Income-tax---

----Assessment---Intimation under S.143(1-A)---Section 143(1-A)not .applicable where loss was declared by assessee---Indian Income Tax Act, 1961, S.143.

Section 143(1-A)(a) of the Income Tax Act, 1961, will not apply to cases where loss declared by the assessee is merely reduced as a result of adjustment under section 143(1)(a) but does not result in income.

Modi Cement Ltd. v. Union of India (1992) 193 ITR 91 (Delhi) ref.

Vivek Saran for the Commissioner.

Shri Saboo for the Assessee.

JUDGMENT

S.B. SAKRIKAR, J.---At the instance of the applicant/Department, the' Income-tax Appellate Tribunal, Indoor Bench, has drawn up the statement of the case and referred the case on the following questions said to be of law for the opinion of this Court arising out of the order, dated December 30, 1991, passed by the Tribunal in I.T.A. No.823/Ind of 1991 for the assessment year 1989-90:

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the action of the Assessing Officer in making various adjustments under section 143(1)(a) is patently erroneous and thereby deleting these additions made as a result of the adjustment?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that section 143(1-A)(a) will not apply to cases where loss declared by the assessee is merely reduced as a result of adjustment under section 143(1)(a) but does not result in income and thereby cancelling the order levying additional tax?"

The brief facts of the case are that the non-applicant/assessee is a public limited company. The year of assessment involved is 1989-90. In the return of income, the assessee-company declared the income of Rs.2,73,051 being 30 per cent. of Rs. 9,10,173, computed in accordance with section 115-J of the Income Tax Act, 1961 (for short "the Act"). The tax payable was worked out at Rs.1;43,352. Out of that amount of tax, Rs.1,18,090 was claimed as deduction on account of tax deducted at source and the balance including interest payable under sections 234-B and 234-C worked out to Rs.30,590 as tax payable. The tax as calculated above was paid. In the calculation of total income according to sections 28 to 44-D, a loss at Rs.3,77,97,803 was worked out. The Assessing Officer made disallowance of Rs.1,69,87,115 claimed by the assessee on account of cash compensatory support and thus, computed the total income in accordance with section 115-1 at Rs. 53,69,186 being 30 per cent of the total amount of Rs.1,78,79,288. As to the computation of loss in accordance with sections 28 to 44-D in addition of Rs.2,93,767 on account of adjustment under section 143(1)(a) was made. The tax on the adjusted amount of Rs.2,93,767 was worked out at Rs.1,54,250 and 20 per cent. There of being Rs.30,850 was levied as additional income-tax under section 143(1-A) of the Act. This amount of Rs.30,850 was added to Rs.8,18,820 being tax on Rs.53,69,186. To this sum total interest under sections 234-B and 234-C was added and a deduction of Rs.1,28,505 was allowed which included Rs.30,590 paid as self-assessment tax and Rs.97,950 as tax deducted at source. Thus, out of the claim of Rs.1,28,505 an amount of Rs.30,588 was not allowed.

