreements and factual allocation of income, such matters fall outside the scope of Section 143(1) and must be examined in regular proceedings.

Final Outcome

The appeal filed by the assessee was allowed for statistical purposes. The adjustment of ₹10,81,500 made under Section 143(1) was set aside and the matter was restored to the file of the Assessing Officer for fresh verification and adjudication in accordance with law after providing adequate opportunity of being heard to the assessee.

Link to download order https://www.mytaxexpert.co.in/uploads/1769063278_KAPILAMAHENDRAPATELVADODARAVS.THEDY.CITCIRCLE111VADODARA.pdf

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