Prima facie inadmissible royalty claim may be rectified from return records, sustaining additional tax adjustment

Royalty expenditure was treated as prima facie inadmissible where tax at source had not been paid during the relevant previous year, so the claim could be adjusted on processing of the return. Because the mistake was apparent from the return and accompanying documents already on record, the intimation under section 143(1)(a) was capable of rectification under section 154. The later withdrawal of the claim in a revised return did not change the position for processing the original return, and the additional tax adjustment was sustained.

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Issues: Whether the royalty payment claimed by the assessee was prima facie inadmissible under the disallowance provision and whether the intimation under section 143(1)(a) could be rectified under section 154 to levy additional tax.

Analysis: The record available with the original return and accompanying documents showed that tax at source on the royalty payment had not been paid during the relevant previous year, making the claim inadmissible on a prima facie view. The later withdrawal of the claim in a revised return did not alter the position for purposes of processing the original return. Since the mistake was found from the material already on record, the intimation was capable of rectification under section 154, and the consequential additional tax was sustainable.

Conclusion: The rectification was valid and the royalty disallowance stood upheld against the assessee.

Final Conclusion: The appeal failed and the Revenue's action in making the adjustment and charging additional tax was sustained.

Ratio Decidendi: A claim that is prima facie inadmissible on the basis of the return and accompanying documents may be corrected by rectification of the intimation, and later material cannot be used to convert an otherwise apparent mistake into a non-rectifiable one.

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