Core Issue
Whether an ICDS adjustment of ₹1284.66 crores, made by CPC in an intimation under Section 143(1)(a), survives when:
- 1.The matter is taken up in scrutiny under Section 143(3), and
- 2.The jurisdictional High Court subsequently quashes the 143(1)(a) intimation to the extent of such ICDS adjustment.
Brief Facts
The assessee filed a rectification under Section 154 and an appeal against the 143(1)(a) intimation. Meanwhile, scrutiny assessment was initiated under Section 143(2). In the assessment order under Section 143(3), the AO retained the income as computed in the 143(1)(a) intimation — including the ICDS addition of ₹1284.66 crores.
NFAC dismissed the appeal against the 143(3) order, stating that the adjustment arose from the 143(1)(a) intimation and therefore could not be examined in an appeal against the 143(3) order.
Subsequently, the jurisdictional High Court (W.P. (L) No. 37314 of 2025, dated 19.01.2026) quashed the 143(1)(a) intimation to the extent of the ICDS adjustment.
Arguments
Assessee's Arguments
- ▸No proper show cause issued under the proviso to Section 143(1) before making the enhanced ICDS adjustment.
- ▸The adjustment was factually incorrect.
- ▸Once scrutiny begins, the 143(1)(a) intimation merges into the 143(3) assessment.
- ▸The HC quashed the 143(1)(a) intimation qua ICDS adjustment.
- ▸Therefore, the corresponding addition in the 143(3) order must be deleted.
Department's Position
- ▸Section 143(1)(a) gives a separate cause of action.
- ▸However, fairly conceded that once the High Court quashed the intimation, consequential relief must follow.
Tribunal's Findings
Effect of High Court quashing the 143(1)(a) intimation
Once the jurisdictional High Court quashed the 143(1)(a) intimation in respect of the ICDS adjustment, the foundation for the addition ceased to exist. The 143(3) assessment cannot retain an addition which no longer survives legally.
AO merely adopted CPC computation
The AO in the 143(3) assessment had not independently examined or re-determined the ICDS adjustment — he had simply adopted the computation made by CPC in the 143(1)(a) intimation. Once that intimation is quashed, there is no independent basis for the addition in the 143(3) order.
Consequential modification is mandatory
The ITAT held that necessary modification must be carried out in the 143(3) assessment to give effect to the High Court's order. The AO was directed to delete the ICDS adjustment of ₹1284.66 crores and recompute total income accordingly.
Final Direction
The AO was directed to:
- ✓Delete the ICDS adjustment of ₹1284.66 crores from the total income.
- ✓Recompute total income accordingly.
- ✓Give consequential effect on interest under Sections 234B and 234C.
Rallis India Limited v. DCIT — ITA No. 7688/Mum/2025 — AY 2022-23 — 11.02.2026 (ITAT Mumbai) — In favour of assessee
Practical Takeaway
- ▸Where CPC makes a large ICDS adjustment under Section 143(1)(a) without a proper show cause, challenge it simultaneously through rectification under Section 154 and appeal — do not wait for the scrutiny assessment to conclude.
- ▸If the 143(3) AO simply adopts the CPC computation without independent examination, any subsequent quashing of the 143(1)(a) intimation by the HC will require the 143(3) order to be modified consequentially.
- ▸A High Court order quashing a 143(1)(a) intimation removes the legal foundation for any addition in the 143(3) assessment that was derived from that intimation — the ITAT will give effect to the HC order.
- ▸The Department's fair concession in this case — that consequential relief must follow once the HC quashes the intimation — is a useful precedent for similar situations.
- ▸Ensure that the HC writ petition and the ITAT appeal are coordinated so that the HC order can be placed before the Tribunal for consequential relief.