TaxTMI 
TaxTMI 
TaxTMI 
2008 (8) TMI 198
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....s of the Companies Act, 1956, were filed along with the return of income. The return was processed under section 143(1)(a) of the Act as per the intimation dated November 17, 1998, which was served on the assessee on January 4, 1999. The Assessing Officer in the intimation had adjusted the total income at Rs. 1,53,08,599 and an additional tax of Rs. 6,32,077 was levied. 3. The assessee had claimed deduction on account of late delivery damages of Rs. 58,79,839 and penal interest of Rs. 14,69,905. In the audit accounts these two liabilities were categorised under the head "Contingent liabilities". It was stated that the liability on account of liquidated damages was due to delay or defect in supply amounting to Rs. 58,79,839 which was not provided in the accounts as in the opinion of the management the same was fully recoverable once the equipments are erected and commissioned. In respect of the penal interest of Rs. 14,69,905 it was commented that the said liability was also not accounted for as the management had made a representation and was hopeful that the same was liable to be waived by The bank. Against the intimation under section 143(1)(a) of the Act the assessee preferred ....
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....ssee in the computation of income were not accounted in the accounts and the Assessing Officer has treated the liability as contingent liability and dislodged the claim, on the basis of the notes of the auditors in schedule 16 of the balance-sheet. The Tribunal took note of the submissions made by the assessee before the Commissioner of Income-tax (Appeals) that the auditor's treatment of the liability as contingent liability cannot be regarded as inadmissible. It was also pointed out that no waiver had taken place and the assessee had not received Rs. 58,79,839 deducted by different customers and the bank had also recovered interest on various dates during the year as they were backed by contracts and the assessee had no right to receive the amount till the contracts were amended. It was further urged that the book entries were not conclusive and the Assessing Officer could not treat the liability as contingent liabilities on the basis of information available in the return and accompanying documents and thereby dislodge the claim on the foundation of prima facie adjustment. The contentions were combated by the Revenue before the Tribunal that the assessee had not made the provisi....
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....[1991] 189 ITR 339 (MP) wherein it has been held as under (headnote): "The provisions of section 143(1)(a) of the Income-tax Act, 1961, are not opposed to natural justice and are not ultra vires. The intimation under the provisions is issued on the basis of the assessee's own return. What is permissible to be adjusted are (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance or relief, which is prima facie admissible on the basis of information available in the return but not claimed in the return, and, similarly, (iii) those claims which are on the basis of information available in the return, prima facie inadmissible, are to be disallowed. The assessing authority is not permitted under the guise of making adjustment to adjudicate upon any debatable issue. Section 143(1)(a)(i) is not opposed to natural justice." (emphasis supplied) 9. In Amir Uddin v. ITO [2001] 248 ITR 550 (MP), it has been ruled as follows (page 554): "If I examine the impugned adjustment made by the Assessing Officer (the ITO), I find that they do not fall in any of the categories specified supra. The question, whet....
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....ation available in such return was prima fade inadmissible. In the present case, therefore, when there were conflicting judgments on interpretation of section 80-O, in our view, prima facie adjustments contemplated under section 143(1)(a) was not applicable and, therefore, consequently the appellant was not liable to pay additional tax under section 143(1A) of the 1961 Act." 11. Keeping in view the aforesaid enunciation of law the present factual matrix is to be appreciated. As is evincible the Assessing Officer had issued the intimation by giving a note which reads as under: "Liquidated damages accrued but not accounted as per notes on accounts amounting to Rs. 58,79,839 and bank interest accrued but not accounted as per notes on accounts submitted by the assessee along with the return of income amounting to Rs.14,69,905." 12. From the aforesaid note it transpires that the Assessing Officer has done 12 prima facie adjustment because of the non-accounting of the two expenses in the books of account. In this context, we may fruitfully refer to the decision in Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) wherein it has been held as under (page 5): "…..it is now well se....
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.... to the appellant's account and recovered on various dates during the financial year 1996-97. The assessee-appellant had made representations to the bank to exempt it from the said levy and in anticipation of exoneration it did not charge the same in the accounts. The request was finally rejected by the bank and, therefore, liability has been charged in the return. In the statement of computation of income for the year 1997-98, following the mercantile system the payment of interest was claimed as deduction which has been disallowed under section 143(1)(a). On a perusal of the factual aspects there can be no shadow or trace of doubt that the nature of deduction claimed by the assessee can be allowed or disallowed only on examination of various documents related thereto; and it cannot be added on the foundation of prima facie adjustment as envisaged under section 143(1) of the Act because of the debatable nature of the claim. It is because the assessee as is manifest, has claimed the liability as contingent. 16. In this regard we may fruitfully refer to the decision in Bharat Earth Movers v. CIT [2000] 245 ITR 428 (SC) wherein it has been held as under (page 431): "…if a busines....