2006 (6) TMI 83 - HC - Income Tax

Prima facie adjustment as laid down under section 143(1)(a) - Whether Tribunal was justified in law in holding that the disallowance made by the Assessing Officer in respect of corporate guarantee obligation does not come within the purview of prima facie adjustment as laid down under section 143(1)(a) of the Income-tax Act? held that under the guise of effecting under section 143(1)(a) the Assessing Officer cannot decide the debatable issues. Held that in the given circumstances a prima facie adjustment was made out by the assessee. In the result we deem it proper to answer the questions of law against the Revenue and in favour of the assessee.

Summary

Issues:
1. Whether the disallowance made by the Assessing Officer in respect of 'corporate guarantee obligation' amounting to Rs. 18,67,21,730 comes within the purview of 'prima facie adjustment' as laid down under section 143(1)(a) of the Income-tax Act, 1961?

Analysis:
The case involved the assessment year 1994-95 where the Assessing Officer disallowed a sum of Rs. 18,67,21,730 representing "corporate guarantee obligation" claimed as a revenue deduction by the company. The appellate authority confirmed the disallowance, leading to an appeal before the Tribunal. The Tribunal accepted the case of the assessee, ruling that the prima facie adjustment was justified. The key question was whether the disallowance was in line with the provisions of section 143(1)(a) of the Income-tax Act.

Upon careful consideration of the material on record, the court observed that the Assessing Officer disallowed the corporate guarantee obligation as it was considered a recoverable debt from another company of the group. The court highlighted that section 143(1)(a) allows for adjustments based on prima facie considerations, not detailed assessments. The term "prima facie" was explained as meaning "at first sight" or "on the first appearance," indicating that initial impressions guide the decision-making process under this provision. The court emphasized that a debatable issue should not be decided under section 143(1)(a) and that only a prima facie consideration is required based on the available material.

The court referenced previous judgments to support its interpretation, emphasizing that under this provision, debatable issues should not be resolved. Ultimately, the court concluded that a prima facie case was indeed made out by the assessee in this instance. The Tribunal's findings were upheld, noting that the subsequent acceptance of the claim further supported the initial assessment. The court clarified that a prima facie case does not require proof of obligation but rather an initial impression based on available evidence. Therefore, the questions of law were answered against the Revenue and in favor of the assessee.

In conclusion, the court held that the disallowance of the corporate guarantee obligation did not fall within the purview of 'prima facie adjustment' as per section 143(1)(a) of the Income-tax Act. The judgment favored the assessee, emphasizing the importance of initial impressions and prima facie considerations in such assessments.