TaxTMI 
TaxTMI 
2005 (11) TMI 170
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....account. The Assessing Officer also charged additional tax under section 143(1A). The assessee filed an application under section 154 which has been rejected by the Assessing Officer. The learned CIT(A) upheld the action of the Assessing Officer. 3. We have considered the matter. The two Gujarat High Court decisions cited by the learned counsel, viz., Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 and Sarangpur Cotton Mfg. Co. Ltd. v. CIT [1983] 143 ITR 166 laid down the proposition that if the assessee posts debit entries in P&L Account and credit entries in bad debt reserve account, the necessary conditions for write off as contained under section 36(1)(iii) would be treated as complied with. However, Explanation has been inserted below section 36(1)(vii) by the Finance Act, 2001 with effect from 1-4-1989 which provides that any provision for bad and doubtful debt would not qualify as permissible deduction under section 36(1)(vii). In view of the retrospective amendment of the law, the adjustment made by the Assessing Officer is in order. However, insofar as the additional tax charged under section 143(1A) is concerned, the issue is squarely covered by the decisio....
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....ring the assessment proceedings is placed in the paper book filed by the learned counsel during the course of hearing before us at pages 5 to 9. Billwise details of purchase and sales enclosed with the aforesaid letter dated 17-11-1992 have also been furnished during the hearing by the assessee in a separate paper book from pages 1 to 104. The assessee explained before the Assessing Officer that the quantity accounts have been maintained for each quality of product dealt in by the assessee and complete books of account like cash book, ledger, purchase book, sales book and stock register have been maintained. In the audit report furnished by the assessee along with the return of income in prescribed Form No. 3CB, as per the provisions of section 44AB of the Act, auditors have stated that the stock register as well as other books of account are maintained by the assessee. The Assessing Officer, however, rejected the books of account on the ground that the figures of purchase and sales given in the monthly summary by the assessee by way of enclosing with its letter dated 17-11-1992, did not tally with the figures reflected in the trading account and further that the quantities of purc....
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....Less: Goods Returned to Sandoz 2,40,922.75 -------------- 1,61,60,974.15 Less: Sales-tax & Surcharge 78,621.25 -------------- As per trading account 1,60,82,352.90 -------------- The learned counsel pointed out that the reconciliation furnished by the assessee has been taken noted by the learned CIT(A) vide pa....
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....turally depress the GP rate. The assessee has, however, received enhanced bonus commission from Sandoz Ltd. amounting to Rs. 3,42,490 on account of enhanced turnover. These facts duly explained by the assessee during the assessment proceedings have been ignored by the Assessing Officer as well as CIT(A) while sustaining the impugned addition in the trading account. Regarding the discrepancies in the figures of purchase and sales furnished during assessment proceedings as compared with the figures reflected in the trading account we find that the discrepancies have been reconciled as per reconciliation statement reproduced in para-3.2 of the appellate order by the CIT(A). The assessee has furnished billwise details of purchase returns and sales returns in support of the reconciliation of figures. It is further relevant to note that the auditors have certified in the audit report that the balance sheet as well as P&L Account for the year under reference are in agreement with the books of account maintained by the assessee. It appears to us that the explanation furnished by the assessee has not been considered in the right perspective by the learned CIT(A) while sustaining the disallo....
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.... this decision, after detailed review of the case law on the subject and taking into consideration Explanation appended below section 37(1) by the Finance (No. 2) Act, 1998 with retrospective effect, it has been held that the twin facet of the issue, viz., genuineness as well as legality of the payment would have to be considered while adjudicating the issue of deduction of secret commission. Respectfully following the aforesaid decision in the case of Patel Bros. and in the context of identical facts and circumstances of the case, we would uphold the disallowance of secret commission. In support of the view being taken by us reliance is placed on the recent judgment of the Hon'ble Orissa High Court in the case Tarini Tarpuline Productions v. CIT [2002] 254 ITR 495. Regarding the decision of the Tribunal in the assessee's case for earlier year, we may point out that in the said decision the applicability of Explanation to section 37(1) has not been considered and, therefore, the said decision would not be applicable. The disallowance is, therefore, upheld and the ground is dismissed. 7. Ground No.4 is against sustaining the disallowance of commission of Rs. 3,00,110 paid to M/s.....
