Income-tax---

----Assessment---Intimation on basis of return ---Assessee declaring loss in return---Loss reduced after adjustment---Additional income-tax on difference---Can be imposed---Indian Income Tax Act, 1961, S.143(1)(a), (IA) [as retrospectively amended in 1993)---[J.K. Synthetics Ltd. v. Assistant CIT (19931200 ITR 584 reversed).

The assessee had returned a net loss. After adjustments made under section 143(1)(a) of the Income Tax Act, 1961, the amount of loss stood reduced. The Assessing Officer levied additional tax on the assessee under section 143(1A). On a writ petition challenging the levy of additional tax the High Court held that reduction in loss which did not result in converting the loss returned into profit did not attract additional tax [see (1993) 200 ITR 5841. The Department preferred an appeal to the Supreme Court, and in the meantime the provisions of section 143(1A) were retrospectively amended with effect from the date when the provisions came into force:

Held, reversing the decision of High Court, that the retros pectively substituted subsection (1A) made it clear that even where the loss declared by the assessee had been reduced by reason of adjustments made under subsection (1)(a) the provisions of subsection (1A) applied and the additional tax could be imposed.

CIT v. Hindustan Electro Graphites Ltd. 2000) 243 ITR 48 (SC) distinguished and doubted.

J.K. Synthetics Ltd. V. Assistant CIT (1993) 200 ITR 584 reversed.

The appeals of the 1304rtment from the decision of the Delhi High Court in Modi Cement Ltd. v. Union of India (1992) 193 ITR 91 and decision of the Allahabad High Court in Indo-Gulf Fertilizers and Chemicals Corporation Ltd. v. Union of India (1992) 195 ITR 485 were dismissed because the respective adjustments made in those cases had since been set aside.

S. Ganesh, Pritish Kapur and Ms. Sushma Suri, Advocates for Appellants.

Pratap Venugopal and K.J. John, Advocates for Respondent (in C. A. No. 1636 of 1994).

V.U. Eradi, Ms. Gauri Rasgotra, K.V. Viswanathan and Ms. Suman Jyothi Khaitan, Advocates for Respondent. (in C.A. No.3464 of 1992).

Santosh K. Agrawal, Advocate for Respondent (in C.A., No. 1225 of 1993).

ORDER

Civil Appeal No. 1634 of 1994

This appeal arises from the judgment of a learned Single Judge of the Delhi High Court (see (1993) 200 ITR 584) on a writ petition. The writ petition was made absolute and the Revenue is in appeal.

The writ petitioner assessee had returned a net loss. After adjustments had been made by the taxing authorities under the provision of section 143(1)(a), the amount of loss stood reduced. The taxing authorities under the provisions of section 143(1A) sought to levy

additional tax upon the assessee in this behalf and this was challenged in the writ petition.

Section 143(1)(a) read thus:

"143 (1)(a). Where a return has been made under section 139, or in response to a notice under subsection (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 subsection (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 computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely---

(i) any arithmetical errors in the returns, 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, accounts or documents, is prima facie inadmissible, shall be disallowed:

Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments:

Provided also, that an intimation for any tax or interest due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable."

Subsection (1A), as it originally read, was thus:

"(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of subsection (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,--

(i) further increase the amount of tax payable under subsection (1) by an additional income-tax calculated at the rate of twenty percent. of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub- clause (i) of clause (a) of subsection (1);

(ii) where any refund is due under subsection (1), reduce the amount of such refund by an amount equivalent to the additional income- tax calculated under sub-clause (i)."

Subsection (1A) was amended by the Finance Act, 1993, with effect from April 1, 1989, which was the date upon which sub section (1 A) had been introduced into the Act. The substituted .sub section (IA) read thus:

"(1A)(a) Where as a result of the adjustments made under the first proviso to clause (a) of subsection (1),---

(i) the income declared by any person in the return is increased; or

(ii) 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 subsection (1) by an additional income-tax calculated at the rate of twenty percent. on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of subsection (1);

(B) in a case where the less so declared is reduced under sub clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty percent. of the tax that would have been chargeable on the amount of the adjustment as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of subsection (1);"

(C) where any refund is due under subsection (1), reduce the amount of such refund by an amount equivalent to the additional income- tax calculated under sub-clause (A) or sub-clause (B), as the case may be."

The substituted subsection (IA), therefore, made it clear that even where the loss declared by an assessee had been reduced by reason of adjustments made under subsection (1)(a), the provisions of subsection (IA) would apply. This being a retrospective amendment, it covers the controversy in this appeal and, therefore, the appeal would have to be decided in favour of the Revenue.

Learned counsel for the assessee, however, relied upon the judgment of a Bench of two learned Judges of this Court in CIT v. Hindustan Electro Graphites Ltd. (2000) 243 ITR 48. This was a case in which the return that the assessee had filed was correct by reason of the law as it stood when the return was filed. A retrospective amendment of section 28 of the Act rendered that return incorrect. An adjustment in, the return was made under subsection (1) of section 143 and, therefore, the provisions of subsection (IA) were sought to be invoked. This was challenged and the High Court upheld the challenge, as-did this Court. It took the view that the additional penalty under subsection (IA) bore the imprint of penalty and no penalty could be levied because the return filed by the assessee was correct when it

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 subsection (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 Graphite Ltd.'s case (2000) 243 ITR 48 (SC) principally because the assessee in that case had not challenged the provisions of subsection (IA). The appeal is allowed. The order under appeal is set aside.

There shall be no order as to costs.

C.A. No.3464 of 1992

Learned counsel for the assessee states that the adjustment which was made under section 143(1)(a), on the basis of which the provisions of subsection (1A) were invoked, has since \been set aside. Nothing, therefore, survives in this appeal. The appeal is dismissed. No order as to costs.

C.A.No.1225 of 1993

Learned counsel for the assessee states that the adjustment which was made under section 143(1)(a), on the basis of which the provisions of subsection (1A) were invoked, has since been set aside. Nothing, therefore, survives in this appeal. The appeal is dismissed. No order as to costs.

M.B.A./1075/FCAppeal dismissed.