TaxTMI 
TaxTMI 
2002 (8) TMI 62
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.... In C. W. P. No. 2087 of 1991, the assessee, engaged in the business of manufacture, sale and export of colour picture tubes, filed its return of income for the previous year ending March 31, 1990, relevant to the assessment year 1990-91, on December 28, 1990, declaring a loss of Rs. 21,16,08,308. The return was accompanied by tax audit report, audited balance-sheet, profit and loss account and some other documents. While arriving at the said loss the assessee suo motu offered certain expenses for disallowance in accordance with the provisions of the Act. However, out of the expenses booked under various heads, entertainment and presents, the assessee claimed respectively Rs. 1,14,933 and Rs. 65,818 as allowable expenditure. In the annexures to the return, it was also stated that during the relevant previous year the assessee had exported 54,923 picture tubes and duty drawback on the said picture tubes was accounted for in the profit and loss account at Rs. 700 per picture tube. However, by the end of the previous year, duty drawback was sanctioned only for export of 25,000 tubes and for the balance picture tubes, the assessee's application for brand rate fixation was pending w....
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....y 30, 1993. Against the said intimation, the assessee filed an application under section 154 of the Act for rectification on the plea that both the adjustments were beyond the scope of section 143(1)(a) of the Act read with the first proviso thereto. The application was, however, rejected vide order dated December 28, 1993. Aggrieved, the assessee preferred a revision petition to the Commissioner of Income-tax under section 264 of the Act, but without any success. 6. The impugned intimations are challenged on various grounds. It is urged that: (i) since the word "adjustment" is qualified by the phrase "prima facie" only such adjustments can be made under section 143(l)(a) of the Act on which no two views are possible ; (ii) disputed claims cannot be equated with prima facie inadmissible claims ; (iii) the adjustment of taxability of receipt/source of income is outside the scope of prima facie adjustments ; (iv) the adjustments can be made only on the basis of material on record; and (v) the correctness of the return has to be tested in the light of the law prevailing at the time of filing of the return and not with reference to events subsequent thereto. 7. A bare reading of ....
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....f the Act, we shall make a passing reference to the provision. It provides that where after making the adjustment under section 143(1)(a) it is found that the total income so determined exceeds the income declared in the return by any amount, the Assessing Officer shall further increase the income-tax payable by additional income-tax calculated at 20 per cent. of the tax payable on such excess amount. The additional income-tax so calculated has to be specified in the intimation (notice of demand) to be sent under section 143(1)(a) of the Act. 9. Reverting back to the main dispute, on a plain reading of clause (iii) of the first proviso, reproduced above, it is clear that unless the return or the accompanying documents or accounts show that the deduction, allowance or relief claimed therein is prima facie inadmissible on the basis of information available in the said documents, such deduction or allowance claimed cannot be disallowed. It is also evident that only those adjustments can be made under the said clause which on the basis of return and documents accompanying it are "prima facie" inadmissible. 10. Therefore, the first and the foremost question which arises for consid....
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....on of India [1992] 193 ITR 95, a Division Bench of this court had said that in a way clause (iii) of the first proviso to section 143(1)(a) is analogous to section 154 of the Act. It was also observed that where it is evident from the return as filed, along with the documents in support thereof, that the claim of the assessee is inadmissible, only then an adjustment under the said proviso can be made. As an illustration, it was pointed out that if, in a case, proof in support of the claim was not furnished by an assessee, then for the lack of proof, no disallowance or an adjustment could be made under the said provision and the only option left to the Assessing Officer in such a case was to require the assessee to furnish proof by issuing a notice under section 143(2) of the Act, 16. At this stage it is also pertinent to mention that in another Circular No. 581, dated September 28, 1990, issued by the Central Board of Direct Taxes, it has been stated that the scope of the powers to make prima facie adjustments under section 143(l)(a) is "somewhat coterminus with the power to rectify a mistake apparent from the record under section 154 of the Act." It is trite that circulars issu....
