CPC not justified in changing assessee status without proper examination: ITAT

The ITAT Ahmedabad quashed a tax demand raised by the CPC, holding that changing the assessee’s status from Association of Persons (AOP) to Cooperative Society requires a detailed examination and cannot be done during routine processing.

The assessee’s return was processed by the Central Processing Centre (CPC), where its status was changed from an Association of Persons (AOP) to a Cooperative Society, leading to a tax demand amounting to Rs 97,690. For rectification of the same, the assessee had furnished an application under Section 154, but the same was rejected by the tax authorities.

The aggrieved assessee filed an appeal before the ITAT Ahmedabad, claiming that it is a non-profit apartment owners’ association and has consistently filed ITRs as an AOP/BOI in previous years, which were all accepted by the tax authorities. Therefore, the CPC was not justified in changing the assessee status from AOP to a Cooperative Society without proper examination.

The tax authorities argued that the assessee had not furnished sufficient evidence proving its non-profit status, which led to the imposition of the impugned tax demand. When the tribunal analysed the case, it held that only limited adjustments such as arithmetic errors or incorrect claims are allowed under Section 143(1) of the Income Tax Act.

The tax authorities are required to conduct a detailed examination when changing an assessee’s status, and such an action cannot be done during routine processing. Additionally, the tax authorities had not raised any objection to the assessee’s status in earlier years; the CPC’s action was not under its jurisdiction. Consequently, the tribunal set aside the adjustments made by the CPC and ruled in favour of the assessee.