CPC 30% Royalty Tax Without Intimation Invalid | ITAT

Case Details: Surendra Himmatlal Shah vs. Deputy Commissioner of Income-tax - [2026] 184 taxmann.com 212 (Mumbai-Trib.)

Judiciary and Counsel Details

• Rahul Chaudhary, Judicial Member & Bijayananda Pruseth, Accountant Member
• Gopal Sharma & Ms Vaibhavi Bhagat for the Appellant.
• Bhagirath Ramawat for the Respondent.

Facts of the Case

Assessee, an individual, developed and registered a patent in India and earned royalty therefrom. For the relevant assessment year, he filed a return of income, offering royalty income at a concessional rate of 10% under section 115BBF.

However, while processing the return, the Assessing Officer (AO)-CPC issued an intimation, taxing the royalty at 30% rate. The assessee preferred an appeal. CIT(A) rejected the claim for concessional taxation. Aggrieved by the order, the assessee filed the present appeal before the Mumbai Tribunal.

ITAT Held

The Tribunal held that the First Proviso to section 143(1) mandates that no adjustment under section 143(1)(a) shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode. Unlike the earlier scheme of ‘prima facie adjustments’, the scheme under section 143(1) does not involve a unilateral exercise.

The assessee receiving the intimation as per the First Proviso to section 143(1) gets an opportunity to object to the proposed adjustment, which the Assessing Officer-CPC is required to dispose of. Such disposal of objections is a quasi-judicial function requiring the application of the mind and the setting out of specific reasons for rejection of the objections.

Thus, the issuance of intimation in terms of the First Proviso to section 143(1) forms an essential part of the aforesaid quasi-judicial process. In the instant case, the Commissioner (Appeals) observed that no communication letter/intimation was issued by the CPC to the assessee proposing the said adjustment under section 143(1)(a).

Further, on perusal of the intimation order, it was observed that no CPC was specified by reason for applying the higher tax rate of 30% on the royalty income, as against the lower tax rate of 10% claimed by the appellant in his return of income for the year under consideration. Since in the present case both are absent, respectfully following the said decision, the Intimation Order was liable to be set aside.

List of Cases Reviewed

• Kalpesh Synthetics (P.) Ltd. v. Dy. CIT [2022] 137 taxmann.com 475/195 ITD 142 (Mum-Trib) (para 9) followed

List of Cases Referred to

• Kalpesh Synthetics (P.) Ltd. v. Dy. CIT [2022] 137 taxmann.com 475/195 ITD 142 (Mum-Trib) (para 7).