TaxTMI 
TaxTMI 
TaxTMI 
2006 (1) TMI 210
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....income amounting to Rs. 19,94,954 as an expenditure allowance under section 37 of the Act and the said amount was incurred towards rights issue during the year under consideration. The return was processed under section 143(1)(a) of the Act and the intimation was forwarded to the assessee wherein prima facie adjustment was made by disallowing the claim of the assessee on the ground that it constituted the expenditure which is capital in nature. The extract narration given in the intimation is reproduced as it is: "Income as admitted 6,23,07,990 Add: Prima facie Adj. Rights issue Expenditure Claimed under section 37 is disallowed as it is capital in nature 19,93,594 AIT 6,43,02,584 Date: 11-8-1998 Place : Chennai 34" In view of this, additional tax was also levied under section 143(1A) of the Act. While issuing intimation under section 143(1)(d) of the Act, the Assessing Officer has not given any opportunity of hearing while disallowing the claim of the assessee. It is clear from the records that due to the prima facie adjustment additional tax was levied. It was the plea of the assessee that the claim of expenses on rights issue in a sum of Rs. 19,94,544 is not related to ....
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....ase law of the Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. v. CIT [1997] 225 ITR 798. He clarified that no doubt the Hon'ble Supreme Court has upheld the disallowance of such rights issue expenses holding the same to be capital in nature but no specific decision has been pronounced with regard to expenses incurred on rights issue/equity issue for raising working n capital in that case. In this case also, while acting under section 143(1)(a) of the Act, it cannot be find out that as to whether the rights issue expenses was for raising working capital for earning profits. Even there is no fact that as to whether the assessee has increased the capital to meet the need of working fund to the assessee-company. These facts are not available to the Assessing Officer while acting under section 143(1)(a), rather the Assessing Officer should have issued notice under section 143(2) of the Act E and the assessment should have been framed under section 143(3). This being a debatable issue, cannot be considered under section 143(1)(a) of the Act. On the alternative plea of the assessee, the CIT (Appeals) directed the Assessing Officer that deduction under section 35D of....
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....xpenses. With regard to the issue as to whether these expenses are allowable under section 37 or under section 35D, there is a mute question. Another aspect to be examined by the Assessing Officer was that as to whether this rights issue expenses was for raising working capital in the case of the assessee which has not been answered. The Assessing Officer has straightaway made prima facie adjustment while acting under section 143(1)(a) holding that the rights issue expenses are capital in nature without providing any opportunity of hearing to the assessee. The Hon'ble Apex Court has clearly considered the argument but no finding has been given as to whether the capital was to meet the need for more working funds to the assessee as the statement of the case sent by the Tribunal does not indicate that a finding was recorded to the fact that the expansion of capital was undertaken by the assessee in order to meet the working funds to the assessee. The Hon'ble Apex Court has decided the issue wherein it was held that: "Dr. Pal has, however, submitted that this decision does not cover a case, like the present case, where the object of enhancement of the capital was to have mor....
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....e record alone might be corrected. The Assessing Officer is not permitted under the guise of making adjustment to adjudicate upon any debatable issue. The Assessing Officer could not decide any debatable issue while acting under section 143(1)(a) of the Act unless the inadmissibility of a deduction or allowance was evident and obvious from the return and its annexures then the Assessing Officer who wanted to disallow a deduction or a claim, was bound to follow the procedure laid down under section 143(2) of the Act of giving a notice and accordingly pass the assessment order under section 143(3) of the Act. The purposes for making prima facie adjustment have been elaborated by the CBDT and the reasons stated are as under: "The new scheme of assessment (new section 143).-With the number of income-tax assesses continuously increasing, there was an urgent need to reduce the Department's work load by greater reliance on voluntary compliance by the assessees. The Amending Act, 1987, has, therefore, substituted a new section 143 in the Income-tax Act to introduce an entirely new scheme of assessment after a return of income has been filed. The main features of the new scheme are:- ....
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....tion is available in the return or the accompanying documents. (ix) Deduction under section 80C in respect of provident fund contributions or life insurance premia or NSC VI or VII Issue not claimed, though the information is available in the documents accompanying the return, or claimed at a figure which is less than or is in excess of the permissible amount. (x) Deduction under section 80L not claimed or claimed at a figure which is less than or is in excess of the permissible amount. (xi) Deduction under section 80G not claimed, although allowable on the basis of the information available in the return or the accompanying documents, or claimed at a figure which is less than or is in excess of the permissible amount. (xii) Deduction under section 80M claimed at 60 per cent. Of gross dividend income instead of net dividend income in violation of the provisions of section 80AA. It may be mentioned that the above is not an exhaustive, but only an illustrative, list of prima facie admissibles or inadmissible for which adjustments can be made to tin-returned income or loss." 8. The scope of the powers to make prima facie adjustment under section 143(1)(a) was somewhat coter....