The assessee filed an application under section 154 of the Act for rectification before the Assessing Officer. It was pointed out that the amount of cash compensatory support was, though treated by the assessee as capital receipt, credited to the sale account and, therefore, was already included in the net profit shown in the profit and loss account. The Assessing Officer accepted this stand of the assessee and deleted the addition of the said amount and accepted the returned income at Rs.2,73,051 under section 115-J of the Act being 30 per cent. of Rs.9,10,173. He was, however, of the view that the said amount was required to be added in the computation of income made in accordance with sections 28 to 44-D. The loss declared was, therefore, taken as Rs.5,47,84,918. He further allowed the application of the assessee under section 154 to the extent that he deleted Rs.915 regarding payment to the club. The adjustment of Rs.84,325 on account of professional tax and bonus was reduced by him to Rs.74,894. He also reduced the disallowed amount of Rs.30,588 on account of tax deducted at source by Rs.20,175. He also deleted the addition of Rs.19,151 on account of entry tax. As a result of such order under section 154, the Assessing Officer recomputed the additional tax and the total tax payable by the assessee. Annexure "A" is the copy of the order of the Assessing Officer passed on November 29, 1990. Aggrieved by the order of the Assessing Officer, the assessee went in appeal before the Commissioner of Income-tax (Appeals). The appeal was partly allowed by the Commissioner of Income-tax (Appeals). Annexure "B" is the copy of the order passed by the Commissioner of Income-tax (Appeals) on July 25, 1991. The assessee filed an appeal before the Tribunal against the order of the Commissioner of Income-tax. The Tribunal allowed the appeal and held that the adjustments made were not proper, and section 143(1-A)(a) of the Act did not apply to the cases, where loss declared by the assessee was merely reduced as a result of assessment under section 143(1)(a). Annexure "C" is the copy of the order. Aggrieved by the order of the Tribunal, on an application by the Department under section 256(1) of the Act, the case was referred for the opinion of this Court with regard to the questions as indicated above.

We have heard Shri Vivek Saran, learned counsel for the applicant, and Shri Saboo, learned counsel for the non-applicant.

Shri Vivek Saran, learned counsel for the applicant, contended that the Tribunal has committed an error in deleting all the adjustments considered by the Assessing Officer and the Commissioner of Income-tax (Appeals) under section 143(1)(a) of the Act and also committed error in holding that the case of the assessee falls within clause (i) of the Explanation to section 143(1-A)(a) of the Act.

In oppugnation, Shri Saboo, learned counsel for the non?applicant/assessee, supported the view taken by the Tribunal and stated that no referable questions of law do arise for the opinion of this Court.

The Tribunal allowed the appeal of the assessee placing reliance on the decision of the Delhi High Court, in the case of Modi Cement Ltd. v. Union of India (1992) 193 ITR 91. The Tribunal in paragraph 5 of its order deleted all items which were considered by the Assessing Officer and the Commissioner of Income-tax (Appeals) for the reassessment of the income? tax on the grounds indicated below:

"No assessee can be punished in the name of additional income-tax where there is possibility of an alternative finding in respect of the claims. It was explained by the assessee before the Commissioner of Income-tax (Appeals) that the evidence as to the payment of bonus was contained in voluminous records and, therefore, it was not possible to adduce evidence in respect thereof. Such being the situation the said amount could not be included in the adjustments.

One has to be practical. Any evidence which cannot be produced without much expenses and without inconvenience should not normally be insisted upon to be filed with the return of income. It may be repeated that the principles of natural justice and right to be heard may be excluded by the discretionary nature of the power sought to be exercised by the authority, but such a statutory provision places heavy responsibility on the authority to act in a most reasonable manner. performance of an authority in such a situation should not be arbitrary or capricious."

On the aforesaid reasons, the Tribunal also held that the case of the assessee falls within clause (i) of the Explanation to section 143(1-A)(a) of the Act. Adjustments made by the Assessing Officer do not exceed the total income since it is a return of loss far exceeding the adjustments made. No adjustments and no additional income-tax, therefore, can be levied.

In our considered opinion, the order of the Tribunal is based on proper appreciation of the facts and law applicable to the case on hand. The order of the Tribunal in holding that the action of the Assessing Officer in making various adjustments under section 143(1)(a) of the Act is patently erroneous and the Tribunal was right in holding that section 143(1-A)(a) will not apply to cases where loss declared by the assessee is merely reduced as a result of adjustment under section 143(1)(a) but does not result in income.

Consequently, we answer both the questions referred .to us in the affirmative, in favour of the assessee and against the Department. This miscellaneous civil case is, thus, disposed of but without any orders as to costs. However, counsel fee is fixed at Rs.750, if certified. Transmit a copy of this order to the Tribunal.

M.B.A./2034/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.