1991 (10) TMI 38 - HC - Income Tax

Prima facie adjustments u/s143(1)(a) require evident inadmissibility; disputed deductions need s.143(2), not s.154 additions

HC held that, under s.143(1)(a) and its first proviso, the Assessing Officer is empowered to make prima facie adjustments only where the inadmissibility ... Correct interpretation of section 143(1) - adjustments - loss in the return for the assessment year​​​​​​​ - receipt towards corpus of the charitable trust - computation of taxable income - whether an adjustment can be made in the event of non-filing of proof for claim of deduction or for claim of a receipt being non-taxable - HELD THAT:- There is no reason given in the impugned order dated October 29, 1990, as to why the additions are being made. The order passed under section 154 contains no reason. The reason for making the additions, in the first instance, was that no proof had been furnished along with the return. The question which arises for our consideration is whether an adjustment can be made in the event of non-filing of proof for claim of deduction or for claim of a receipt being non-taxable. In order to appreciate the contention of learned counsel for the petitioner, it is necessary to refer to section 143(1)(a) and the first proviso thereto. No power is given to the Income-tax Officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee. In a way, the said clause (iii) of the proviso is analogous to section 154 of the Act. Where it is evident from the return as filed, along with the documents in support thereof, that a claim of the assessee is inadmissible, only then an adjustment under the said proviso can be made. If proof in support of the claim is not, furnished by an assessee, then for the lack of proof, no disallowance or an adjustment can be made. The only option which is open to the Income-tax Officer, in such a case, is that he can require the assessee to furnish proof in which case he will presumably have to issue notice under section 143(2). This is also evident from the fact that, except for the documents specified, the assessee is not required to file the entire books of account or other documents along with the return. The proof in support of the claim may be evidenced from correspondence, from the books of account or other documents and it is not the law, as we understand it, that, in support of a claim made in the return for deduction or non-taxability of a receipt, all, the proofs available and original documents must be filed along with the return. It is apparent on a reading of the said provision that adjustment can be made only if there is information available in such return that prima facie a claim or allowance is inadmissible. Thus, support is available from the understanding of the said provision by the Department itself. Learned counsel for the petitioner has drawn our attention to Circular No. 549 issued by the Central Board of Direct Taxes wherein examples have been given of adjustments which can be carried out. The stage of furnishing of the proof is reached as and when proof is demanded by the Income-tax Officer on a notice under section 143(2) being issued. If no proof in support of the claim was available with the Income-tax Officer, he could have issued a notice under section 143(2) but he could not have unilaterally made this disallowance by seeking to invoke the provisions of the first proviso to section 143(1) because the said provisions were not applicable in the present case. Writ petition is allowed. Issues Involved:The judgment involves a challenge to an order passed u/s 143(1) of the Income-tax Act regarding adjustments made by the Income-tax Officer resulting in the computation of taxable income.Adjustments Made by Income-tax Officer:The petitioner disclosed a loss in the return for the assessment year 1989-90. The Income-tax Officer made additions in various categories, including corpus donation, retainership fee, medicine expenses, rent, and maintenance expenses, due to lack of proof provided by the petitioner.Contentions and Rectification:The petitioner contended that the additions made by the Income-tax Officer were not justified under section 143(1). Subsequently, an order u/s 154 was passed rectifying the adjustments and setting the income at 'nil.' The petitioner argued that the writ petition was still relevant as the issue persisted.Interpretation of Section 143(1)(a) Proviso:The court analyzed section 143(1)(a) and its proviso, specifically focusing on clause (iii) which allows adjustments if a claim is prima facie inadmissible based on the return. It was emphasized that lack of proof alone cannot warrant disallowance or adjustment by the Income-tax Officer.Legal Analysis and Circular No. 549:The judgment highlighted that adjustments can only be made if a claim is evidently inadmissible based on the return itself, not due to lack of proof. Reference was made to Circular No. 549, providing examples of permissible adjustments based on information available in the return or accompanying documents.Conclusion and Decision:The court concluded that the adjustments made by the Income-tax Officer solely due to lack of proof were not valid under the provisions of section 143(1). The writ petition was allowed, quashing the intimation dated October 29, 1990, with no order as to costs.