1991-VIL-120-ITAT-IND

Equivalent Citation: ITD 040, 595,

Income Tax Appellate Tribunal INDORE

Date: 30.12.1991

EICHER MOTORS LIMITED.

Vs

DEPUTY COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : S. K. JAIN., N. S. CHOPRA.

JUDGMENT

Per Shri S.K. Jain, J.M.--Aggrieved by the order dated 18th February, 1991, of the CIT(Appeals) the assessee has come up in appeal.

2. Relevant facts are these. The assessee is a Public Limited Company engaged in the business of manufacturing and sale of light commercial vehicles. It returned a loss of Rs. 17,30,98,382 for the A.Y. 1989-90. The Assessing Officer made assessment under section 143(1)(a) of the Income-tax Act, 1961 (for brevity, the Act), and, thereby adjustments of Rs. 3,22,34,994 were made. Tax on the said amount was computed at Rs. 1,69,23,375 and additional income-tax @ 20 per cent of the tax payable on the adjusted amount was worked out to Rs. 33,84,675. Therefrom the tax deducted at source in the sum of Rs. 3,58,242 was deducted and a demand of Rs. 30,26,433 was made. The details of the adjustments of Rs. 3,22,34,994, as made by the Assessing Officer, are as under :

Rs.

(i) Disallowance under rule 6B in respect of presentation articles carrying the name of the Company 22,050

(ii) Amounts claimed to have been paid towards PF and EPF before filing the return not allowable under section 43B(b) 32,802

(iii) Interest accrued but not paid to the Public Financial Institution under section 43B 3,21,80,142

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Total Rs. 3,22,34,994

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3. The assessee filed an application under section 154 of the Act before the Assessing Officer. According to the Assessing Officer, the assessee had worked out disallowance under rule 6B at Rs. 15,750. He accordingly reduced the adjustment of Rs. 22,050 to Rs. 15,750. Further, the Assessing Officer observed that regarding the disallowance under section 43B of the Act, amounting to Rs. 32,802 in respect of PF, PPF and professional tax the assessee had made payments to the tune of Rs. 29,239 for which proof of payment was filed. He, therefore, reduced the adjustment of Rs. 32,802 to Rs. 29,239.

4. In respect of adjustments of Rs. 3,21,80,142, it was explained by the assessee to the Assessing Officer that the State Bank of India could not be treated as Public Financial Institution and the amount of interest of Rs. 7,77,123 outstanding on the loan therefrom could not be disallowed under section 43B. It was also explained that the interest due to GIC and its associate companies Rs. 4,70,518 and the UTI Rs. 3,69,026 had been paid on the dates much before 31-12-1989. Copies of the letters evidencing payments were enclosed with the application. The Assessing Officer accepted that plea of the assessee and reduced Rs. 16,16,667, and as such, sustained the adjusted amount to Rs. 3,05,63,474.

5. As to the amount of Rs. 3,05,63,474 it was explained by the assessee that the said amount included the amount of interest up to the earlier years at Rs. 16,02,449 and was not claimed as a deduction in the instant assessment year. It was further explained by the assessee to the Assessing Officer that in view of heavy losses incurred by the assessee-company, the latter was in correspondence with the ICICI for converting the interest due up to 31-3-1989 into loan and to re-adjust the instalments of the loan payable. This proposal of the assessee-company was accepted by the ICICI in participation with the IFCI and IDBI vide their letter dated 25-10-1989 as a result of which a further loan of Rs. 282 lac (ICICI 93 lac, IDBI 130 lac and IFCI 59 lac) was sanctioned. The loan agreement contained in the letter dated 25-10-1989 was formerly drawn on 16th July, 1990. To a query made by the Assessing Officer, the ICICI in their letter dated 9th October, 1990 made it clear that since the company had been incurring cash losses it had requested the ICICI during 1988-89 to fund interest fallen due upto March 31, 1989 and to re-schedule the payment of instalments. It is further mentioned that based on the request of the company, the ICICI formulated a relief package for the company involving funding of interest due upto March, 31, 1989 and re-schedulement of instalments. Further, according to the said letter, the ICICI vide its letter dated October 25, 1989 had sanctioned a short-term loan of Rs. 282 lac to the company in participation with the IDBI and IFCI against funding of unpaid interest upto March 31, 1989. The letter also mentioned that the other participating institutions (LIC, GIC and UTI) and Bank (SBI) funded interest for the said period. The rupee term loan in lieu of funded interest carried interest @ 14 per cent per annum and the company was paying interest on those term loans effective from October 25, 1989.

6. These submissions of the assessee-company supported by the evidence, as discussed above, did not satisfy the Assessing Officer as to non-applicability of section 43B of the Act. He, therefore, as stated above, sustained the adjustments of Rs. 3,05,63,474. He reduced the demand only to the extent of the adjustments reduced by him.

