TMI Blog1993 (6) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 115J, came to Rs. 1,67,85,300. The assessee, therefore, claimed deduction in respect of the unabsorbed investment allowance during this year only to the extent of Rs. 2,38,45,424, leaving the total income at Rs. 1,67,85,300, which was equivalent to 30 per cent of the book profits. In the statement annexed with the said return, the assessee claimed that unabsorbed investment allowance, which could not be absorbed in this year, comes to Rs. 2,65,63,231 (5,04,08,655 minus 2,38,45,424), which was eligible to be carried forward and set off against the income for the next year i.e., assessment year 1991-92. 2.1 The Assessing Officer issued intimation under section 143(1)(a) on 8-12-1991, accepting the declared income at Rs. 1,67,85,300 vide intimation dated 25-10-1991. The Adjustment Explanatory sheet dated 25-10-1991, annexed with the said intimation, clearly showed that such total income was adopted by invoking the provisions of section 115J of the Income-tax Act and no prima facie adjustment under section 143(1)(a) was made. 3. For the assessment year 1991-92, the assessee submitted a return of income on 30-12-1991, declaring an income of Rs. 4,14,45,282. The Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance for assessment year 1990-91 and of the prior years, eligible to be carried forward and set off against income for assessment year 1991-92, was determined at Rs. 27,09,306 as against Rs. 2,65,63,231 declared by the assessee in the return of income, in relation to which no prima facie adjustment was made in the original intimation dated 25-10-1991. 5. In the order under section 154 for assessment year 1991-92, the benefit in respect of carry forward and set off of unabsorbed investment allowance for assessment year 1990-91 and earlier years was taken as per order under section 154 of even date passed for assessment year 1990-91 at Rs. 27,09,306 as against the claim made in the original return at Rs. 2,65,63,231 based on the return for preceding assessment year 1990-91. In the original intimation for assessment year 1991-92 this disallowance was not made and such variations/prima facie adjustments have been made by passing the order under section 154 on 21st September, 1992. 6. The CIT (Appeals) confirmed the view taken by the Assessing Officer and upheld the orders under section 154 passed by the Assessing Officer for both these years. 7. Before us, the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claiming obviously incorrect deduction and taking a chance that if the same are detected by the department, they would have to pay the correct tax only. He pointed out that this provision was introduced with a view to levy additional tax on such unscrupulous tax payers. In the present case a perusal of the statements annexed with the return of income clearly shows that the assessee gave complete details in relation to unabsorbed investment allowance pertaining to assessment years 1982-83 to 1990-91. It was also clearly pointed out in the return that the income declared at Rs. 1,67,85,300 is adopted in view of section 115J at 30 per cent of the book profit. The assessee further clearly stated that the unabsorbed investment allowance is accordingly absorbed only to the extent of available income, which will leave the total income at 30 per cent of the book profit. Thus there was no attempt to conceal any fact in the return of income. 7.3. He invited our attention towards Instruction No. 1814 dated 4th April, 1989 in which certain clarifications regarding adjustments permissible under the proviso to section 143(1)(a) have been given. The said circular, inter alia, clarifies that for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to in section 115J(2) is in fact allowed in the computation of the total income of the assessee, since the total income chargeable to tax has been arrived at on the basis of section 115J(1). Section 115J(1) does not contemplate that such allowances shall be deemed to have been made and only the balance has to be carried forward. 7.5. The other possible view is that since no allowance of the amount has been made in computing the total income based on book profits under section 115J(1), the amount of allowances in their entirety should be carried forward to the subsequent year or years. The learned counsel submitted that this is one view which is extremely favourable to the assessee. 7.6. The third view is just a balanced view which has been adopted by the assessee while submitting its return of income and which is also supported by the opinion of the eminent jurist Shri Palkhiwala, which is as under : " In the first instance the total income of the relevant year is arrived at after charging only the current year depreciation. After arriving at the said figure, it must be verified in a separate exercise, whether the taxable income after deductions referred to in sub-section (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . and S. A. v. Dy. CIT [1993] 200 ITR 739 (Bom.) to corroborate his contention that the prima facie adjustments which can be made under the proviso to section 143(1)(a) can be made only in respect of apparent mistakes which are discovered in the return or in the accounts or documents annexed with the return. Nothing else can be validly referred at the stage of making the prima facie adjustments. Such prima facie adjustment can be made only in respect of obvious and apparent mistakes. 7.8. He further submitted that the reliance placed by the CIT (Appeals) on the decision of the Tribunal in V. V. Trans-Investments (P.) Ltd. v. ITO [1992] 42 ITD 242 (Hyd.) will not help the revenue as the said decision has been over-ruled by the Special Bench in a subsequent decision in the case of Surana Steels (P.) Ltd. v. Dy. CIT [1993] 201 ITR 1 (Hyd.)