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TMI Blog2005 (11) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer also charged additional tax under section 143(1A). The assessee filed an application under section 154 which has been rejected by the Assessing Officer. The learned CIT(A) upheld the action of the Assessing Officer. 3. We have considered the matter. The two Gujarat High Court decisions cited by the learned counsel, viz., Vithaldas H. Dhanjibhai Bardanwala v. CIT [1981] 130 ITR 95 and Sarangpur Cotton Mfg. Co. Ltd. v. CIT [1983] 143 ITR 166 laid down the proposition that if the assessee posts debit entries in P&L Account and credit entries in bad debt reserve account, the necessary conditions for write off as contained under section 36(1)(iii) would be treated as complied with. However, Explanation has been inserted below section 36(1)(vii) by the Finance Act, 2001 with effect from 1-4-1989 which provides that any provision for bad and doubtful debt would not qualify as permissible deduction under section 36(1)(vii). In view of the retrospective amendment of the law, the adjustment made by the Assessing Officer is in order. However, insofar as the additional tax charged under section 143(1A) is concerned, the issue is squarely covered by the decision of the Hon'ble Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed in the paper book filed by the learned counsel during the course of hearing before us at pages 5 to 9. Billwise details of purchase and sales enclosed with the aforesaid letter dated 17-11-1992 have also been furnished during the hearing by the assessee in a separate paper book from pages 1 to 104. The assessee explained before the Assessing Officer that the quantity accounts have been maintained for each quality of product dealt in by the assessee and complete books of account like cash book, ledger, purchase book, sales book and stock register have been maintained. In the audit report furnished by the assessee along with the return of income in prescribed Form No. 3CB, as per the provisions of section 44AB of the Act, auditors have stated that the stock register as well as other books of account are maintained by the assessee. The Assessing Officer, however, rejected the books of account on the ground that the figures of purchase and sales given in the monthly summary by the assessee by way of enclosing with its letter dated 17-11-1992, did not tally with the figures reflected in the trading account and further that the quantities of purchases and sales in kg have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel in this connection invited our attention to the details of purchase returned as well as sales returned by the assessee placed at pages 20 to 24 of the paper book. With regard to rejection of books of account the learned counsel pointed out that detailed books of account have been maintained and without pointing out any discrepancy therein, the provisions of section 145 cannot be invoked merely on the ground of decline in GP. According to the learned counsel, the decline in GP has been duly explained before the Assessing Officer, as per assessee's letter dated 17-11-1992 as well before the CIT(A). The learned counsel pleaded that the impugned addition sustained by the CIT(A) may be deleted. 5.3 The learned DR, on the other hand, supported the impugned addition. 5.4 We have considered the rival submissions and gone through the orders of the Revenue authorities below as well as paper books filed by the learned counsel. From the facts on record it is evidently clear that complete quantitative stock details have been maintained by the assessee including stock register. The maintenance of stock registers have been certified by the auditors in the audit report in pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies in the accounts have been pointed out by the Assessing Officer. Mere lowness of GP cannot justify rejection of such books of account. In our opinion, the assessee' has furnished cogent explanation on various points raised by the Revenue authorities including reasonableness of GP as well as the difference in the purchase and sales figures as compared with the trading account furnished by the assessee. We would accordingly delete the impugned addition of Rs. 7,29,378 and allow the ground of appeal. 6. Ground No. 3 is against sustaining the disallowance of secret commission of Rs. 1,19,895. The assessee expressed its inability before the Assessing Officer to furnish the details of payments of secret commission. According to the assessee, since the commissions was paid to the employees of the customers, business expediency demands that such names may not be disclosed. The Assessing Officer disallowed the commission. The disallowance has been sustained by the learned CIT(A) relying upon the decision of the Hon'ble Supreme Court in the case of French Dyes & Chemicals India (P.) Ltd. v. CIT [1993] 201 ITR 253. 6.1 The learned counsel, assailing the impugned disallowance argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion aggregating to Rs. 4,49,041 paid to the following parties: 1. Mahavir Fabrics Rs. 3,00,110 2. General Dye Chem Rs. 48,781 3. General Trading Co. Rs. 50,060 4. Sureshkumar Shermalji Rs. 50,089 During the course of assessment proceedings, the assessee filed details of commission paid to the aforesaid parties including, inter alia, appointment letter of Commission Agent M/s. Mahavir Fabrics (P.) Ltd. Similar appointment letter of Commission Agent Sureshkumar Shermalji Jain along with list of parties to whom goods have been sold through Sureshkumar Shermalji were furnished before the Assessing Officer. These details are placed in the paper book filed by the learned counsel at pages 36 to 66. The assessee explained that the sales commission has been paid through Account Payee Cheques and all the above parties are assessed to income-tax and have