Scope of Sec.143 substituted by Direct Laws(Amendment) Act, 1987. - Income Tax - 1814/1989

INSTRUCTION NO. 1814/1989 Dated: April 4, 1989 Section 143 of the I.T.Act relating to assessments has been substituted with effect from 1st April, 1989 by a new section by the Direct Laws (Amendment) Act, 1987 (hereinafter referred to as the Amendment Act.) 2. Clause (a) of sub-section(1) of the substituted section provides that where a return has been made u/s.142(1) of the Act, and any tax or interest is found due on the basis of the return, an INTIMATION shall be sent to the assessee specifying the sum so payable. Similarly if any refund is due on the basis of the return it shall be granted to the assessee. 3. For the purposes of computing the tax or interest payable by or refundable to the assessee the following adjustments are required to be made, under the proviso to sub clause (a) of sub-sec.(1) of section 143 to the income or loss declared in the return:- i. Any arithmetical error in the return, accounts or documents accompanying it shall be rectified. ii. Any loss carried forward, deduction allowance or relief which on the basis of the information available in such return, accounts or documents is PRIMA FACIE admissible but which is not claimed in the return, shall be allowed. iii. Any loss carried forward deduction, allowance or relief claimed in the return, which on the basis of the information available in such return account or documents is PRIMA FACIE inadmissible, shall be disallowed. This circular seeks to explain the ambit and scope of adjustments required to be made under the aforesaid provision. 4. At the outset it has to be noted that by virtue of para 2 of the Income-tax (Removal of difficulties) order 1989 GSR 376(E) dated 23rd March 1989 made by the Central Government the substituted section 143 shall apply only in relation to the assessment year 1989-90 and subsequent years. Hence, the adjustments which were not permissible under the section as it stood prior to its substituted section, cannot be made in the returns relating to the assessment year 1988-89 and earlier assessment years irrespective of whether such returns are filed before 1st April 1989 or on or after the said date. 5. It is also to be noted that the procedure outlined in clause (a) of sub-section (1) of sec.143 is applicable only in cases where any tax or interest or any refund is found due on the basis of the return after making the adjustments specified in the proviso to the aforesaid clause. Hence in cases where no tax or interest or refund is found due on the basis of the loss declared in the return the case will fall outside the ambit of section 143(1)(a) and the assessing officer should issue a notice u/s.143(2) for determination of the correct loss of the assessee u/s.143(3) of the Act. In cases where action u/s.143(2) of the Act is not taken within the time limit laid down on this behalf the Assessing officer will have to take action u/s.147 of the act. 6. It has also to be noted that for purposes of making the adjustments under the aforesaid proviso, it will not be permissible to refer to the record of past assessments in the case of the assessee. For instance, it will not be permissible for the assessing officer to make an addition to the profits by applying a higher rate of gross profit than that shown in the books, even though in an assessment for an earlier year the profits so estimated may have been confirmed in appeal. Similarly it will not be permissible for the assessing officer to disallow any claim in respect of interest on loans even though the amounts on which interest is claimed to have been paid had been added to the assessees income as unexplained cash credits in the assessment for an earlier year. Again the assessing officer will not be able to make any disallowance in respect of estimated expenses attributable to personal use of motor car, telephone etc. by relying on a similar disallowance for an earlier year which may not have been contested by the assessee or, if contesed has been confirmed in appeal. 7. Of the three types of adjustments permitted under clauses (i) to (iii) of the proviso to the substituted section 143(1)(a) of he Act, the adjustment relating to the rectification of any arithmetical errors in the return account or documents accompanying the return is self-evident and does not require any elaboration. 8. The adjustments required to be made under clause (ii) and clause (iii) of the said proviso hinges on the meaning of the expressions PRIMA FACIE ADMISSIBLE and PRIMA FACIE IN-ADMISSIBLE. The word PRIMA FACIE means ON THE FACE OF IT. Hence an adjustment referred to in clause (ii) of the said proviso relates to any error in not claiming any loss carried forward deduction allowance or relief which on the face of it is admissible and an adjustment referred to in clause(iii) of the proviso relates to an error in claiming any loss carried forward deduction, allowance or relief which on the face of it, is not admissible. In other words the error, in either case, should be patent obvious or apparent. In fact for determining whether there is a prima facie error for purposes of making an adjustment under the aforesaid proviso it will be correct and proper to apply the same test as has been laid down by the Supreme Court for purposes of rectification of mistakes u/s.154 of the act. According to the Supreme court a mistake can be rectified u/s.154 of the Act only if it is an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions vide T.S. Balaram ITO Vs. M/s.Volkart Brothers 80 ITR 50 (SC). 9. In the context of the legal position as outlined above, it follows that it will not be permissible for the Assessing officer to disallow a claim for deduction allowance or relief in cases where the claim is made on the basis of the decision of any High Court, Appellate Tribunal or other appellate authority even though a contrary view in the matter may have been expressed by another High Court or another bench of the Tribunal or any other appellate authority. The fact that the claim is based on a decision which has not been accepted by the board will also not make any difference to this position. 10. An assessee aggrieved by an adjustment under the aforesaid proviso would be entitled to make an application u/s.154 of the Act. Where the assessing officer makes any adjustment which does not fall within the ambit of the proviso the aggrieved assessee will inevitably make an application u/s.154 of the Act. The resultant additional work of making a speaking order u/s.154 could be avoided if the Assessing Officers exercised due care in the matter and strictly confined the scope of the adjustments to patent or obvious mistakes as determined within the parameters laid down by the Supreme Court.