(SB)(AT). 7.9. The learned counsel was fair enough to further state that there is a decision of one of the Benches of the Tribunal directly against the view adopted by the assessee and the view of the department is supported by that decision in relation to interpretation of carry forward of unabsorbed deductions in a case where section 115J has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 154 for assessment years 1986-87 and 1987-88 and the assessee claimed the unabsorbed investment allowance at the same figure as shown in the chart submitted along with the return for assessment year 1990-91 without taking into consideration the said subsequent orders under section 154 for assessment years 1986-87 and 1987-88. But this factor cannot be taken into consideration for making a prima facie adjustment of the said sum of Rs. 54,67,510. In the said circular one of the instances given in para 6 is that if interest on cash credits added as unexplained cash credits in earlier years is claimed as a deduction in the subsequent year, such amount of interest cannot be added by way of prima facie adjustment under section 143(1)(a). He stated that such illustration given in the said instruction clearly supports the assessee's contention in relation to this item also. He once again relied on the decisions in Bank of America N. T. and S. A's case and 45 ITR 302 (sic). He submitted that the scope of proviso to section 143(1)(a) authorising the Assessing Officer to make the prima facie adjustments is very narrow and such adjustments can be made only on the basis of information in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inadmissible. The provisions of section 115J(2) read with section 72(1) lead to only one conclusion that in cases where the provisions of section 115J has been applied in a particular year, that would not in any way affect the determination of the amount in relation to the relevant previous year to be carried forward to the subsequent year or years. This necessarily implies that taxable income will have to be computed in accordance with the relevant provisions of law in the normal course for the purpose of ascertaining the amount of unabsorbed losses and unabsorbed deductions like investment allowance etc. The unabsorbed losses and deductions of past years would go to reduce the relevant accounting year's profits to nil and only the balance of the unabsorbed losses, investment allowance and depreciation would be carried forward to subsequent years. The order passed by the Assessing Officer under section 154 is based on this clear interpretation of the relevant provisions. The interpretation so adopted by the Assessing Officer is in conformity with the Circular No. 495, dated 22nd September, 1987 issued by the CBDT to explain the intention and substance of the various provisions i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position that the return for assessment year 1991-92 was furnished on 30th December, 1991 i.e., much after the orders under section 154 passed for assessment years 1986-87 and 1987-88 on 27th March, 1991 in which the unabsorbed investment allowance of assessment year 1982-83 aggregating to Rs. 54,67,510 had already been granted. Claiming the deduction in respect of unabsorbed investment allowance of assessment year 1982-83, which had already been so allowed prior to furnishing of the return for assessment year 1991-92 is an apparent mistake in claiming such carry forward and such a mistake is obviously an apparent mistake which could be rectified while preparing the original intimation. If through inadvertence that was not done at the time of preparing the original intimation, the same could be rectified by passing an order under section 154, as has been validly done in the present case. The assessee's contention that the Assessing Officer cannot look to the past record or any other document for making prima facie adjustments under the proviso to section 143(1)(a) is wholly incorrect. In case the Assessing Officer is not entitled to look to the past record, he would never be able t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. We have also carefully examined the relevant provisions of law, the contents of various circulars /instructions issued by the Board as well as the principles of law laid down in the various judgments relied upon by the learned representatives of the parties before us. 9. 1. A plain reading of the relevant provisions contained in section 143(1)(a) clearly leads to an inevitable conclusion that prima facie adjustments can be made by the Assessing Officer at the time of preparing intimation under section 143(1)(a) only in respect of obvious and patent mistakes. Clause (i) of the proviso to section 143(1)(a) permits adjustments relating to the rectification of any arithmetical errors in the return, accounts or documents accompanying the return. Such arithmetical errors can be rectified under clause (i). Clauses (ii) (iii) of the said proviso relate to any error in either not claiming any loss carried forward, deduction or relief which on the face of it is admissible or relates to an error in claiming any loss carried forward, deduction, allowance or relief which, on the face of it, is not admissible. It is, therefore, clear that the error in either case in relation to such car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ward of unabsorbed depreciation, unabsorbed investment allowance, or business loss to the extent not set off because of invoking of section 115J(1). In the illustration given in the said circular the working of eligible carry forward in respect of unabsorbed business loss, unabsorbed depreciation etc. has been given. According to this circular, the amount of carry forward