duly shown the receipt of commission in their total income. The Assessing Officer allowed the commission payments to two parties, viz., General Dye Chem and General Trading Co. whereas regarding the remaining two parties, the commission has been disallowed by the Assessing Officer mainly on the following grounds: (a) The assessee has ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the commission to two parties, viz., General Dyes Chem and General Trading Co. whereas on identical facts the commission payments made to remaining two parties, viz., Mahavir Fabrics (P.) Ltd. and Sureshkumar Shermalji have been disallowed on arbitrary grounds. The learned counsel further submitted that Mahavir Fabrics (P.) Ltd. as well as Sureshkumar Shermalji are assessed to tax and the commission payments are made through Account Payee Cheques and both the parties have duly shown the commission in their books of account and such commission payments have been assessed to tax by the Revenue authorities. According to the learned counsel, M/s. Mahavir Fabrics (P.) Ltd. is a Private Limited Company and has received brokerage and commission from various parties aggregating to Rs. 7,49,129 as per details placed at page 42 of the paper book filed by the learned counsel. According to the learned counsel, the Assessing Officer has chosen to disallow commission payments in the assessee's case whereas under similar facts such commission payments made to Mahavir Fabrics (P.) Ltd. have been allowed by the Assessing Officer in the case of sister concern, viz., Vyas & Co. The learned counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s. Mahavir Fabrics (P.) Ltd. as well as Sureshkumar Shermalji for necessary verification regarding the receipt of commission from the assessee. The entire issue would be examined afresh by the Assessing Officer and decided on the basis of facts and evidence brought on record and considering the submissions of the assessee in respect thereof. The issue is, therefore, restored back to the file of the Assessing Officer for fresh decision. 8. Ground No. 5 is against sustaining the disallowance of Rs. 50,200 and interest of Rs. 5,992 on account of deposit in the names of children of the partner has not been pressed and is therefore dismissed. 9. Ground No. 6 is regarding the disallowance of printing expenses of Rs. 22,320 treating as capital expenditure by the Assessing Officer. The assessee incurred expenditure of Rs. 22,320 on account of printing and stationery expenses. The expenses have been treated by the Assessing Officer as capital expenditure on the ground that the items purchased are part of Computer. On behalf of the assessee it has been pointed out that the expenses are not part of Computer and have been incurred for printing sales bills of the assessee. The details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter. In our opinion, the disallowance made by the Assessing Officer is excessive. We would sustain the disallowance to the extent of Rs. 5,000 and delete the balance addition of Rs. 15,000. Ground is partly allowed. 14. Ground No. 11 is regarding levy of interest under sections 234A and 234B. The learned counsel submitted that a consequential effect in respect of computation of interest may be allowed. We hold accordingly. The Assessing Officer would recomputed the interest under sections 234A and 234B on the basis of income finally assessed. 15. In the result, both the appeals are partly allowed. Per Shri T.K. Sharma, Judicial Member. - I have perused the order proposed by learned Accountant Member in ITA Nos. 697 & 698/A/1995 for the assessment year 1990-91. However, I could not persuade myself to agree with view taken in ITA No. 698/A/95. Therefore, I am recording my findings separately: 2. In ITA No. 698/A/95, the ld. Accountant Member upheld the action of Assessing Officer regarding prima facie adjustment made in respect of provision for bad and doubtful debt, but following the judgment of Apex Court in the case of CIT v. Hindustan Electro Graphites Ltd. [2000] 243 IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assistance as business income under section 28. On the basis of these facts, the Supreme Court held that when the return was filed, cash assistance was not included in the total income in the absence of any such provision like clause (iiib) and subsequent insertion of the clause (iiib) would not make the assessee liable to additional tax under section 143(1)(a). We are inclined to accept the submission of the ld. DR that this decision dealing with a retrospective insertion of a charging section would not be applicable in the facts of the instant case and the case of the assessee would be governed by the subsequent decision of the Hon'ble Supreme Court rendered by a Full Bench in the case of J.K. Synthetics Ltd. The Supreme Court upheld the adjustment under section 143(1)(a) as well as levy of additional tax under section 143(1A) and held that the fact that Explanation has been inserted subsequently by the Legislature would not in any manner cut down the scope and ambit of the jurisdiction vested with the Assessing Officer under section 143(1)(a). Explanation below section 36(1)(vii) has been made operative w.e.f. 1-4-1989 and would therefore apply with full force for assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cie adjustment in intimation under section 143(1)(a) was correctly made by Assessing Officer. The levy of additional tax under section 143(1A) is also in accordance with the judgment of Apex Court in the case of J.K. Synthetics Ltd. as well as decision of this Tribunal in the case of Mamta Machinery (P.) Ltd. I accordingly hold that ld. CIT(A) is fully justified in upholding the levy of additional tax under section 143(1A) of the Income-tax Act, 1961. 8. In the result, the appeal of the assessee in ITA No. 698/Ahd./95 is dismissed. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is difference of opinion between the Members of the Division Bench, we refer the following points of difference to the President, ITAT for appropriate action as per the provisions of section 255(4) of the Income-tax Act:- "(I) Whether in the facts and circumstances of the case, the Accountant Member is justified in deleting the additional tax levied under section 143(1A) relying upon the Supreme Court decision in the case of CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48 or whether the Judicial Member is justified in upholding the levy of additional tax relying upon the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bona fidely made and there was no question of levy of additional tax on account of prima facie adjustment made in this case. The assessee relied upon certain decisions. 4. The Assessing Officer did not accept claim of the assessee. On further appeal, the learned CIT (Appeals) also upheld the view taken by the Assessing Officer. 5. The assessee thereafter approached the Income-tax Appellate Tribunal. The matter was heard by the Appellate Tribunal but there was a difference between the Members on the relief to be allowed. Learned Accountant Member was of the view that additional tax was of penal nature and, therefore, same could not be levied on the facts of the case. The matter in his view was squarely covered by the decision of Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48. He accordingly held that no additional tax could be charged from the assessee. The same was deleted in the proposed order of the learned Accountant Member. 6. The learned Judicial Member did not agree with the above view. He found that Supreme Court in the case of Asst. CIT v. J.K. Synthetics Ltd. [2001] 251 ITR 200 had reservation as to the correctness of decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to a Bench consisting of three or more Members for which there is provision in the Income-tax Act itself. I am therefore of the view that the Tribunal has no option either to follow the decision of ITAT, C-Bench, Ahmedabad in the case of Mamta Machinery (P.) Ltd or refer the same to larger Bench in accordance with provisions contained in section 255(4) of the Income-tax Act, 1961. 7. In view of the foregoing, I am of the view that prima facie adjustment in intimation under section 143(1)(a) was correctly made by Assessing Officer. The levy of additional tax under section 143(1A) is also in accordance with the judgment of Apex Court in the case of J.K. Synthetics Ltd. as well as decision of this Tribunal in the case of Mamta Machinery (P.) Ltd. I accordingly hold that ld. CIT(A) is fully justified in upholding the levy of additional tax under section 143(1A) of the Income-tax Act, 1961." 7. In the above background, the matter has been referred to me under section 255(4) of the Income-tax Act. The Third Member case was fixed for hearing and I have heard both the parties. The learned counsel for the assessee pointed out that deduction of bad debt was claimed on the basis of dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case was immaterial. Apart from the decision of Supreme Court in the case of J.K. Synthetics Ltd., the learned Departmental Representative relied upon decision of Hon'ble Kerala High Court in the case of CIT v. M.D. Thomas [2004] 267 ITR 761 to support the proposed order of learned Judicial Member. 10. I have given careful thought to the rival submissions of the parties. The provisions of section 143(1)(a) as amended by the Finance Act, 1987 w.e.f. 1-4-1988 reads thus: "143. (1)(a) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,- (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee: Provided that in com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, a regular assessment order had to be passed by the Assessing Officers even where the return was accepted without requiring the presence of the assessee or the production by him of any evidence in support of the return. However, sub-section (1) of the new section, substituted by the Amending Act, 1987, has done away with this requirement and it only provides for proper recovery of tax or interest due from the assessee or issue of refund due to the assessee on the basis of the return. Clause (a) of sub-section (1) of the new section provides that after a return has been filed under section 139 or in response to notice under section 142(1), the following action shall be taken:- (i) if any tax or interest is found due on the basis of the return, after adjustment of the pre-paid taxes, an intimation shall be sent to the assessee specifying the amount so payable and such intimation shall be deemed to be the notice of demand; and (ii) if any refund is due, it shall be granted to the assessee. Thus, if the tax on the basis of the returned income and interest, if any, due under various provisions of the Act (as explained in para 4.16 of these Explanatory Notes) has been correctly paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deterrent effect, the purpose of this levy is also to persuade all the taxpayer's to fill their returns of income carefully to avoid mistakes. It is thus a sort of negligence tax on the assessee and compensates the Department for the effort involved in detecting the obvious mistakes committed by the taxpayers in their returns of income or loss." 13. Sub-section (1A) was amended by the Finance Act, 1993, with retrospective effect from 1-4-1989, which was the date upon which sub-section (1A) had been introduced into the Act. The substituted sub-section (1A) read thus: "(1A)(a) Where as a result of the adjustments made under the first proviso to clause (a) of sub-section (1),- (i) the income declared by any person in the return is increased; or (a) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall,- (A) in a case where the increase in income under sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent on the difference between the tax on the total income so incr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn has been reduced as a result of the aforesaid adjustments or the aforesaid adjustments have the effect of converting that loss into income, the Act provides that the Assessing Officer shall calculate a sum (referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person. 