7. The assessee went in appeal before the CIT (Appeals). He was of the opinion that funding of interest came into effect from July 16, 1990, when the agreement in respect thereof was actually executed, and, therefore, it could not be said that there was payment of interest before March 31, 1989, He, however, accepted the plea of the assessee that Rs. 16,02,449 relating to interest accrued upto the earlier years was not includible in the income of the assessee for the instant year by virtue of section 43B of the Act. He also accepted the plea of the assessee that the amount of Rs. 3,563 being the amount of Professional tax deducted from the salary of employees could not be an item of disallowance under section 43B. He, thus, gave relief of Rs. 16,06,012.

8. Learned counsel for the assessee and the learned standing counsel for the Department are heard at length. It has always been the concern of the Government to simplify the procedure for assessment of income. For that purpose there has been provision for summary assessment right from the inception of the Income-tax Act, 1922. According to section 23(1) of that Act, if the Assessing Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that a return made under section 22 is correct and complete, he shall assess the total income of the assessee. Same provision was re-produced in section 143(1) of the Income-tax Act, 1961. However, the provision did not serve much purpose since it did not empower the Assessing Officer to make any adjustment to the income or loss declared in the return even for obvious errors. Where the Assessing Officer was not satisfied that the return was correct and complete, he was required to allow an opportunity to the assessee for making such ad justments. Such procedure did not relieve the assessee from making appearance before the Assessing Officer and it was not of much help to the administration to speed up the work of assessment. An amendment was, therefore, made by the Taxation Laws (Amendment) Act, 1970, with effect from April 1971, and the Assessing Officer was empowered to make certain adjustments. Clause (b) was inserted in section 143(1), which reads as under :--

" (b) In making an assessment of the total income or loss of the assessee under clause (a), the Income-tax Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall,--

(i) rectify any arithmetical errors in the return, accounts and documents referred to in clause (a) ;

(ii) allow any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents, is, prima facie, but is not claimed in the return ;

(iii) disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is prima facie, inadmissible."

However, sub-clauses (ii) and (iii) of clause (b) were omitted by the Finance (No. 2) Act, 1980 with effect from 1-4-1980. Following reasons were given in the memorandum explaining the provisions in the Finance (No. 2) Bill, 1980 for omitting the clauses (ii) and (iii) :

" The revised procedure of assessment known as " summary assessment scheme " has been in operation for the last decade. It has been the experience that the objective of making the assessment without requiring the presence of the tax-payer to produce the books of accounts and other evidence in support of the return of income and thereby ensuring expeditious completion of a large number of assessments has not been fully realised. One, of the main reasons for the inadequate success of the scheme is that considerable time is taken in determining whether the requirement of making adjustments to the income or loss declared in the return referred to in items (i) to (iv) specified in para 51 above [item nos. (ii) and (iii) of para 51 are the clauses (ii) and (iii) of section 143(1)(b)] are satisfied and thereby the completion of the assessment is unduly delayed. It has been further found that while there are a number of cases which require rectification of arithmetical errors in the return or the proper adjustment of brought forward allowance or losses, only in a very few cases the deductions admissible to the taxpayer were not claimed or that incorrect deductions or allowances were claimed. It is accordingly proposed to omit the requirement of making adjustment in respect of the deduction, allowance or relief which although admissible is not claimed or having been claimed is, in fact, not admissible. It is, however, proposed to retain the existing provisions requiring rectification of any arithmetical errors in the return and accompanying documents as also the provisions in regard to proper deduction of brought forward losses and allowances." [Emphasis supplied]

9. Further, in order to carry through the scheme of summary assessment successfully it was felt that insistence should be made on filing correct and complete return. Thus, the Finance Act of 1980 on the one hand deleted sub-clauses (ii) and (iii) of section 143(1)(b) and on the other inserted section 139(9) providing that the return would be treated as defective unless the annexures, statements and columns in the return were fully filled in and it was accompanied by the required documents. This procedure continued upto the A.Y. 1988-89. Again section 143 was amended and the said clauses (ii) and (iii) were again introduced by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989. For proper appreciation of the amended section 143, it is reproduced below :--

" 143. Assessment.--(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 an 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 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 return, 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.

(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the fist proviso to clause (a) of sub-section (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 sub-section (1) by an additional income-tax calculated at the rate of twenty per cent 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 sub-section (1) ;

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

(b) Where as a result of an order under section 154 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which additional income-tax is payable, under clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and,--

(i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under section 156 ;

(ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded.

Explanation : For the purposes of this sub-section, " tax payable on such excess amount " means,--

(i) many case where the amount of adjustments made under the first proviso to clause (a) of sub-section (1) exceed the total income, the tax that would have been chargeable had the amount of the adjustments been the total income ;

(ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments."