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....ugh any Commission Agent. (f) The parties to whom the sales have been made are mostly regular customers of the assessee and there was, therefore, no necessity for paying any commission in relation to such purchases. (g) M/s. Sandoz Ltd. is a reputed manufacturer of colour and chemicals and the assessee, as a Distributor of the said Company, did not require the services of a Commission Agent for making sales in the market. On the basis of the above grounds, the Assessing Officer held the commission payments to two parties, viz., Mahavir Fabrics (P.) Ltd. Rs. 3,00,110 and Sureshkumar Shermalji Rs. 50,089 as non-genuine and disallowed the same. 7.1 In appeal, the CIT(A) reiterated the points mentioned by the Assessing Officer in support of disallowance of commission and thereby sustained the disallowance. 7.2 The learned counsel, assailing the impugned disallowance, made strong grievance of the fact that the Assessing Officer has recorded the statements of Shri Shantibhai, MD of Mahavir Fabrics (P.) Ltd. as well as Sureshkumar Shermalji at the back of the assessee and in gross violation of the principles of natural justice and utilized the evidence so collected at the b....
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....n-genuineness of payments of commission. 7.4 After careful consideration of the rival submissions and going through the orders of the Revenue authorities below as well as the papers and documents contained in the paper book to which, our attention has been invited during the course of hearing, we feel that the impugned addition made by the Assessing Officer and sustained by the CIT(A) suffers from a patent infirmity inasmuch as the evidence collected at the back of the assessee by the Assessing Officer has been utilised against the assessee. This is unquestionably violative of the principles of natural justice as well as the express provisions of section 142(3) of Income-tax Act. The statements of Shri Shantibhai, MD of Mahavir Fabrics (P.) Ltd. as well as Sureshkumar Shermalji have been recorded by the Assessing Officer at the back of the assessee and the same have been utilised without confronting the assessee with the evidence so collected particularly when the assessee has furnished confirmations acknowledging the receipt of commission from both the parties, viz., M/s. Mahavir Fabrics (P.) Ltd. and Sureshkumar Shermalji who are assessed to tax, have duly shown the commission....
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....e debtors. The disallowance has therefore rightly been made. The ground is dismissed. 11. Ground No. 8 reads as under: "On the facts and in the circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the action of the Assessing Officer in disallowing vehicle expenses of Rs. 2,942 and depreciation thereon of Rs. 1,409." 11.1 Looking to the smallness of expenses and the extent of business turnover of the assessee, the disallowance out of vehicle expenses as well as depreciation thereon is hereby deleted. The ground is allowed. 12. Ground No. 9 against disallowance of Rs. 4,000 on account of rent is not pressed and is therefore dismissed. 13. Ground No. 10 is against sustaining the disallowance of Rs. 20,000 by the Assessing Officer under section 37(2A). The expenses aggregating to Rs. 61,631 have been debited under the head 'Office expenses' as per details available in the paper book from pages 78 to 84- These expenses are mostly on account of tea, coffee, cold drinks and snacks, etc. Certain other expenses like Municipal Tax, etc., have also been debited to this account. The assessee stated that the expenses pertain to tea, ....
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....assessee, in that case, had not challenged the provision of sub-section (1A) of section 143, i.e., the retrospective amendment itself. This clearly indicates the perception of the Apex Court in the two decisions differed more on appreciation of the character of additional tax. It is not treated as a penalty in the later case, while in the earlier decision the Apex Court understood the additional tax as imprint of penalty, a view which was apparently not shared in the later decision. 4. The ITAT, C Bench Ahmedabad, in the case of Mamta Machinery (P.) Ltd. v. Dy. CIT SR-II, A 'bad vide order dated 30-8-2002 in IT Appeal No. 326 (Ahd.) of 1995 in appeal pertaining to the assessment year 1991-92, on identical facts, upheld the action of both the departmental authorities below regarding prima facie adjustment made in intimation under section 143(1)(a) as well as levy of additional tax under section 143(1A). The relevant observation are contained in paras 23 to 25 which are reproduced hereunder: "23. Regarding the reliance placed by the ld. counsel on the Supreme Court decision in Hindustan Electro Graphites Ltd.'s case, we are of the view that the said decision has been rendered b....
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....8,91,310 in respect of provision for doubtful debts is liable to be upheld. We uphold the same and reverse the finding of the ld. CIT(A). The appeal of the revenue is allowed." 5. It is pertinent, to note that in the case of Mamta Machinery (P.) Ltd., the prima facie adjustment were made by the Assessing Officer by disallowing an amount of Rs. 8,91,310 in respect of provision for doubtful debt while processing the return of income under section 143(1)(a) for the assessment year 1991-92. In that case also the bad debts were not written off in accordance with the Explanation below section 36(1)(vii) and the claim of deduction was not allowed by Assessing Officer keeping in view the Explanation below section 36(1)(vii) inserted by the Finance Act, 2001 with effect from 1-4-1989 which provides that any provision for bad and doubtful debt would not qualify as permissible deduction under section 37(1)(vii) of the Income-tax Act. 6. The Hon'ble Gujarat High Court in the case of Sayaji Iron & Engg. Co. v. CIT [2002] 253 ITR 749 has held that decision of earlier co-ordinate Bench is binding on subsequent Bench and in case of disagreement matter be referred to Hon'ble President of Trib....
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....ed to me for an appropriate action under section 255(4) of the Income-tax Act: "1. Whether, in the facts and circumstances of the case, the Accountant Member is justified in deleting the additional tax levied under section 143(1A) relying upon the Supreme Court decision in the case of CIT v. HEG [2000] 243 ITR 48 or whether the Judicial Member is justified in upholding the levy of additional tax relying upon the decision of Supreme Court in the case of Asstt. CIT v. J.K. Synthetics Ltd [2001] 251 ITR 200 and decision of the Tribunal in the case of Mamta Machinery (P.) Ltd v. Dy. CIT [IT Appeal No. 326 (Ahd.) of 1995]; and 2. Whether the Judicial Member is justified in taking the view that deletion of Additional-tax under section 143(1A) would be in direct conflict with the earlier decision of the Tribunal in Mamta Machinery (P.) Ltd v. Dy. CIT wherein the Tribunal had upheld the adjustment under section 143(1)(a)." 2. The facts of the case are that assessee filed return declaring total income of Rs. 3,52,306. While making prima facie adjustments under section 143(1)(a) of Income-tax Act, a sum of Rs. 1,30,815 debited to the profit and loss account on account of bad debt wa....
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....of Mamta Machinery (P.) Ltd. v. Dy. CIT SR-II, A'bad dated 30-8-2002 in IT Appeal No. 326 (Ahd.) of 1995 in appeal pertaining to assessment year 1991-92. According to the Judicial Member, on identical facts, the action of revenue authorities imposing additional income-tax was upheld. In the aforesaid case, the Bench also took note of two decisions of the Apex Court and also of reservations relating to correctness of first decision expressed by larger Bench of three Judges. The matter in that case was held to be fully covered by Full Bench decision of Supreme Court in the case of J.K. Synthetics Ltd. The learned Judicial Member further observed as under: "5. It is pertinent to note that in the case of Mamta Machinery (P.) Ltd., the prima facie adjustments were made by the Assessing Officer by disallowing an amount of Rs. 8,91,310 in respect of provision for doubtful debt while processing the return of income under section 143(1)(a) for the assessment year 1991-92. In that case also the bad debts were not written off in accordance with the Explanation below section 36(1)(vii) and the claim of deduction was not allowed by-Assessing Officer keeping in view the Explanation below s....
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....nch decision still hold the field and on identical facts had to be followed. Levy of additional tax was penal. The facts in the case of J.K. Synthetics Ltd. were quite distinguishable and so was the position in the case of Mamta Machinery (P.) Ltd. No such issue arose in those cases. 8. The learned counsel further relied upon decision of Gauhati High Court in the case of Dy. CIT v. Ashok Paper Mills Ltd. [2002] 256 ITR 673 where it was again emphasized that additional tax was not leviable if the return was submitted as per law prevalent at the time of submission of the return and adjustments were made on account of retrospective operation of statutory provision. The learned counsel for the assessee, accordingly, supported the order of the Accountant Member. 9. The learned Departmental Representative supported the proposed order of learned Judicial Member. He argued that adjustment made was perfectly justified in view of amendment of section 36(1)(vii) of the Income-tax Act. Once adjustments were made the adjusted income was to be considered for purposes of charging of additional tax which in his view was automatic and mandatory. It is in addition to the tax payable by the ass....
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....n, accounts or documents, is prima facie inadmissible, shall be disallowed: Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments: Provided also, that an intimation for any tax or interest, due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable." 11. The provisions of sub-section (1A), as it existed originally, i.e., w.e.f. 1-4-1988 when from it was levied, read thus: "(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of subsection (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,- (i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1); (ii) wher....
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....any loss carried forward, deduction, allowance or relief, which, on the basis of information available in such return or the accompanying accounts or documents, is prima facie admissible or inadmissible, as the case may be. 5.4 The prima facie adjustments mentioned at (ii) above can be made only on the basis of information available in the return or the accompanying accounts or documents and not on the basis of the past records of the assessee. Some examples of such prima facie admissibles or inadmissibles in respect of which adjustments can be made to the returned income or loss are:- [examples (i) to (xii) are not reproduced] It may be mentioned that the above is not an exhaustive, but only an illustrative, list of prima facie admissibles or inadmissibles for which adjustments can be made to the returned income or loss. 5.7 Insertion of sub-section (1A) in section 143 by the Amending Act, 1989, to provide for charge of additional tax where returned income is increased as a result of adjustment made under section 143(1)(a). -The new section 143, as substituted by the Amending Act, 1987, while dispensing with the necessity of passing assessment orders in all cases, did ....
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....income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1); (C) where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (A) or sub-clause (B), as the case may be." 14. In Circular No. 657, dated 30-8-1993, the aforesaid amendment has been explained thus: "Modification of the provisions relating to levy of additional income-tax 40. The provisions of section 143(1A) of the Income-tax Act provided for levy of twenty per cent, additional income-tax where the total income, as a result of the adjustment made under the first proviso to section 143(1)(a), exceeded the total income declared in the return. These provisions sought to cover cases of returned income as well as returned loss. Besides its deterrent effect, the purpose of the levy of the additional income-tax was to persuade all the assessees to file their returns of income carefully to avoid mistakes. 40.1 In two recent judicial pronouncements, it had been held that the provisions of section 143(1A) of the Income-ta....
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....ion'. The assessee had received in the previous year relevant to the assessment year 1988-89, a sum of Rs. 1,31,41,030 by way of cash assistance. Since, clause (iii)(b) was inserted in section 28, though having retrospective operation by the Finance Act, 1990, the assessee did not include this income in its return, which, as noted above, was filed on 29-12-1989. The Assessing Officer made prima facie adjustment under section 143(1)(a) of the Act, by bringing to tax cash assistance received by the assessee against exports, in view of the retrospectively amended law. The Assessing Officer also levied additional tax on the adjustment so made. The Tribunal held that levy of additional tax was unjustified. The stand of the revenue was that under section 143(1A), the Assessing Officer has no choice and he has to levy additional tax once he finds that the assessee has not shown the amount of the cash compensatory support in his return, whatever the reason be. The Honourable Supreme Court held as follows: "7. Decision of the Calcutta High Court in Modern Fibotex India Ltd. squarely covers the issue involved in the present appeal. Then we have to see the law on the date of filing of the ....
