TaxTMI 
TaxTMI 
2002 (8) TMI 62
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....90, 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 with the concerned authorities and, therefore, unsanctioned claim was not treated as income for the relevant assessment year. Not accepting the stand of the assessee and holding all the aforesaid t....
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....f 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. 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. A bare reading of section 143(l)(a) of the Act, makes it clear that if, on the basis of the return filed by the assessee, any tax or interest is found due after adjustments, as set out in the section, an intimation has to be sent ....
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....r 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. 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. Therefore, the first and the foremost question which arises for consideration is as to what the phrase "prima facie", used in clause (iii) to the first proviso means. The phrase "prima facie" is not defined in the Act. In common parlance the phrase "prima facie" means "on the face of it". According to Black's Law Dictionary (sixth edition....
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.... 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, 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 issued by the Board under the provisions of section 119 of the Act are binding on the Revenue. In the context of the aforenoted circular and the dictum in S. R. F. Charitable Trust's case [1992] 193 ITR 95 (Delhi), holding that clause (iii) of the first proviso to section 143(1)(a) of the Act, is analogous to section....
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....nformation 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 against claiming inadmissible deductions and allowances. On the contrary, the above interpretation of section 143(1)(a) of the Act will not cause any prejudice to the Revenue. In a given case where the Assessing Officer has any doubt about the allowability of deduction or claim made by the assessee, it is open to him to issue a notice under sub-section (2) of sect....
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....annot be made to depend upon such a fortuitous circumstance." 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. 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 [2000] 243 ITR 48 (SC) only to the extent it pertains to the interpretation of subsection (1A) of section 143 of the Act. As noted above, we have no controversy in hand in so far as the said provision is concerned. Relying on Jiyajeerao Cotton Mills Ltd. v. ITO [1981] 130 ITR 710 (Cal) and Mysore Cements Ltd. v. Dy. Commr. of Commercial Taxes (Assessment) [1994] 93 STC 464 (Karn.), it is submitted by learned counsel for the Reve....
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....t 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. 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 had made a claim for duty drawback on export of 29,923 picture tubes the same was pending approval as on the last date of the previous year and, therefore, the entire claim could not constitute taxable income for the relevant previous year. Only that part of the claim had been included in the total income, which had been sanctioned by the Government. It was submitted by learned counsel for the assessee that till the claim of the petitioner was approved by the Centr....
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....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. Ms. Bansal, learned counsel for the Revenue, on the other hand, would urge that the stand of the assessee on the first issue having been rejected even by the Supreme Court in CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. [1997] 224 ITR 604 and, on the second issue, a decision of this court in Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1, being available at the time of filing of the return, both the claims were prima facie inadmissible and, therefore, the Assessing Officer was justified in making the impu....