COMMISSIONER OF INCOME-TAX VS NAHAR SPINNING MILLS LTD
1999 P T D 3937
[235 I T R 215]
[Punjab and Haryana High Court (India)]
Before N. K. Agrawal and G. C. Garg, jj
COMMISSIONER OF INCOME-TAX
Versus
NAHAR SPINNING MILLS LTD
I. T. C. No.22 of 1997, decided on 05/12/1997.
(a) Income-tax---
----Reference---Assessment---Prima facie adjustment, under S.143(1)(a)-- Interest from short-term deposits shown as business income and deduction under S.80HHC claimed---Assessing Officer whether justified in treating it as income from other sources---Question of law---Indian Income Tax Act,.1961, Ss.80HHC, 143 & 256(2).
(b) Income-tax---
----Reference---Question not raised before Tribunal cannot be referred--- Indian Income Tax Act, 1961, 5.256.
The assessee-company filed its return for the assessment year 1992-93. It had shown in the printed form of the balance-sheet, income of Rs.2,04,27,492 from investment of surplus funds in short-term deposits or Government securities. This was claimed to be business income, and deduction under section 80HHC the Income Tax Act, 1961, was claimed on that basis. The Assessing Officer treated the said income as "income from other sources" and excluded it from business income. Deduction under section 80H HC was restricted to Rs.14,02,93,479. The Assessing Officer passed an order (intimation) under section 143(1)(a) of the Act. The assessee went in appeal before the Commissioner but the appeal was dismissed. The assessee, however, succeeded in its appeal filed before the Tribunal and the claim as made under section 80HHC was allowed. On an application to direct reference:
Held (i) that the question whether an intimation under section 143(1)(a) of the Act could or could not be issued by the Assessing Officer after he had sent a notice to the assessee under section 143(2) was not raised before the Tribunal. This question was not also raised in the application under section 256(2) of the Act. it could not be referred,
(ii) that on, account of the adjustment made by the Assessing Officer demand of Rs.16,09,466 by way of the additional tax was crest-questions, (i) whether, on the facts and m the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that prima facie adjustment made under section 143(1)(a) is not permitted by law, when on the face of the statement of accounts, it was clearly a wrong claim of the assessee, and (ii) whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that income from non-trade investment forms part of profit from business or profession for the purpose of deduction under section 80HHC had to be referred.
Apogee International Ltd. v. Union of India (1996) 220 ITR 248 (Delhi); CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC) and God Granites v. Under Secretary, CBDT (1996) 218 ITR 298 (Kar.) ref.
R.P. Sawhney, Senior Advocate with S. K. Sharma .for the Commissioner.
B. S. Gupta Senior Advocate with Sanjay Barisal for the Assessee.
JUDGMENT
N. K. AGRAWAL, J.--This is an application by the Commissioner of Income-tax under section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), seeking a direction to the Income-tax Appellate Tribunal (for short, "the Tribunal") to refer the following questions of law to this Court for opinion;
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that prima facie adjustment made under section 143(I)(a) is not permitted by law, when on the face of the statement of accounts, it was clearly a wrong claim of the assessee?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate' Tribunal was right in law in holding that income from non-trade investment forms part of profit from business. or profession for the purpose deduction under section 80HHC?"
The assessee-company filed a return of income on December 31, 1992, for the assessment year 1992-93 (accounting year ending on March 31, 1992) declaring income of Rs.4,55,80,302. A revised return was filed thereafter, declaring income at Rs.5,67,65,120. The Assessing Officer, while processing the return under section 143(1)(a) of the Act, found that the assessee had claimed deduction under section 80HHC of the, Act at Rs.15,58,37,625 in the revised return as against Rs.16,70,22,438 in the original return. The Assessing Officer also noticed that the assessee-company had claimed excessive deduction under section 80HHC by including a sum of Rs.2,04,27,492 as business income whereas it was income from non-trade investments: The Assessing Officer treated the said income as "income from other sources" and excluded it from the business income. Deduction under section 80HHC was restricted to Rs.14,02,93,479. The Assessing Officer passed an order (intimation) under section 143(1)(a) of the Act on January 11, 1994.
The assessee moved an application under section 154 of the Act seeking rectification but that was rejected. The assessee went in appeal before the Commissioner but the appeal was dismissed. The assessee, however, succeeded in its appeal filed before, the Tribunal and the claim as made under section 80HHC was allowed.
Sri R. P. Sawhney, learned senior counsel for the Department, has argued that income from trade investments could not be treated to be profit from business for purposes of deduction under section 80HHC.. He has justified the action of the Assessing Officer in making prima facie adjustments. Shri Sawhney has contended that intimation under section 143(1)(a) was not invalid or bad in law and the Assessing Officer was not precluded from processing the return. It has been explained by Shri Sawhney that the assessee had shown in the balance-sheet certain income (from non-trade investments) under the head "Other income". He has argued that this is an area which is not free from controversy or doubt and, therefore, the question of law should be sought from the Tribunal for the purpose of giving opinion. The question to be decided is as to what is the scope and ambit-of adjustment to be made under section 143(1)(a) of the Act.