40.3 This amendment takes effect from 1-4-1989 and, accordingly, applies in relation to the assessment year 1989-90 and subsequent years." 15. The validity of levy of additional tax in the context of the provisions as it existed prior to its retrospective amendment by Finance Act, 1993 w.e.f. 1-4-1989, had come for consideration before the Hon'ble Supreme Court. The facts of the case before the Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48 and the decision of the Court is as follows: The assessee filed its return of income for the assessment year 1989-90. The return was filed on 29-12-1989. Under section 28 of the Act, income mentioned therein is chargeable to income-tax under the head 'Profit and gains of business or profession'. Clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. The Assessing Officer on that account levied additional income-tax. No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990, had not so provided even though retrospectively. Assessee could net have suffered additional tax but for the Finance Act, 1990. After he had filed his return of income, which was correct as per law on the date of filing of the return, it was thereafter that the cash compensatory support also came within the sway of section 28. When additional tax has imprint of penalty revenue cannot be heard saying that levy of additional tax is automatic under section 143(1A) of the Act. If additional tax could be levied in such circumstances it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. It shocks the very conscious if in the circumstances section 143(1A) could be invoked to levy the additional tax. Following observations by the Constitution Bench of this Court in Pannalal Binjraj v. Union of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return filed by the assessee was correct when it was filed. This judgment has no application to the facts of the present case for the reason that it is nobody's case that a retrospective amendment has rendered a correct return filed by the assessee incorrect. The question here is only whether a loss which is reduced by reason of the application of the provisions of sub-section (1)(a) falls within the ambit of subsection (1A). We should add that we have reservations about the correctness of the judgment in Hindustan Electro Graphites Ltd.'s case [2000] 243 ITR 48 (SC) principally because the assessee in that case had not challenged the provisions of sub-section (1A). The appeal is allowed. The order under appeal is set aside. There shall be no order as to costs." 17. Both the aforesaid decisions of the Hon'ble Supreme Court carne up for consideration before the Hon'ble Kerala High Court in the case of CIT v. M.D. Thomas [2004] 267 ITR 761. The question for consideration therein was as to: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that additional tax under section 143(1A) was not leviable on the assessee?" Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled and not with reference to events subsequent thereto. Their Lordships, therefore, followed decision of Supreme Court in the case of CIT v. Hindustan Elertro Graphites Ltd. [2000] 243 ITR 48. In respect of decision in the case of J.K. Synthetics Ltd., their Lordships held that the Court has expressed reservation about the judgment in Hindustan Electro Graphites Ltd.'s case only to the extent it pertains to the interpretation of sub-section (1A) of section 143. It is evident from the above case that Hon'ble Delhi High Court did not take that subsequent decision in the case of J.K. Synthetics Ltd. had overruled earlier decision of the Apex Court in the case of Hindustan Electro Graphites Ltd. 19. In the case of Dy. CIT v. Ashok Paper Mills Ltd. [2002] 256 ITR 673, their Lordships of Guwahati High Court considered both the decisions of Hon'ble Supreme Court with reference to application of section 143(1A) of the Income-tax Act. They first noted abovequoted observations of constitutional Bench of Apex Court in the case of Pannalal Binjraj v. Union of India [1957] 31 ITR 565 and further observed as under: "10. It would appear from the aforesaid judgment that the levy of additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the revenue, with reference to the observation in paras 4 and 7 submitted that the Supreme Court has not deprecated the retrospectivity of the amendment made in 1993. The observation in the aforesaid judgment, in our opinion, will have to be read as a whole. What is stated in para 4 is that the controversy of that case was squarely covered because the provisions of the Act were given retrospective effect. This does not mean that the Supreme Court extended support to the retrospective amendment imposing penalty. In the concerned writ petitions the assessee has challenged the provisions of sub-section (1A). Although the learned Single Judge upheld the legislative competence of such a legislation he had not approved of the retrospective operation because of the penal nature ingrained in the process of imposition of additional income-tax. We have no reason to disagree with the reasoned decision of the learned Single Judge. The act or omission for which no additional income-tax was payable as per law in force at a given time cannot be subjected to additional taxation with retrospective effect. We are unable to persuade ourselves to propound a view other than the above known concept s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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