TaxTMI 
TaxTMI 
1993 (11) TMI 102
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.... were in force. In accordance with the provisions of the said section if there are book profits but not assessable profits, the assessee should pay taxes on notional income calculated at 30% of the book profits. In pursuance of the provisions of section 115J, the assessee had returned a sum of Rs. 2,91,090 as its income under section 115J. We are not now concerned with the computation of profits under section 115J and the controversy is only in respect of calculation of profits under the provisions of Income-tax Act (other than 115J). 3. According to the assessee, the loss for the year as per Income-tax Act is as under: Income before deduction of carry forward losses Rs. 48,16,112 Less : Past Year's losses to be set off Rs. 50,72,382 &nbs....
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....bsp; Rs. 48,85,918 ------------- Additional tax levied on Rs. 69,806 Rs. 8,062 Thus the Assessing Officer had levied additional tax of Rs. 8,062 in respect of adjustment made in the form of addition of cash incentives of Rs. 69,806 received by the assessee during the year. Subsequently the Assessing Officer completed the assessment under section 143(3) of the Income-tax Act, by his order dated 30-4-1990 in which he determined the income of the assessee at Rs. 48,85,920 which was the same ....
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....; Additional tax leviable on Rs. 51,42,188 5,93,923 Less: Additional tax levied in the intimation 8,062 ------------- Additional tax levied under section 154 5,85,861 ....
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.... of the assessee. The assessee had filed the return for assessment year 1989-90 and the claim of the assessee was that cash compensatory support, excise duty rebate, duty drawback and sale proceeds of REPs received by the assessee cannot be taxed in the hands of the assessee but held to be capital receipts and therefore, non-taxable. This contention of the assessee was pending in the appeals for the assessment years 1984-85 to 1988-89. The total of these amounts right from assessment years 1984-85 to 1988-89 came to Rs. 50,72,382 as can be seen from the particulars given in the table given below: -------------------------------------------------------------------------------- Asst. Year Income/loss of Brought forward loss Total loss the year from earlier years carry forward &n....
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....ssment year 1989-90. Consistent with its stand, in the income-tax return filed for assessment year 1989-90, the assessee claimed set off of loss of Rs. 50.72 lakhs to which it is entitled if the claim made by the assessee is accepted by the appellate authorities in the course of appeals. However, the Legislature thought it fit that in order to set at rest any possible controversy about the taxable nature of these receipts it had amended section 28 and inserted clauses (iiia), (iiib) and (iiic). They were inserted in section 28 by Finance Act, 1990 with retrospective effect. Under clause (iiia) REPs were made liable to tax with retrospective effect from 1-4-1962. Under clause (iiib) each compensatory assistance (CCS) is made liable to tax with retrospective effect from 1-4-1967 and under clause (iiic) duty rebates and duty drawbacks were made liable to tax with retrospective effect from 1-4-1972. The Finance Bill, 1990 was introduced in the Lok Sabha on 19th March, 1990. Before its introduction, the assessee-company never contemplated that these items will be subjected to tax with retrospective effect. The income-tax return for assessment year 1989-90 was filed on 29-12-1989 which w....
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....which the loss is sustained. So also set off of loss is allowed only out of profits and gains of business and not from any other sources. If there is any violation of provisions of section 72, then also the Income-tax Officer had power not to set off previous year's losses from the current year's profits and that he has also all the powers to make such prima facie adjustment to bring the claim in conformity with the provisions of section 72(1) of the Income-tax Act. Calculation of loss in the assessment was not made a pre-condition under the Income-tax Act to allow set off of loss under law. It is also nowhere stated in the Income-tax Act that if the loss is not accepted in the assessment, the assessee shall not claim set off of any such loss in the return filed against the profits of the subsequent years. The accepted position under law is that the return of income is expected to contain income or loss of the assessee as understood by him with reference to the statutory provisions and not what the Assessing Officer will understand with reference to the provisions of the statute. The assessee cannot be penalised for any claim having been made by him in his return unless it is prove....
