2011 (6) TMI 187 - HC - Income Tax

Addition - prima facie adjustment - intimation u/s 143 (1)(a) - ITAT held that under the provisions of Section 143(1)(a) the Assessing Officer is not entitled to allow or disallow the claim but can only make adjustment on a prima facie scrutiny of the return and the accompanying documents filed by the assessee - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of Section 143(1)(a) of the Income Tax Act, 1961 regarding adjustment of provision for doubtful debt.
2. Validity of the Assessing Officer's disallowance of the claim for deduction of bad and doubtful debts.
3. Jurisdiction of the Assessing Officer under Section 143(1)(a) to disallow claims without proper assessment process.

Analysis:
1. The case involves a substantial question of law regarding the interpretation of Section 143(1)(a) of the Income Tax Act, 1961. The primary issue is whether the ITAT was justified in deleting the prima facie adjustment of Rs.9,00,000 on account of provision for doubtful debt carried out by the Assessing Officer in light of the retrospective effect added to Section 36(1)(vii) by the Finance Act, 2001. The Court determined that the main question to be decided was whether the adjustment made by the Assessing Officer was within the ambit of Section 143(1)(a) of the Act.

2. The Assessing Officer disallowed the respondent's claim for deduction of provision for bad and doubtful debts under Section 36(1)(vii) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld the disallowance, stating that the action was correct as a prima facie adjustment under Section 143(1)(a) of the Act. However, the ITAT disagreed, holding that the Assessing Officer did not have sufficient material to disallow the claim, and that under Section 143(1)(a), the Assessing Officer can only make adjustments based on a prima facie scrutiny of the return and accompanying documents.

3. The Court referred to a previous decision interpreting Section 143(1)(a) and held that the Assessing Officer had exceeded the scope of powers conferred by the Act by disallowing the claim without proper assessment procedures. The Court emphasized that the Assessing Officer should have issued a notice and called for particulars to assess or adjudicate the claim, which was not done in this case. Therefore, the ITAT's decision to uphold the appeal was deemed correct, and the Assessing Officer's disallowance was considered improper. Consequently, the appeal was dismissed with no order as to costs.