TaxTMI 
TaxTMI 
2009 (5) TMI 607
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....f Income-tax (Appeals) has erred in law and facts allowing adjustment of receipt of Rs. 5,08,789 against pre-operative expenditure." 4. The ground raised by the Revenue in the assessment year 1993-94 is as under : "On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in law and facts in deleting the following additions made by way of prima facie adjustment under section 143(1)(a) : Rs. 1. Interest income 42.52 lakhs 2. Gain on foreign exchange 2.02 lakhs 3. Sale proceeds of scrap 0.18 lakhs 5. The relevant facts pertaining to the assessment year 1992-93 are as under : 6. The assessee filed a return of income declaring nil income, on December 31, 1993. In the return of income, the assessee has shown interest income during the construction period to the extent of Rs. 5,08,789. The assessee reduced this income by treating the same as capital receipt and set-off against the expenses incurred towards construction works and declared nil income in the return of income. In the return, the assessee stated that receipt of interest is to be treated as pre-construction capital....
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....on July 12, 1994 for the assessment year 1992-93, the Assessing Officer has stated that the assessee's contention that disallowance of claim can only be made if it is prima facie inadmissible on the basis of information available in the return, and thus, adjustment is not justified, is not correct in view of the fact that the records revealed that no business was done by the assessee and, secondly, the assessee has earned interest of Rs. 89,388 on the surplus funds and, thirdly, the share issued and prescribed and paid-up capital of the assessee is Rs. 7,75,700. The Assessing Officer further stated that interest income is not incidental to the assessee's business or to the construction work that was under progress or installation of machinery, etc., and, therefore, the claim of the assessee is prima facie not admissible, and the adjustment was rightly made by him. The Assessing Officer, therefore, rejected the assessee's application under section 154 of the Act. In the order, the Assessing Officer has also made reference to the following decisions : "(i) Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 (SC) ; (ii) 104 ITR 55 (sic) ; (iii)  ....
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.... Appeal No. 280/RTK/1994-95 and Appeal No. 281/RTK/1994-95 for the assessment years 1992-93 and 1993-94 respectively. 14. The learned Commissioner of Income-tax (Appeals) has discussed the issue at length and decided the same vide his order for the assessment year 1993-94, and he has followed the same in the assessment year 1992-93. 15. After considering the submission of the assessee and having regard to the provisions contained in section 143(1)(a), the learned Commissioner of Income-tax (Appeals) had taken a view that the issues involved were of highly debatable nature and, thus, no prima facie adjustment can be done under section 143(1)(a) of the Act to the returned income. The learned Commissioner of Income-tax (Appeals), therefore, held that it was wrong on the part of the Assessing Officer to reject the assessee's application under section 154 of the Act. 16. Being aggrieved with the learned Commissioner of Income-tax (Appeals)'s order, the Department has preferred these two appeals before the Tribunal. 17. At this stage, it is pertinent to note that these two appeals came to be disposed of by this Tribunal vide order dated May 30, 2001 where the Tribunal had taken a vie....
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....ounsel for the appellant that the Income-tax Appellate Tribunal erred in concluding that a remedy of appeal was available to the appellant-assessee against the order passed by the Assessing Officer dated May 24, 1994 (Annexure A-5) under section 143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as the Act). It is the submission of learned counsel for the appellant that no remedy of appeal was available to the appellant-assessee at the relevant juncture. It is also his contention that when the order dated July 12, 1994 (Annexure A-3) was passed by the Assessing Officer under section 154 of the Act so as to effect correction in the order dated May 24, 1994 (Annexure A-5), the first opportunity to assail the same came to the hands of the appellant-assessee. It is, therefore, the submission of learned counsel for the appellant-assessee that the appellant-assessee raised all pleas that were avail able to him at that juncture not only against the order dated July 12, 1994 (Annexure A-3), but also against the order dated May 24, 1994 (Annexure A-5). Learned counsel for the respondent-Revenue does not assail the basis of the contention advanced by learned counsel for the appe....
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....notice under sub-section (1) of section 142,- (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly ; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee : 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. ....
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.... is to be decided on its own facts after giving the assessee an opportunity to lead evidence and to have his say in that regard. The purpose for which the fixed deposits were made with the bank to earn interest is the relevant factor to decide as to whether interest earned by the assessee from out of fixed deposits with the bank for the period prior to commencement of business can be set off against the expenses incurred is a matter of deliberation, and can only be decided after a long drawn process of reasoning and after considering and verifying the facts of the case, and certainly that cannot be said to be matter which can be decided prima facie while preparing intimation under section 143(1)(a) of the Act. In this connection, we may make a reference to the decision of the hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502; in contrast to the decision of the hon'ble Supreme Court in the case of CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315/102 Taxman 94, where this point was decided in the light of the facts of each case. The hon'ble Madras High Court in the case of CIT v. VGR Foundations [2008] 298 ITR 132 ha....
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.... deferment of various items, obviously the money has to be kept in deposit with a bank. Keeping the money in current account would not yield any interest income. It can, therefore, be seen that it is during the course of construction that the monies are kept in deposits with the bank. In these circumstances in the light of the Supreme Court decisions in the case of Bokaro Steel Ltd. [1999] 236 ITR 315 (SC), CIT v. Karnal Co-operative Sugar Mills Ltd. [2000] 243 ITR 2 (SC) and CIT v. Karnataka Power Corporation [2001] 247 ITR 268 (SC), the claim of the assessee is reasonable and deserves to be accepted. We accordingly uphold the claim of the assessee and delete the addition of interest made to the income. The legal plea was not insisted upon. From a reading of the above, it is seen that the Tribunal has followed the principles enunciated in the Supreme Court judgments in the case of Bokaro Steel Ltd. [1999] 236 ITR 315 (SC) and in the case of Karnataka Power Corporation [2001] 247 ITR 268 (SC), and came to the correct conclusion. The Revenue is unable to give any further materials or evidence and also not able to furnish information as to whether they have filed any appeal against ....
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....the assessee. This has obviously introduced an error, which is apparent from record. When such an error of making prima facie adjustments of controversial under section 143(1)(a) is pointed out to the Assessing Officer, he is duty bound to amend, under section 154(1)(b), the intimation under section 143(1)(a). This is a case where the illegality or mistake in the intimation under section 143(1)(a) arises for the reason that the said provision of making prima facie adjustment of controversial nature which ought not to have been invoked has been invoked by the Assessing Officer and the income was wrongly determined by making unilateral adjustments of controversial nature which do not fall within the ambit of section 143(1)(a) of the Act. Thus, in such circumstances, if the Assessing Officer passes an order rejecting the assessee's application under section 154, it can be said that the Assessing Officer has failed to exercise his jurisdiction which he ought to have exercised under section 154 of the Act by rejecting his intimation and deleting therefrom the prima facie adjustments of controversial nature earlier made by him while making an intimation under section 143(1)(a) of the Act....