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....istake, it is a condition precedent that the mistake must be "glaring and obvious." 18. We are, therefore, of the considered opinion that under section 143(1)(a) of the Act it is not open to the Assessing Officer to make any adjustment in the returned income by disallowing any claim for deduction, allowance or relief, unless he is satisfied on the basis of information available in the return, documents, and the accounts accompanying it that such a claim is inadmissible on the face of it and there is no possibility of any debate thereon on such claim, etc. If anything more is read into the power of the Assessing Officer to make unilateral adjustments, it would render the provision wholly arbitrary and unreasonable because: (a) a disallowance is made without giving an opportunity to the assessee to explain his view point in support of the deduction or allowance, and (b) additional tax on the increased amount is charged from him arbitrarily. This would not only be in total violation of the principles of natural justice, it will also be not in consonance with the spirit of the provision to cause minimum inconvenience to the assessee and at the same time put the assessee on guard aga....
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....ed by the assessee. This court is not determining the validity of the amendment of section 28, but is merely determining the scope of the power under section 143(1)(a). The assessee's return could have been taken up by the Assessing Officer under section 143 prior to the amendment. In that event, no adjustment would have been made and no intimation would have been sent. An assessee's liability cannot be made to depend upon such a fortuitous circumstance." 21. The view expressed in Modern Fibotex India Ltd.'s case [1995] 212 ITR 496 (Cal) was upheld by the Supreme Court in CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48. 22. It is, however, submitted by Ms. Bansal, learned counsel for the respondents, that correctness of the decision in Hindustan Electro Graphites Ltd.'s case [2000] 243 ITR 48 (SC) has since been doubted by the Supreme Court in Asst. CIT v. J. K. Synthetics Ltd. [2001] 251 ITR 200. Having carefully gone through the two judgments, we are of the view that in J. K. Synthetics Ltd.'s case [2001] 251 ITR 200 (SC), the court has expressed reservation about the correctness of the judgment in Hindustan Electro Graphites Ltd.'s case [2....
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.... name of the company and, therefore, the articles were not meant for advertisement. In the adjustment explanatory sheet, except for noting down the said provision, there is no indication why the aforesaid note in the return has been ignored by the Assessing Officer. In our view this was clearly an arguable point, particularly in view of various judgments available on the subject. 27. The next disallowance is 1/3rd of the amount out of the entertainment expenses, which, according to the assessee, could not be considered as entertainment being expenditure incurred on the company's, officials. The mere fact that a similar issue travelled up to the Punjab and Haryana High Court in a reference in CIT v. Haryana Financial Corporation Ltd. [1989] 180 ITR 18, relied upon by learned counsel for the Revenue, shows that the issue, whether directors act as employees of a company, was not free from doubt. 28. The third and the last adjustment made by the Assessing Officer was by the addition on account of the claim of duty drawback preferred but not approved by the authorities concerned during the previous year. In the annexure to the return the assessee had stated that though they ha....
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.... Asserting that there was no impropriety on the part of the assessee in making both the aforenoted claims at the time of filing of the return, Mr. Syali, learned senior counsel for the assessee, submits that in so far as the first claim is concerned, at the time when the return was filed, the assessee's similar claim in respect of the assessment year 1989-90 had been accepted by the Assessing Officer in a regular assessment completed under section 143(3) of the Act and even notice by the Commissioner of Income-tax under section 263 of the Act, seeking to set aside the assessment was received by the assessee on September 22, 1993, i.e., after the filing of the return. As regards the computation of relief under section 80-I was concerned, it is contended that there was a conflict of views on the subject between various High Courts and certain decisions of the Income-tax Appellate Tribunal (for short "the Tribunal") were in assessee's favour. It is thus, argued that though ultimately both the issues got settled against the assessee on the date the return of income was filed, it could not be said that there was no debate on the issues. 32. Ms. Bansal, learned counsel for the....