2013 (7) TMI 653 - HC - Income Tax

Court quashes intimation & orders under Income-tax Act, deems Assessing Officer's adjustments unjustified.

The court quashed the intimation dated April 4, 1990, under section 143(1)(a) of the Income-tax Act, 1961, and the consequential orders rejecting the ... Prima facie adjustment under the proviso to section 143(1)(a) - requirement of evidence/proof before disallowance of claim - procedure of issuing notice under section 143(2) where proof is lacking - rectification under section 154 cannot be denied where adjustment under section 143(1)(a) is impermissible - application of amended section 43B - payment condition for deductionPrima facie adjustment under the proviso to section 143(1)(a) - requirement of evidence/proof before disallowance of claim - procedure of issuing notice under section 143(2) where proof is lacking - Intimation under section 143(1)(a) making additions for unpaid bonus and unpaid taxes without requiring proof or issuing notice was impermissible - HELD THAT: - The Court held that an assessing officer may make a prima facie adjustment under the proviso to section 143(1)(a) only where the inadmissibility of a claim is evident from the return, accounts or accompanying documents. Absent information in the return showing that a claim is prima facie inadmissible, the officer has no power to disallow a claim merely because proof was not filed; instead the proper course is to require production of proof and, if necessary, issue notice under section 143(2). Applying that principle (as laid down in S. R. F. Charitable Trust), the Court found that the additions for unpaid bonus and various statutory taxes were not shown by the return to be prima facie inadmissible and that the Assessing Officer had relied on the audit report and lack of enclosed evidence rather than on any omission apparent from the return. The Assessing Officer did not follow the procedure of calling for proof or issuing a notice before making the additions; accordingly the adjustments fell outside the permissible scope of section 143(1)(a).The intimation under section 143(1)(a) insofar as it made adjustments for unpaid bonus and unpaid taxes was set aside as impermissible.Rectification under section 154 cannot be denied where adjustment under section 143(1)(a) is impermissible - application of amended section 43B - payment condition for deduction - Orders under section 154 refusing rectification on the ground that evidence was not enclosed with the return were unsustainable in the circumstances - HELD THAT: - The Court examined the Assessing Officer's subsequent section 154 orders which rejected the rectification application on the ground that the assessee had not enclosed evidence with the return and that certificates filed later could not be considered. The Court held that where the original adjustment itself was not permissible under section 143(1)(a), refusal to rectify on the narrow basis of non-enclosure was legally untenable. Further, in relation to amounts falling within the ambit of amended section 43B, the determination of whether payment was made by the relevant statutory due dates is a factual/legal question requiring consideration of the evidence; the AO could not simply disallow by treating later-produced certificates as irrelevant without following the proper procedure. Having regard to the material placed by the assessee during rectification proceedings (details of bonus payments and challans), the Court found the reasons given for refusal inadequate and set aside the consequential section 154 orders insofar as they upheld the additions.The section 154 orders rejecting the rectification claims in respect of the disputed unpaid bonus and unpaid taxes were quashed.Final Conclusion: The writ petition was allowed: the intimation dated April 4, 1990 making additions for alleged unpaid bonus and unpaid taxes, and the consequential refusal of rectification, were set aside and quashed; no order as to costs. Issues Involved:1. Quashing of the intimation dated April 4, 1990, under section 143(1)(a) of the Income-tax Act, 1961.2. Quashing of the consequential orders rejecting the application for rectification concerning unpaid bonus and unpaid taxes.Detailed Analysis:1. Quashing of the intimation dated April 4, 1990, under section 143(1)(a) of the Income-tax Act, 1961:Indian Drugs and Pharmaceuticals Ltd., a public sector undertaking, filed a writ petition to quash the intimation dated April 4, 1990, under section 143(1)(a) of the Income-tax Act, 1961. The petitioner argued that the intimation included adjustments that were not justified, specifically concerning unpaid bonus of Rs. 1,57,05,083 and unpaid taxes of Rs. 1,67,76,886. The Assessing Officer relied on the audit report paragraphs 7(a) and 7(d) to make these adjustments. However, the petitioner contended that the disallowance was made without indicating the relevant section or providing reasons for the disallowance.2. Quashing of the consequential orders rejecting the application for rectification concerning unpaid bonus and unpaid taxes:The petitioner also sought to quash the consequential orders passed by the Assessing Officer rejecting their application for rectification under section 154 of the Act. In the rectification application dated May 22, 1990, the petitioner provided a detailed explanation for the provision of bonus and unpaid taxes, emphasizing that the auditor's report did not contain any qualifications that would justify the disallowance.Provision for Bonus:The petitioner provided Rs. 1,59,00,702 for bonus in accordance with the Payment of Bonus Act, 1965. They argued that the disallowance of Rs. 1,57,05,083 was made without any legal basis or indication of the section under which it was disallowed. The petitioner further clarified that full details of the actual bonus paid were not initially available due to the geographical distribution of their offices but were subsequently provided during the rectification proceedings.Unpaid Taxes:The petitioner argued that the entirety of the unpaid taxes mentioned by the auditors was disallowed without proper consideration of the legal requirements or factual position. They pointed out that the payments related to sales tax, income-tax, professional tax, tax deducted at source, CPF, and ESI contributions, all of which had due dates falling after March 31. The petitioner contended that these payments, being statutory in nature, could at most be delayed but not avoided, and any difference of opinion should have been addressed by the Department with specific reasons.Assessing Officer's Orders:The first order under section 154 dated July 17, 1990, did not address the petitioner's contentions. The second order dated September 24, 1990, rejected the claims on the grounds that the petitioner did not enclose the necessary evidence with the return and that the certificates now filed could not be considered. The court found this reasoning legally unsustainable and contrary to the decision in S. R. F. Charitable Trust v. Union of India [1992] 193 ITR 95 (Delhi).Legal Precedent:The court referred to the decision in S. R. F. Charitable Trust, which held that adjustments under section 143(1)(a) could only be made if the inadmissibility of a claim was evident from the return and accompanying documents. The Income-tax Officer could not disallow a claim merely for lack of proof without issuing a notice under section 143(2) to call for the necessary evidence. The court emphasized that the adjustments made by the Assessing Officer were not covered by the scope of section 143(1)(a) and were made without following the proper procedure.Conclusion:The court concluded that the Assessing Officer's adjustments for unpaid bonus and taxes were not justified as they were made without proper notice and were not evident from the return and accompanying documents. The court allowed the writ petition, setting aside and quashing the intimation dated April 4, 1990, and the consequential orders. The petition was allowed to the extent indicated, with no order as to costs.