2002 (8) TMI 62 - HC - Income Tax

Assessment Intimation Adjustment U/S 143(1)(a) - The intimation letters sent to the petitioners hereinafter referred to as the assessees under section 143(1)(a) of the Income-tax Act 1961 (for short the Act ) after making certain adjustments to the total income returned by them and demanding additional tax under section 143(1A) of the Act are under challenge in these writ petitions. - We are of the view that the adjustment on the second issue of relief under section 80-I fell within the ambit of section 143(1)(a) of the Act read with the first proviso thereto and the action of the Assessing Officer to that extent was valid in law

Issues Involved:
1. Scope of adjustments under Section 143(1)(a) of the Income-tax Act, 1961.
2. Interpretation of the term "prima facie" in the context of adjustments.
3. Determination of the relevant time for judging the correctness of the return.
4. Specific disallowances and adjustments made by the Assessing Officer in the two cases.

Detailed Analysis:

1. Scope of Adjustments under Section 143(1)(a) of the Income-tax Act, 1961:
The court examined the scope of adjustments permissible under Section 143(1)(a) of the Income-tax Act, 1961. It was emphasized that adjustments can only be made if they are "prima facie" inadmissible based on the return and accompanying documents. The court clarified that adjustments requiring further proof or debate are not permissible under this section.

2. Interpretation of the Term "Prima Facie":
The term "prima facie" was interpreted to mean "on the face of it" or "at first sight." The court referred to Black's Law Dictionary and various judicial precedents to conclude that adjustments can only be made if the inadmissibility of a claim is evident without any further investigation or debate. The court cited the Central Board of Direct Taxes (CBDT) Circular No. 549, which supports this interpretation by stating that prima facie adjustments can only be made based on the information available in the return or accompanying documents.

3. Determination of the Relevant Time for Judging the Correctness of the Return:
The court held that the correctness of the return should be judged based on the law prevailing at the time of filing the return, not at the time of making adjustments by the Assessing Officer. This view was supported by the Calcutta High Court's decision in Modern Fibotex India Ltd. v. Dy. CIT and upheld by the Supreme Court in CIT v. Hindustan Electro Graphites Ltd. The court rejected the Revenue's argument that the law prevailing at the time of adjustment should be applied, emphasizing that an assessee cannot be expected to anticipate future legal interpretations.

4. Specific Disallowances and Adjustments Made by the Assessing Officer:

Case 1 (C.W.P. No. 2087 of 1991):
- Presentation Articles (Rs. 65,818): The court found that the disallowance under Rule 6B of the Income-tax Rules, 1962, was debatable as the articles did not bear the company's logo or name, making it an arguable point.
- Entertainment Expenses: The court noted that the issue of whether directors act as employees was not free from doubt, making the disallowance debatable.
- Duty Drawback Claim: The court held that the claim for duty drawback was not ex facie unsustainable as it required deeper consideration, making the adjustment beyond the scope of Section 143(1)(a).

Case 2 (C.W.P. No. 2895 of 1995):
- Sales Promotion Assistance (Rs. 78,54,965): The court found that the claim was not prima facie inadmissible as a similar claim had been accepted in an earlier year.
- Relief under Section 80-I: The court held that the adjustment was valid as the computation of relief under Section 80-I was contrary to the jurisdictional High Court's decision in Taylor Instrument Co. (India) Ltd. v. CIT, making the claim prima facie inadmissible.

Conclusion:
The court quashed the impugned intimations to the extent indicated. Writ Petition No. 2087 of 1991 succeeded entirely, while Writ Petition No. 2895 of 1995 succeeded partly. The petitioner in C.W.P. No. 2087 of 1991 was awarded costs of Rs. 5,000, while no costs were awarded in C.W.P. No. 2895 of 1995.

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