Income-tax authorities must consider declared expenditure and give reasons when rejecting rectification applications.

The petitioner, a statutory water-supply and sewerage board, challenged an undated intimation under Section 143(1) of the Income-tax Act, 1961, for A.Y. 2023–24, which computed its income at ₹57.54 crore instead of nil.

The petitioner contended that the computation considered receipts of ₹5,640 crore and an exemption claim of ₹5,582.77 crore but omitted expenditure of ₹7,743.40 crore shown in its return.

Its rectification application under Section 154 was rejected by a communication dated 17 March 2025, without reasons.

After grievance applications received no response, the petitioner sought revision under Section 264; that application was rejected on 23 March 2026.

The Revenue submitted that the petitioner could apply for rectification before the Jurisdictional Assessing Officer.

1. Whether the Section 143(1) intimation could stand when it did not account for the expenditure disclosed in the petitioner’s return

2. Whether the rejection of the Section 154 rectification application and the Section 264 revision application was sustainable despite the absence of reasons and consideration of the petitioner’s expenditure claim

Section 143(1) of the Income-tax Act, 1961, governs processing of returns; Section 154 provides for rectification of a mistake apparent from the record; and Section 264 provides for revision by the competent authority.

The Court applied the principles that an authority must consider material facts and relevant contentions placed before it, and that an order rejecting an application must disclose reasons.

It cited no precedent

The Court found that the Revenue’s computation focused on receipts and the exemption claim, producing the alleged differential income of ₹57.54 crore, but omitted the expenditure of ₹7,743.40 crore disclosed in the return.

The Section 264 order did not address this central contention, demonstrating non-application of mind.

Separately, the Section 154 rejection communication gave no reasons, and the petitioner’s requests for clarification had gone unanswered.

The Court therefore found the impugned actions unsustainable and directed reconsideration by the Assessing Officer

It directed the petitioner to file a fresh rectification application within four weeks; the Assessing Officer must pass a fresh order within four weeks of receiving it, considering the Court’s observations and the return referred to in the judgment as showing nil income for A.Y. 2022–23.