10. It is thus to be seen that the said clauses (ii) and (iii) which remained part of the Income-tax Act, for long nine years from 1-4-1971 to 31-3-1980, were found of no advantage and instead in order to achieve the prime requirement of filing correct and complete return sub-section (9) of section 139 was introduced. After that experiment again the said sub-clauses have been inserted in section 143 with effect from 1-4-1989 and while exercising power thereunder, as will be noticed presently, the Assessing Officer never cared to invoke section 139(9), which was essentially a requirement for achieving the aim of getting correct and complete return.

11. Now it is necessary to examine the new scheme contained in the amended section 143. For the purpose of summary assessments the adjustments are made without any notice to the assessee. No appeal therefrom perhaps lies. The assessee has only a right of filing an application under section 154 for rectification which, of course, has a very limited scope, namely, that the mistake should be apparent from the record. The result of making the adjustments is that the assessee required to pay an additional income-tax @ 20 per cent of the tax payable on the excess amount by which the total income declared in the return exceeds as a result of the adjustments. This additional income-tax is plain and simple a penalty for not filling correct and complete return. As stated above, there is perhaps no appeal provided against that levy of penalty. And the anomaly is that irrespective of the fact whether the amount of the said adjustment finally stands or not in the assessment under section 143(3), the assessee has to pay the penalty. Thus on one hand there is penalty in the name of additional income-tax on the excess amount found by making adjustments and on the other, such adjustments may not be added to the income of the assessee while framing the assessment on merit. The said clauses (ii) and (iii) of proviso to section 143(1), therefore, must be construed in this light. They are dangerous weapons in the hands of the Assessing Officer and the judicial discretion demands that they should be used sparingly and with utmost caution.

12. The principles of natural justice and the right to be heard may be excluded by the discretionary nature of the power sought to be exercised by the authority concerned. But, such statutory provision places heavy responsibility on the authority executing the same. His decision should be reasonable. The learned counsel for the assessee rightly referred to the following observations of the Hon'ble Mr. Justice Kirpal in the judgment of Modi Cement Ltd. v. Union of India [CW No. 3699 of 1990] :

" Enactment of new provisions in the Income-tax Act instead of reducing more often than not, increases litigation. This is rather because of the ambiguity or lack of clarity in the provision enacted or the manner in which the provision newly enacted is applied. The present case falls in the second category as we shall presently see."

13. Now coming to the clauses (ii) and (iii), we find that both of them are controlled by the word ' prima facie '. In this context the use of the word ' prima facie ' would indicate that there is no possibility of an alternative finding in respect of the adjustments. In other words, the adjustment to be made should be made only when the error in the returned income is apparent on the face of the record. If the allowability or disallowability of any item of claim is debatable, no adjustment in respect thereof can be made.

14. The form of the return of income, no doubt, requires several documents to be attached with the return. But lapse on the part of an assessee in filing any document in support of his claim should not entail any penalty in the shape of additional income-tax. There could be diverse reasons for not filing of necessary documents with the return and one of them may be inadvertence or negligence of the assessee. But for that penalty of 20 per cent of the tax on the amount of adjustments cannot be appreciated. In this view, it is utmost necessary that the Assessing Officer should before making adjustments freely exercise his discretion under section 139(9) and ask for requisite documents to be filed. At this juncture it is pertinent to note that the Assessing Officer himself was required to look into the additional documents filed with the application under section 154 for the purpose of rectification and so also the CIT(Appeals) was required to look into additional evidence for deciding the appeal, when strictly speaking no additional evidence can be permitted to be looked into for the purpose of rectifying mistake apparent from the record. However, no human being on this earth is perfect. Right of amendment in pleadings, and in evidence like admissions and confessions is a recognised right in law. No one should be punished without giving him an opportunity of amending or an opportunity of being heard. In this view of the matter, the adjustments should be made after ensuring that the return of income is complete and after finding that the adjustment is ex facie justified, that is to say, there would not be any other finding than what is reached even if the assessee, is given an opportunity of being heard. No adjustments should be made light heartedly. Otherwise it will give rise to litigation and completely frustrate the intention of law and the purpose to be achieved.

15. Coming to the facts of the instant case we find that the admissibility of the claim of the assessee is very much debatable, inasmuch as that an application under section 154 the Assessing Officer himself gave partial relief to the assessee and on further appeal the CIT(Appeals) also gave some relief to the assessee. The adjustments which have been sustained is still debatable. Much has been argued by the parties for and against. It is not proper to express any opinion at this juncture on the dispute as to whether the amount of Rs. 2,89,61,025 sustained by the CIT(Appeals) as adjustments on account of interest is really deductible under section 43B or not suffice to say that the claim of the assessee does not lack bona fides and ex facie it cannot be included in the adjustment. