TMI Blog1992 (2) TMI 67X X X X Extracts X X X X X X X X Extracts X X X X ..... imation under section 143(1)(a) of the Income-tax Act dated March 18, 1991. Along with the intimation, an adjustment explanatory sheet was annexed. In that sheet, the first respondent had determined the total income at Rs. 68,81,158 as against the returned income of Rs. 41,64,596. The addition of Rs. 27,16,562 was on account of the following : (a) The first petitioner had purchased during the relevant period new machinery of the value of Rs. 1,25,28,140 and had claimed a deduction under section 32A of the Act on account of investment allowance amounting to Rs. 25,05,628. The first petitioner had made the required reserve and had fulfilled all the conditions required under the Act for the grant of deduction under section 32A. The first respondent added back the claim on the ground that no proof of purchase of new machinery is enclosed with the return of income ; (b) The first respondent added back an amount of Rs. 26,505, being the value of presentation articles not bearing the logo of the first petitioner. The first petitioner had claimed that these articles were not covered under rule 6B of the Income-tax Rules, 1962, and hence the first petitioner was entitled to a deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order to consider this contention, it is necessary to look at the provisions of section 143(1)(a) of the Income-tax Act, as it now stands by virtue of its being amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant provisions of section 143(1)(a) are as follows : "143. (1)(a) Where a return has been made under section 139, or in response to a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o produce before him any evidence on which the assessee may rely in support of the return. Thereafter, under sub-section (3), he can proceed to make a regular assessment. The other relevant provision of section 143 is sub-section (1A) under which, where, after making the adjustments under section 143(1)(a), it is found that the total income exceeds the income declared in the return by any amount, the Assessing Officer shall further increase the amount of tax payable by additional income-tax calculated at the rate of twenty per cent. of the tax payable on such excess amount. This additional income-tax shall be specified in the intimation which is to be sent under section 143(1)(a). The question before us relates to the scope of adjustments permissible under section 143(1)(a). In order to interpret the present section 143(1)(a), it is necessary to refer briefly to the history of this section. Brief history : Prior to April 1, 1971, section 143(1) provided that, where the Incometax Officer is satisfied, without requiring the presence of the assessee or the production by him of any evidence, that the return is correct and complete, he shall assess the total income or loss of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the deductions admissible to the assessee were not claimed or incorrect deductions or allowances were claimed. The Finance Act has omitted the requirement of making adjustments under sub-clauses (ii) and (iii) of clause (b) of section 143(1)." This note clearly shows that the adjustments which could be made earlier were only regarding incorrect deductions on the face of the return. Since very few returns needed such adjustments, this provision was considered redundant and was dropped. The present provision is worded in identical language. After the 1980 amendment, only arithmetical errors could be corrected. The previous provision relating to the right of an assessee to object to such assessment was also retained and, if he so objected, he would not be treated as an assessee in default in respect of the disputed amount and no interest would be charged on the disputed amount. From this overall position of an assessee regarding summary assessments, a substantial change has been brought about by the present amendments. The new provisions have been brought into effect from April 1, 1989, under the Direct Tax Laws (Amendment) Act, 1987. As result, there is no summary assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation or any further evidence in that connection, he is bound to follow the procedure prescribed under section 143(2) of giving a notice to the assessee. It is not open to him to disallow such a claim under section 143(1)(a). In connection with this new provision, the Central Board of Direct Taxes issued Circular No. 549 dated October 31, 1989. The circular points out inter alia, that, under the new scheme of assessment, the requirement of passing an assessment order in all cases where returns of income are filed, has been dispensed with and the issue of an acknowledgement slip to the assessee will be the end of the matter, if he had correctly paid tax and interest, if any, due on the basis of the return. But, if, on the basis of the return, any amount is found due from the assessee, it can be recovered and, if any refund is due to the assessee, it can be granted without passing an assessment order. The assessment order will be passed only in a very limited number of cases selected for scrutiny. While dealing with adjustments to be made in the income or loss declared in the return, the circular provides in paragraph 5.4 that prima facie adjustments mentioned in clause (ii) can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of section 80AA." This illustrative list clearly points out that only adjustments which are, on the basis of the return and documents accompanying it, allowable or disallowable, can be adjusted. The Central Board of Direct Taxes has issued Circular No. 581 dated September 28, 1990, which also proceeds on a similar assumption. Under section 154 of the Income-tax Act, the power of rectification can be exercised in respect of an intimation under section 143(1)(a). In this connection, the circular states that instances have come to the notice of the Board where deduction claimed under section 43B of the Income-tax Act was disallowed as prima facie inadmissible under section 143(1)(a) as the assessee had not furnished evidence of payment of tax, duty, etc., along with the return. However, later on, the deduction claimed was allowed under section 154 as the assessee subsequently furnished such evidence. This, according to the Board, is not in accordance with law. The sums disallowed as prima facie inadmissible under section 143(1)(a), in the absence of requisite evidence of the payment, cannot be subsequently allowed under section 154. This is because the scope of the powers t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallow a claim on the ground that there is no proof in respect of the claim made by the assessee. It goes on to say that clause (iii) of the proviso is analogous to section 154. Where it is evident from the return as filed, along with the documents in support thereof, that a claim of the assessee is inadmissible, only then an adjustment under the said proviso can be made. If proof in support of the claim is not furnished by an assessee, then for lack of proof, no disallowance or adjustment can be made. The only option open to the Income-tax Officer in such a case is that he can require the assessee to furnish particulars in which case he will have to issue a notice under section 143(2). We respectfully agree with this reasoning of the Delhi High Court. It is rightly urged before us by Mr. Dastur, learned counsel for the petitioners, that, if anything more is read into the power to make adjustments under section 143(1)(a), such power would be grossly arbitrary and unreasonable and in total violation of the principles of natural justice, because section 143(1)(a) does not provide for any notice being given to the assessee, nor does it provide for any hearing being given to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1)(a). Nor can they produce evidence in the rectification application which they may file from an intimation. Because, under section 154, it is not open to the petitioners to produce new evidence. This is made clear by the circular issued by the Department itself, which is referred to earlier. Hence, even if an assessee may be legitimately entitled to various deductions, the Income-tax Officer may disallow these on the ground of absence of evidence. The assessee would not be able to establish his claim in any subsequent application pertaining to the intimation such as a rectification application under section 154 or a revision from it under section 264. Clearly, therefore, such disallowances are not contemplated at the intimation stage. It is also pointed out by the petitioners that it is only under section 143(1)(a) that there is a provision for refund being granted to the assessee, if it is found that the amount paid by the assessee by way of tax and interest is in excess of what is due. Even under section 143(2), there is no provision for refund of any excess tax or interest paid. It is, therefore, necessary that the Income-tax Officer determines the tax and interest due o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant and machinery, water pollution equipment, buildings, furniture and fixtures, etc. The second column deals with "written down value of the assets as on April 1, 1989". The next column deals with additions during the year. The fourth column deals with sales during the year. The next column deals with balance as on March 31, 1990. The next column deals with the rate at which depreciation is claimed. The column after that deals with depreciation claimed for the year in respect of each of these assets and the last column deals with the written down value as on March 31, 1990. In this table of assets, the petitioners have shown that there was an addition to its general plant and machinery in Its various divisions as specified therein, of the value of Rs. 1, 25,28,140. On the same assets, the depreciation which is claimed by the petitioners in this very table has been allowed. The last statement in this table is in respect of investment allowance. It states that additions to the plant and machinery are of the value of Rs. 1,25,28,140, 20% thereof comes to Rs. 25,05,628 and this is the amount which is claimed as investment allowance for the year. Under section 32A of the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Income-tax Officer found sufficient while allowing a claim for depreciation were found by him to be insufficient for the purpose of allowing investment allowance. Anyway, in the absence of any specific provision under which a claim for investment allowance, on the face of it, can be disallowed if the assessee does not furnish evidence in support of the claim, the claim for investment allowance cannot be disallowed by the Income-tax Officer by an intimation under section 143(1)(a). There is nothing prima facie on the record before the Income-tax Officer which would permit him to disallow such a claim. It is also submitted by Mr. Jetley that there is no material in the return or the documents annexed to it to show that the plant and machinery is wholly used for the purpose of the business carried on by the assessee. Once again the question is not whether the assessee has established his claim to the investment allowance. The question is whether there is any material before the Income-tax Officer to show that this plant and machinery were not wholly used for the purposes of the business carried on by the assessee. Only then could he have disallowed the claim at the intima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, under rule 6DD of the Income-tax Rules, such cases and circumstances have been prescribed. Under clause (j) of rule 6DD, in any case other than the ones earlier specified in that rule, where the assessee satisfies the Assessing Officer that the payment could not be made by a crossed cheque or by a crossed bank draft due to exceptional or unavoidable circumstances, or because payment in this manner was not practicable, or would have caused genuine difficulty to the payee, having regard to the nature of the transaction and the necessity for expeditious settlement thereof, and also furnishes evidence to the satisfaction of the Assessing Officer as to the genuineness of the payment and the identity of the payee, a deduction can be allowed. In his annexure to the return, the assessee had stated that these payments were covered by rule 6DD(j). The claim, however, has been disallowed. Once again, there was no material in the return or the documents annexed to it, which would indicate that rule 6DD(j) was not attracted. Therefore, there was no basis for disallowing this claim prima facie, looking to the return and the documents annexed to it. Expenditure of the previous year: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to correct such mistakes. A substantive mistake cannot be so corrected. Section 154 is far more limited in its scope than a right of appeal which is normally considered as an adequate alternate remedy. It is also pointed out by Mr. Jetley that, with effect from October 1, 1991, a revision under section 264 lies from an order made under section 154, in respect of an intimation under section 143(1)(a). This, according to him, is an adequate remedy. He has submitted that, although the order under section 154 is made prior to the coming into force of the amendment, a revision would now lie from that order. He relies on a decision of the Allahabad High Court in Lala Kailashpat Singhania v. ITO [1963] 47 ITR 453, in support of his contention that a revision is an adequate alternative remedy. In the first place, the revision which is now provided is from an order in a rectification application under section 154. This automatically restricts the scope of such a revision. Moreover, our High Court, in the case of K. Subramanian v. Siemens India Ltd. [1988] 173 ITR 136, has held that the availability of a revision against a provisional assessment under the Companies (Profits) Surtax Act, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at KKPL had, over a period of time, acquired shares in various companies. By a resolution passed at a meeting of its board of directors on June 27, 1989, KKPL resolved to revalue its investments in shares of other companies at market price as on March 31, 1989, so as to reflect a true and fair market value of these investments. KKPL held, inter alia, 4,86,629 shares in Madura Coats Ltd. The cost of these shares was Rs. 29,25,025. Pursuant to the resolution dated June 27, 1989, these shares were revalued Rs. 4,58,64,783. The difference between the cost price and the revalued price, viz., Rs. 4,29,39,758, was transferred to the share revaluation reserve account in the books of account of the company as per accounting practice. The shares of Madura Coats Ltd. were sold by KKPL on November 15, 1989, for Rs. 5,74,22,222. Thereafter, KKPL invested a sum of Rs. 4,75,00,000 in the bonds issued by the Industrial Development Bank of India on November 16, 1989, in order to reduce the capital gains tax liability of KKPL. The total profits made on the sale of these shares was Rs. 5,44,97,195. In the accounts for the year ending on March 31, 1990, this profit was reflected as under: Amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile dealing with Writ Petition No. 2587 of 1991, under section 143(1)(a) of the Income-tax Act, the Income-tax Officer can only disallow such relief as is prima facie inadmissible on the basis of the information available in such return and the accounts and documents annexed to it. It is contended by Dr. Balasubramanian who appears for the respondents that the amount which is transferred by the petitioner to the share revaluation reserve account is available from the documents which are furnished by the company itself. Hence, it is permissible for the Income-tax Officer to add this amount to the book profits of the company. This submission is fallacious. What the Income-tax Officer has done is to reject the basis on which the company has filed its accounts and calculated its book profits for the relevant accounting year. The Income-tax Officer has not accepted the transfer of the above amount to the share revaluation reserve account, although, according to the petitioners, it is permissible as per accounting practice and should not be considered as a part of the book profits of the company. This is not the kind of adjustment which is contemplated under section 143(1)(a) of the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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