Shri B. S. Gupta, learned senior counsel for the assessee, has opposed this application with the plea that the action of the Assessing Officer was not in the nature of prima facie adjustment and, therefore, the Tribunal rightly accepted the assessee's appeal and cancelled the intimation issued by the Assessing Officer under section 143(1)(a) of the Act. Shri Gupta has also argued that a return could not be processed under section 143(1)(a) after a notice under section 143(2) had been issued to the assessee. Reliance has been placed by Shri Gupta on a decision of the Karnataka High Court in God Granites v. Under Secretary, CBDT (1996) 218 ITR 298 and on a decision of the Delhi High Court in Apogee International Ltd. v. Union of India (1996) 220 ITR 248.
From the facts as emerging from the rival contentions, it appears that a notice under section 143(2) of the Act was issued by the Assessing Officer on December 17, 1993, posting the case for hearing for December 27, 1993. Intimation under section 143(1)(a) was issued by the Assessing Officer on January 11, 1994. The question, therefore, arises as to whether an intimation under section 143(1)(a) could at all be issued after the Assessing Officer decided to issue a. notice under section 143(2) of the Act. The controversy before the Delhi High Court in Apogee International Ltd. v. Union of India (1996) 220 ITR 248, was, however, different. There the question had come for examination before the Court about a notice issued under section 143(2) after the intimation had been sent to the assessee under section 143(1)(a) of the Act. Therefore, the question arising from the Tribunal's order in the present case before us does require consideration.
Shri B. S. Gupta, learned senior counsel for the assessee, has also argued that one of the reasons for quashing the intimation under section 143(t)(a), before the Tribunal, was that the Assessing Officer had no jurisdiction to make any adjustment and issue intimation after he had already issued a notice to the assessee under section 143(2) of the Act. The Department has not sought a question of law on that finding. Therefore, the question arising from the order of the Tribunal on that aspect of the subject has neither been sought for reference nor can be examined by this Court. Shri Sawhney at that point requested for refraining of the question, which was vehemently opposed by Shri Gupta. Shri Sawhney has argued that in the light of the decision of the Supreme Court in CIT v.. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589, the question may be properly framed so as to cover the issue arising from the order of the Tribunal. Shri Sawhney has stated that the real controversy should be settled by this Court and the question should be properly framed.
We have considered the rival contentions and we are of the view that the question whether an intimation under 143(1)(a) of the Act could or could, not be issued by the Assessing Officer after he had sent a notice to the assessee under section 143(2) of the Act was neither raised before the Tribunal under section 256(1) nor has been sough before this Court under section 256(2) of the Act. However, the Department cannot be debarred from seeking the other questions, which appear to arise from the Tribunal's order.
Shri B. S. Gupta has further argued that the question sought to be referred do not actually arise from the Tribunal's order inasmuch as the Tribunal did not give any finding on the controversy whether prima facie adjustment was permissible or not. We have perused the order of the Tribunal and we find that the question, whether prima facie adjustment could or could not be made, has been examined by the Tribunal and thereafter, it has been held that the Assessing Officer was not justified in reducing the assessee's claim under section 80HHC of the Act thereby charging additional tax of Rs.16,09,466. Thus, the controversy was examined by the Tribunal and it cannot be said that the questions sought to be referred now do nor arise from the Tribunal's order.
Income from non-trade investment was treated by the Assessing Officer as income from business and in that view of the matter, the Assessing Officer proceeded to make prima facie adjustment. It is correct that, on account of the adjustment made by the Assessing Officer, a demand of Rs.16,09,466 by way of additional tax under section 143(1A) was created. The question which needs consideration is whether the Assessing Officer exceeded his jurisdiction while making prima facie adjustment to the disclosed income of the assessee. It appears that the assessee has shown in the printed form of the balance-sheet income of Rs.2,04,27,492 from investment of surplus funds in short-term deposits or Government securities. Presentation of income in the balance-sheet in such manner was explained by the assessee on account of the requirement under the Companies Act. Such presentation could or could not make any difference while making prima facie adjustment is a matter to be considered and answered. The plea of the assessee was that the real nature of the income was to be seen and since it was an income from business, there was no justification to treat that income otherwise and then to make adjustment under section 143(1)(a) of the Act.
Looking to the nature of the controversy, it appears necessary to examine the questions sought to be referred. Therefore, the Tribunal is directed to draw up a statement of the case and to refer the questions to this Court for opinion asset out in paragraph I above.
M.B.A/4233/FC Order accordingly.