of unabsorbed investment allowance, depreciation and losses actually set off against the total income of the previous year to reduce the total income to nil will be lost to the extent of deemed income under section 115J. This view is the one which has been adopted by the ITO. 9.3. The other view is that profits of the relevant accounting year before setting off the carry forward loss and depreciation are to be determined as per the provisions of the Act. From the profits so computed, only that portion of the unabsorbed loss and depreciation should be deducted as would be sufficient to reduce the profits to a figure equivalent to 1/3rd of the book profits. This is the view which has been adopted by the assessee while furnishing the returns of income for assessment years 1990-91 and 1991-92. Such a view is also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 80J. " On the basis of the above provisions, one view which can be taken is that which has been adopted by the Assessing Officer based on the Board's Circular No. 495, dated 22nd September, 1987. The other view is that which has been adopted by the assessee in the returns of income. Let us examine the real effect of these two different interpretations of section 115J by reproducing the exact figures of unabsorbed investment allowance claimed by the assessee and the one which has been allowed by the ITO in the orders under section 154 passed for revising the intimation : Total income as computed as per provisions of Income-tax Act, 1961 after set off of current depreciation unabsorbed depreciation in the return of income Rs. 4,06,30,724 Income under section 115J being 30 per cent of book profit of Rs. 5,59,51,000 Rs. 1,67,85,300 ----------------- Past unabsorbed investment allowance can be set off only to the extent the total income is equal to 30 per cent of book profits Rs. 2,38,45,424 ------------------ Details of investment allowance absorbed during the year : Asstt. years Amount Absorbed Balance 82-83 6509621 6509621 0 83-84 43554 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at we are not expressing any opinion that the view adopted by the assessee is correct but we are of the considered opinion that the provisions of section 115J(1) (2) so far as it relates to the quantum eligible to be carried forward out of unabsorbed loss, unabsorbed investment allowance and depreciation, are surely capable of more than one interpretation. If the view taken by the Assessing Officer is considered, it would mean that the amount of carry forward of unabsorbed investment allowance to the extent of 30 per cent of book profits i.e., Rs. 1,67,85,300 would be completely lost and to that extent the assessee would not be entitled to carry forward that amount once the income has been determined at 30 per cent of the book profits according to section 115J in assessment year 1990-91. Such an interpretation is also not free from doubt as the provisions of section 115J(2) does not anywhere specifically provide that benefit of carry forward of past losses to the extent of determination of 30 per cent of book profits as total income will be presumed to have been allowed and no benefit of carry forward in respect of that amount would be allowed. Such a view is also open to debate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in order to ensure the correctness of the claim for carry forward in the return of income, it would be necessary to make a reference to the past assessment records. The carry forward of unabsorbed loss, unabsorbed investment allowance and unabsorbed depreciation is allowable under the provisions of law only in respect of the assessed amount of such losses and unabsorbed deductions. If the contention of the learned counsel for the assessee is accepted it may lead to absurd results. For instance, if the assessee claims in a return of income that he is entitled to deduction in respect of carry forward of Rs. 50 lakhs representing unabsorbed loss of earlier years out of the current year's income of Rs. 60 lakhs, and he declares an income of Rs. 10 lakhs on the basis of such a claim. If on perusal of the assessment records of the earlier years it is discovered that in the preceding year there was no claim for carry forward of losses or no such losses were assessed or accepted in earlier years, it does not stand to reason that the Assessing Officer in such a case will not be entitled to look to the past records of the assessee for ascertaining the correctness of the claim for grant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions was disallowed in view of judgment of the Hon'ble Supreme Court in the case of Arvind Mills Ltd. The said judgment was delivered by the Hon'ble Supreme Court on 10th December, 1991 but that has been reported in the law journals such as in ITR in the year 1992. At the time when the return of income was furnished for assessment year 1991-92 on 30-12-1991, the assessee's claim was in consonance with the judgment of the Hon'ble Gujarat High Court in the case of Arvind Mills Ltd. which has subsequently been reversed by the above mentioned judgment of Hon'ble Supreme Court. The claim made by the assessee in the return of income cannot, therefore, be treated as a patent, obvious or apparent mistake at the time of filing of the return. The addition in respect of that item could not, therefore, be made by way of prima facie adjustment contemplated in the proviso to section 143(1)(a). This addition is also, therefore, directed to be cancelled. 10. The ITO is directed to modify the orders under section 154 for assessment years 1990-91 and 1991-92 in the light of the directions given herein before. 11. In the result, both the appeals are partly allowed - - TaxTMI - TMITax - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