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....quiry. The appeal destroys the finality of the decision. This is the view expressed by the Calcutta High Court in Satyanarayana Prasad v. Diana Engineering Co. and the Oudh Chief Court in Girija Dat Singh v. Gangotri Dat Singh." Following the above two decisions it should be concluded that where the assessment is completed denying the loss and an appeal is pending, the process of adjudication and quantification of loss is still continuing. Assessment made already having been appealed against, the finality of that assessment is destroyed at least in respect of the points appealed against. It cannot, therefore, be said that the assessee had lost the right to claim set off against profits because of the completion of assessment denying losses. It would follow that the assessment to the extent appealed against ceased to exist and the entire issue is still open. This would invariably lead to the situation whether the assessee's claim of past years' losses is still kept alike and it is open to claim set off of past years' losses against subsequent year's income in the return filed by it. Section 74(2) of the Income-tax Act provides for the right of an assessee to carry forward the loss ....
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....ot be set off against the income of the subsequent years is not binding on the assessee." Therefore, the authorities cited by the assessee would make it clear that the assessee asked for set off on the basis of claims already made. Of course the claim should be bona fide, reasonable and should not be a frivolous claim devoid of any basis. As already explained the assessee was entitled to quantification of loss in view of the judgment of Special Bench of the Tribunal in Gedore Tools (India) (P.) Ltd.'s case. It was a pure stroke of misfortune that the law was amended retrospectively altering the legal position already existing. Although the assessee had claimed these losses it is always subject to proper quantification after completion of assessment or appeals, as the case may be. It is one thing to say that the assessee has no right to set off of such losses and altogether different to state that notwithstanding the claim in the return it is open to the Assessing Officer in the course of assessment enquiry to determine the correct amount of the loss after hearing the assessee. In the present case, the income is quantified in the intimation by making prima facie adjustment unilater....
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....the present adjustments, viz., disallowance of loss clearly falls beyond the powers of the Assessing Officer in terms of the ratio laid down in the above judgment. Next our attention is drawn to the departmental Circular No. 549 dated 31-10-1989 found reported in 182 ITR (Statutes) at page 20 where the scope of amendment brought about in section 143 by the Direct Tax Laws (Amendment) Act, 1989 with effect from 1-4-1989 was explained. In para 5.3 the adjustments to be made to the income/loss declared in the return was explained as under: "5.3 Adjustments be made to the income or loss declared in the return. A proviso to clause (a) of sub-section (1) of the New section enables the Department to make the following adjustments to the returned income or loss for the purposes of computing the tax or interest payable by or refundable to the assessee:--- (i) rectification of any arithmetical errors in the return or in the accompanying accounts or documents; (ii) allowance or disallowance of any loss carried forward, deduction, allowance or reliefs which, on the basis of information available in such return or the accompanying accounts or documents, is prima facie admissible or inadmissi....
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....tated that if the allowability or disallowability of any claim is debatable no adjustment in respect thereof could be made. It was also held that the Assessing Officer should be satisfied that the adjustment is ex facie justified. To sum up, the contention of the assessee is as follows: (a) the assessee is entitled to set off of losses in the subsequent years' returns so long as the claim that such losses have been incurred is pending adjudication in some proceeding; (b) at any rate the correctness of legal position whether the losses as claimed would be allowed is certainly debatable and cannot be arrived at without going through the process of harmonising the provisions of the Act and applying the decided authorities to the same; (c) disallowance of loss in the intimation warrants an enquiry; (d) the matter is highly debatable. It is contended that the permissible prima facie adjustments are totally absent in this case and the Assessing Officer was clearly in error in making the above adjustments and demanding additional tax thereon in the intimation. 8. It is contended that after the completion of assessment under section 143(3), the levy of additional tax under section 14....