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....fructuous work for the department. Hence, a strict view which is in accordance with the legal provisions is necessary in such cases'." The nature of remedy, therefore, circumscribes the power under section 143(1)(a) of the Act. But the similarity between the power under section 143(1)(a) and under section 154 is to the extent stated viz. the determination of liability as ascertainable from the return as filed. The similarity ends there. The differences are many. The Assessing Officer can exercise the power under section 143(1)(a) of the Act, under the circumstances mentioned in the first proviso but as far as section 154 of the Act is concerned, the powers are not so limited. Under section 154 of the Act, the assessee is to be given an opportunity of being heard but under section 143(1)(a) of the Act, no such opportunity is to be provided. While acting under section 143(1)(a) of the Act, the Assessing Officer can charge additional income-tax whereas the consequences of a rectification order does not result in the payment of additional income-tax. Here, no doubt, the power to some extent are coterminous between section 143(1)(a) and section 154 of the Act but not exactly coterm....
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....1 can be made in the instant case on the basis of the decision of Hon'ble Supreme Court in the case of Brooke Bond. (India) Ltd. v. CIT [1997] 225 ITR 798. 2. The assessee had claimed right issue expenditure amounting to Rs. 19,94,519, which has been added to the income by way of adjustment under section 143(1)(a) by the Assessing Officer. Though the decision of the Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. is not specifically referred, but it is clear that such assessment was made on the basis of that decision only. It is further clear from the records that return was filed on 28-11-1997 and the decision of the Hon'ble Supreme Court was rendered on 27-2-1997, which means the decision was available at the time of filing of return as well as at the time of processing under section 143(1)(a). Under Article 141 of the Constitution of India, any law declared by the Hon'ble Supreme Court is binding on all courts within the territory of India. I think the adjustment was validly made because issue expenses related to right issue of shares and it was not disputed before us. Section 81 of the Companies Act, 1956 reads as under:- "81. Further issue of c....
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....es as filing fee for enhancement of the capital was not revenue expenditure, this Court has said: 'We do not consider it necessary to examine all the decisions in extenso because we are of the opinion that the fee paid to the Registrar for expansion of the capital base of the company was directly related to the capital expenditure incurred by the company and although incidentally that would certainly help in the business of the company and may also help in profit-making, it still retains the character of capital expenditure since the expenditure was directly related to the expansion of the capital base of the company. We are, therefore, of the opinion that the view taken by the different High Courts in favour of the Revenue in this behalf is the preferable view ....' Dr. Pal has, however, submitted that this decision docs not cover a case, like the present one, where the object of enhancement of the capital was to have more working funds for the assessee to carry on its business and to earn more profit and that in such a case the expenditure that is incurred in connection with issuing of shares to increase the capital has to be treated as revenue expenditure. In this co....
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....n under section 35D may be allowed, but no such claim was made before the Assessing Officer and in that view of the matter, no fresh debate can be unnecessarily brought into picture. Therefore, the question, whether Assessing Officer was within his jurisdiction to make such adjustment when no claim under section 35D was made, has to be answered in favour of the Revenue because there is no debate involved after the c pronouncement of the decision of the Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. 6. In these circumstances, the assessee's appeal is dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT Since there is a difference of opinion between the Judicial Member and the Accountant Member, the matter is being referred to the Hon'ble President of ITAT with a request that the following question may be referred to a Third Member or to pass such order as the Hon'ble President may desire:- "Whether, on the facts and circumstances of the case, and in view of the decision of the Hon'ble Supreme Court in the case of Brooke Bond (India) Ltd. v. CIT (225 ITR 798)(SC), adjustment under section 143(1)(a) in respect of expenditure on right issu....
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....mitted that it was incumbent on the Assessing Officer to examine the object of the capital enhancement. The ratio of Brooke Bond (India) Ltd. is not applicable if enhancement of capital was in the context of more working funds. This decision of the Apex Court does not cover all the cases of capital enhancement. 7. It was further contended that the Revenue did not examine the issue in the right perspective. Even the applicability of section 35D of the Act was not considered. Matter was not viewed in totality. De hors examining the object of making right issue, matter was adjudicated. Allowability of the claim under other-provisions of the statute was not considered. 8. Shri Shaji P. Jacob, ld. D.R. submitted that it is open for the Assessing Officer to make the disallowance on the basis of information available in the return. The claim of the assessee was inadmissible in view of the decision of the Apex Court. Law pronounced by the Apex Court is binding under Article 141 of the Constitution. Assessee claimed expenditure under section 37(1) in respect of the right issue. Reference was also made to the decision of the Apex Court rendered in the case of Punjab State Industrial Develo....
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....e to apply the ratio. 11. Each case depends on its own facts, and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid temptation as said by Cordozo by matching the colour of one case against the colour of another. I am reminded of Heraclitus who said "you never go down the same river twice". What the great philosopher said about time and flux can relate to law as well. It is trite that a ruling of superior court is binding law. It is not of scriptural sanctity but is of ratio-wise luminosity within the edifice of facts where the judicial lamp plays the legal flame. Beyond those walls and dehors the milieu we cannot impart eternal vernal value to the decision, exalting the doctrine of precedents into a prison house of bigotry, regard less of varying circumstances and myriad developments. Realism dictates that a judgment has to be read, subject to the facts directly presented for consideration. 12. I have considered the entire conspectus of the case. In my opinion, the decision of the Apex Court in the case of Brooke Bond (India) Ltd. can be applied only after ex....