1991 (12) TMI 111 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance under Rule 6B for presentation articles.
2. Disallowance under Section 43B(b) for PF and EPF payments.
3. Disallowance under Section 43B for interest accrued but not paid to Public Financial Institution.
4. Application of Section 154 for rectification of adjustments.
5. Applicability of Section 43B to interest converted into loans.
6. Levy of additional income-tax under Section 143(1A).

Issue-wise Analysis:

1. Disallowance under Rule 6B for presentation articles:

The Assessing Officer initially disallowed Rs. 22,050 under Rule 6B for presentation articles carrying the company's name. Upon the assessee's application under Section 154, the disallowance was reduced to Rs. 15,750, acknowledging the error in the initial computation.

2. Disallowance under Section 43B(b) for PF and EPF payments:

The Assessing Officer disallowed Rs. 32,802 for PF and EPF payments not made before filing the return. The assessee provided proof of payment amounting to Rs. 29,239, leading to a reduced disallowance of Rs. 29,239.

3. Disallowance under Section 43B for interest accrued but not paid to Public Financial Institution:

The largest adjustment was Rs. 3,21,80,142 for interest accrued but not paid. The assessee contended that the State Bank of India (SBI) is not a Public Financial Institution, and provided evidence of payments to GIC, UTI, and other institutions. The Assessing Officer accepted part of this argument, reducing the adjustment to Rs. 3,05,63,474.

4. Application of Section 154 for rectification of adjustments:

The assessee's application under Section 154 led to partial relief, with reductions in disallowances for presentation articles and PF/EPF payments. However, the major adjustment for interest accrued but not paid remained largely intact.

5. Applicability of Section 43B to interest converted into loans:

The assessee argued that the interest accrued up to March 31, 1989, was converted into a loan by ICICI, IDBI, and IFCI, and thus should not be disallowed under Section 43B. The CIT (Appeals) partially accepted this argument, excluding Rs. 16,02,449 from the disallowance. However, the CIT (Appeals) held that the funding of interest took effect only from July 16, 1990, and thus could not be considered as paid before March 31, 1989.

6. Levy of additional income-tax under Section 143(1A):

The Tribunal discussed the legislative history and judicial interpretations of Section 143(1) and 143(1A). It emphasized that adjustments under these sections should be made with caution and only when there is no possibility of an alternative finding. The Tribunal found that the adjustments made by the Assessing Officer were debatable and not ex facie justified. Consequently, the Tribunal held that the levy of additional income-tax was not warranted, as the adjustments did not exceed the total income declared in the return.

Conclusion:

The Tribunal found the Assessing Officer's adjustments to be erroneous and unjudicious. It emphasized the need for caution and adherence to principles of natural justice in making adjustments under Section 143(1). The Tribunal deleted all the adjustments made by the Assessing Officer and allowed the assessee's appeal in full.