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....g into account the income by way of cash compensatory support is not warranted. The question is answered in affirmative, i.e., in favour of the assessee and against the revenue. The appeal is accordingly dismissed with costs." 16. In the case of Asstt. CIT v. J.K. Synthetics Ltd. [2001] 251 ITR 200 (SC), the question before the Court was as to whether additional tax could be levied in a case where consequent to the prima facie adjustment made by the Assessing Officer, the loss declared in the return alone stood reduced. The Court after making a reference to the amended provisions of section 143(1A) by the Finance Act, 1993 w.r.e.f. 1-4-1989 held as follows: "The substituted sub-section (1A), therefore, made it clear that even where the loss declared by an assessee had been reduced by reason of adjustments made under sub-section (1)(a), the provisions of sub-section (1A) would apply. This being a retrospective amendment, it covers the controversy in this appeal and, therefore, the appeal would have to be decided in favour of the Revenue. Learned counsel for the assessee, however, relied upon the judgment of a Bench of two learned Judges of this Court in CIT v. Hindustan Ele....
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.... the reduced loss of Rs. 3,40,930. Assessee's claim for relief under sections 80HH and 80J was disallowed on the view that the result of the business being loss, deduction was not permissible. In the intimation under section 143(1)(a) on the reduced loss of Rs. 3,40,930, additional tax of Rs. 24,450 was levied under section 143(1A). The Court held as follows: "We notice that the position has been resolved by the Apex Court in Asstt. CIT v. J.K. Synthetics Ltd. [2001] 251 ITR 200/116 Taxman 598. Apex Court reversed the decision of the Delhi High Court in J.K. Synthetics Ltd v. Asstt. CIT [1993] 200 ITR 584 and held that the retrospectively substituted sub-section (1A) made it clear that even where the loss declared by the assessee had been reduced by reason of adjustments made under sub-section (1)(a) the provisions of subsection (1A) applied and the additional tax could be imposed. Counsel appearing for the assessee however took up the stand, placing reliance of the decision of the Apex Court in CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48/109 Taxman 342, that since there is no dishonest intention assessee cannot be held liable. The Legislature has not used the e....
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....b-section (1A), therefore, made it clear that even where the loss declared by an assessee had been reduced by reason of adjustments made under sub-section (1)(a), the provisions of sub-section (1A) would apply. This being a retrospective amendment, it covers the controversy in this appeal and, therefore, the appeal would have to be decided in favour of the revenue. Learned counsel for the assessee, however, relied upon the judgment of a Bench of two learned Judges of this Court in CIT v. Hindustan Electro Graphites Ltd [2000] 160 CTR (SC) 8 : [2000) 3 SCC 595. This was a case in which the return that the assessee had filed was correct by reason of the law as it stood when the return was filed. A retrospective amendment of section 28 of the Act rendered that return incorrect. An adjustment in the return was made under sub-section (1) of section 143 and, therefore, the provisions of sub-section (1A) were sought to be invoked. This was challenged and the High Court upheld the challenge, as did this Court. It took the view that the additional penalty under sub-section (1A) bore the imprint of a penalty and no penalty could be levied because the return filed by the assessee was correct ....
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.... later decision in the case of J.K, Synthetics Ltd. by the Apex Court. The Hon'ble Delhi High Court has specifically applied the decision. The provision of section 143(1A) is to deter an assessee is admitted even by the revenue authorities in their Circulars quoted above. There is some agreement that a return which was correct on the date it was filed on the basis of documents and material accompanying the return and prima facie adjustments are made on the basis of retrospective amendment of a statutory provision which assessee could not foresee, the provision of section 143(1A) would not be attracted. At least above view can be held to be a possible view as High Courts have applied it. The issue before me being covered by above proposition, I deem it unnecessary to consider the question whether additional tax can be imposed where deductions are bona fidely claimed and prima facie adjustments cover mistakes which are unintentional. It may be reasonable to hold that in such cases, additional tax can be imposed but as that issue is not before me, 1 refrain from expressing any final view on this aspect of the matter. 21. Now proceeding to the facts in the present case, it is an adm....