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....nts have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);" With the help of the above two relevant provisions, we will have to see how far the Assessing Officer had the right to rectify the original intimation after the completion of the assessment. Applying the above provisions to the facts before us in the intimation initially sent on 28-2-1990, the income computed was Rs. 48,85,980. In the assessment made on 30-4-1990 under section 143(3) of the Income-tax Act, the income assessed remained at the same figure of Rs. 48,85,920. Thus there is no variation between the income as assessed and the income as shown in the intimation. Both clause (b) to section 143(1) and clause (B) to section 143(1A) speak of income assessed at higher figure in comparison to intimation already sent. If the income shown in the intimation as assessed is one a....
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.... payments of tax and it also acts as a deterrent from making wrong claims in the return of income. 11. There was no negligence on the part of the assessee and no effort was involved in detecting any mistake allegedly committed by him. The assessee made a claim for set off of past losses consistent with its contentions in the appeals for the earlier years which were still pending. Therefore, even in terms of the circular no additional tax could be charged. Irrespective of the claim made, the assessee took care to pay the taxes to cover the contingency of the claim of the loss eventually not being accepted for some reason or the other. The assessee took care to pay all the taxes and according to the returned income, the total refundable calculated on the admitted income worked out to Rs. 26,53,515. At page No. 6 of the return a note was given that in computing the tax, even the sum of Rs. 69,809 which is the CCS for the year is also included notwithstanding the fact that the assessee was claiming that this item does not partake the character of Income. In addition to the advance tax of Rs. 21,02,000 and TDS of Rs. 5,81,686 the assessee paid a sum of Rs. 1,37,930 on self-assessment a....
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....of taking the loss at Rs. 2,56,270. This is a mistake quite apparent from records. The second reason is that consequent on completing the assessment under section 143(3) on 30-4-1990, the Assessing Officer came to know that the assessee was not having determined losses that could be carried forward whereas the assessee in his return claimed carry forward losses of Rs. 50,72,382. Basing on the provisions contained in section 143(1A)(b) the Assessing Officer sought to rectify intimation under section 143(1)(a). While rectifying he has rectified both the mistakes and enhanced the additional tax to Rs. 5,93,923. 14. Replying to the assessee's contentions, the learned Departmental Representative submitted as follows: With regard to the assessee's' contention that it is justified in claiming deduction of carried forward losses of Rs. 50,72,382 and the assessee's reliance on the decision of the Bombay High Court in the case of All India Groundnut Syndicate Ltd., it is submitted that it is not correct. Kind attention is invited in this regard to the Commentary of Chaturvedi and Pithisaria, Vol. III, Page 3825, Fourth Edition under the heading 'Determination and intimation of loss'. Under ....
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....s following are completed, the officer is duty bound to rectify the assessments by allowing proper set off (Kanaka Films (P.) Ltd. v. ITO [1989] 177 ITR 88, 94 (Mad.), Cf. New Amadi Estates (P.) Ltd. v. C. AG. IT [1971] 82 ITR 87 (Mys.). Also see CIT v. Manmohan Das [1966] 59 ITR 699, 702 (SC)." To submit it precisely, the assessee has no right to claim loss which is negatived by the Assessing Officer when the assessment resulted in a positive figure. The assessee's contention on this ground cannot be accepted. These submissions will also answer the assessee's contention that the appeal is continuation of the assessment proceedings and as such should be treated that the assessee is entitled to claim set off of loss in his return. 16. The next contention of the assessee was that the disallowance of set off of losses under section 143(1)(a) is not correct. In this regard, it is submitted that the provisions under section 143(1A) clearly lays down that after completion of the assessment under section 143(3), the Assessing Officer can rectify the intimation under section 143(1)(a). It may also be seen that section 154(1)(b) provides for rectifying the order under section 143(1)(a). I....
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....een loss of Rs. 1,86,464 whereas the income as per the order under section 143(3) is Rs. 48,85,920. Accordingly, the provisions of section 143(1A) is clearly attracted and the assessee's argument on this ground also does not hold good. Hence, the order of the Commissioner (Appeals) may be confirmed. 19. Shri Y. Ratnakar, learned advocate for the assessee replied to the above arguments of the learned Departmental Representative as follows: He replied by written submissions dated 16-3-93 and that was also made part of the record. The assessee-appellant submitted that only such adjustments would be those items which are set out in section 143(1)(a) of the Income-tax Act. Whether the intimation is passed originally or while rectifying it later, the adjustments that would be made are only of those which are set out in clause (a) to sub-section (1) of section 143 and no further. If adjustments could not be validly made under section 143(1)(a) in the intimation issued it is not open to the Department to rectify it later. A power originally not available for making adjustments in the intimation cannot be available later for rectifying the intimation. The only reason justifying the rectifi....
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....be deducted as an allowable loss. The income or loss during that period was completely out of the pale of the Indian Income-tax. There is no evidence anywhere that the business at that time was controlled In India and that the loss occurred on account of the business controlled in India. Mr. Iranee at that time was in Hong Kong and controlled the business there. We agree with the Appellate Assistant Commissioner that the assessee's claim for setting off loss is not established. In fact, the loss was not determined as such and, therefore, the assessee is not entitled to any relief on this account." The above passage does not anywhere indicate that where an assessee files returns and claims loss although the assessment is completed and the loss is converted into profit and the assessee filed appeals on such assessments which are pending, the assessee will have no right to claim set off of such loss claimed in the subsequent years. The facts in the above case are different and cannot be compared with the facts on hand. In further appeal, the Supreme Court did not deal with this aspect in B.B. Iranee's case. There was no discussion at all. It is not known from where the learned author....
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....thority's order, the assessments for both the years were completed by taxing certain amounts as income which were not in the nature of income. The error, if any, was totally on the Department in doing so. The appeals filed against dental of ascertainment of losses as well as set off of losses had to be withdrawn as not pressed because of retrospective amendment to the Statute which was never anticipated by the appellant. The proposition canvassed by the appellant that the appeal is continuation of assessment and the pendency of the appeal destroys finality of the matter, had not been answered by the Department and thus the contention remained unchallenged. As to the power of the Assessing Officer to issue intimations or carry out such amendments, the position is as under: (a) An intimation can be sent at any time within two years from the end of the assessment year [section 143(1)(a)]; (b) An intimation can also be sent after the completion of the assessment under section 143(3) of the earlier year in the event to any variations in the carry-forward of loss, deduction, allowance or relief [section 143(1)(b)]; (c) It is open to rectify an intimation under section 154 so long as a....
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.... per profit and loss account was Rs. 48,42,697. As per the calculation furnished thereunder in the return, the assessee had clearly shown the unabsorbed loss which is to be carried forward at Rs. 2,56,270 as follows: Rs. Profit as per Profit & Loss Account Rs. 48,42,697 Add: Items separately considered Depreciation 66,616 Investment Deposit &n....
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....p; 48,16,112 Less: Brought forward loss 50,72,382 --------- Unabsorbed loss carried forward (-) 2,56,270 &n....
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....) was also made on 28-2-1990. In the intimation the returned income was taken at Rs. 48,16,112 instead of loss of Rs. 2,56,270. According to the Department this is a pure mistake and this mistake led to passing the rectificatory order dated 25-9-1991 whereas according to the assessee there is no mistake and it is a conscious order passed by the Income-tax Officer without giving any intimation whatsoever to the assessee and without also hearing him at the same time refusing to recognise the past losses at Rs. 50,72,382. Negativing the case of the assessee refusing to recognise past losses and refusing to set off those losses from the current year's income, does not amount to prima facie adjustment made under section 143(1)(a) and no such power for making such prima facie adjustment vested in the Income-tax Officer who passed the intimation dated 28-2-1990. For that reason, the intimation is bad under law. It is also bad for the reason that before passing the intimation dated 28-2-1990, the assessee was never heard and no reasons were assigned as to why the losses claimed were not considered and why set off of the losses were not ordered. The prime question to be decided is whether t....
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....t off losses suffered by it amounting to Rs. 50,72,382. 23. The next question would be whether the Assessing Officer is entitled to impliedly reject the contention of the assessee for set off of past losses of Rs. 50,72,382 can be justified as part of the power vested in the Income-tax Officer to make prima facie adjustment under section 143(1)(a). Proviso (i), (ii) and (iii) which are relevant for our purpose are as follows: "Provided that in computing the tax or interest payable by or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:--- (i) any arithmetical errors, in the return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief which, on the basis of the information available in such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts, or documents, is prima facie inadmissible, shall be disallowed." Here in this c....
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....ion available in the return or the accompanying accounts or documents. The examples given of such prima facie admissible or inadmissible adjustments are very illuminative. The illustrative list clearly points out that only adjustments which are, on the basis of the return and documents accompanying it, allowable or disallowable, can be adjusted. The Central Board of Direct Taxes has issued a Circular No. 581 dated 28-9-1990 which also proceeds on a similar assumption. According to the Board, the sums disallowed as prima facie inadmissible under section 143(1)(a) in the absence of requisite evidences of payment cannot be subsequently allowed under section 154. This is because the scope of the powers to make prima facie adjustments under section 143(1)(a) is somewhat coterminous with the power to rectify a mistake apparent from the record under section 154. Therefore, the Board itself has viewed the power to make adjustments as coterminous with the power to rectify mistake apparent from the record under section 154. In the absence of any specific provision in the Income-tax Act which disallows a deduction because a specific document specified in that section is not annexed to the ret....
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....tion 72(2) has to be determined by the Income-tax Officer who deals with the assessment of the subsequent year. Now that the assessment for 1989-90 is to be completed the assessee is well within his rights to claim carry forward of earlier year's losses and also claim set off from the profits and gains of this year under section 72(2). Further the Hon'ble Supreme Court held in Manmohan Das's case as per the headnote of the decision at page 700 as follows : "A decision recorded by the Income-tax Officer who computes the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee." Therefore, it is very clear that even though there is specific finding in the assessments of past years in which assessment orders the Income-tax Officer might have stated that the assessee is not entitled to set off of losses of previous years is not binding against the assessee. Despite the said finding, the assessee can put forward the claim for set off in a subsequent year before the Income-tax Officer. Therefore, in the facts of this case, it is contended that it is true that the assessee had previously lost its case before the a....
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.... 143(1)(a) is stiff available in view of the provisions of section 143(1)(b), 143(1A)(b) read with section 154(1)(b). The assessee contended that under section 143(1A)(b) applied only in cases where additional Income-tax is increased or reduced, then only the said provision can be invoked but in this case, there is neither increase nor reduction of additional tax when we compare the intimation dated 28-2-1990 on the one hand and regular assessment made under section 143(3) dated 30-4-1990 on the other. The assessed income is one and the same in the intimation as well as in the regular assessment and in such a case, the provisions of section 143(1A)(b) do not come into play at all and cannot be invoked. An intimation only can be sent after the completion of assessment under section 143(3) of the IT Act of the earlier year in the event of any variation in the carry forward loss, deduction, allowance or relief granted in the earlier year's assessment. For the provisions under section 143(1)(b) to come into play, the following conditions are to be fulfilled : The earlier year's assessment must be completed subsequent to giving intimation under section 143(1)(a) and due to the assessme....
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.... 154 which could not correct substantive errors or a revision under section 264 being now made available to the aggrieved person. These could not be considered as efficacious remedies in the present circumstances. Hence, the remedy under article 226 of the Constitution was not barred." In that case, the intimation under section 143(1)(a) was issued denying claim of investment allowance and disallowing purchases exceeding Rs. 10,000 despite the fact that the assessee invoked Rule 6DD(j) and also disallowing a sum of Rs. 75,165 paid as ex gratia to its employees and a sum of Rs. 83,631 claimed as deduction. However, the Income-tax Officer had disallowed all of them while sending intimation under section 143(1)(a) on the ground that those are all to be disallowed on the basis of the return purporting them to be prima facie adjustments. The Bombay High Court held with regard to each of those claims as follows as per the headnote at page 61: "that, with regard to the claim for investment allowance, the assessee had furnished details regarding the plant and machinery in its tabulated statement. The claim for investment allowance could not be disallowed by the Income-tax Officer by an i....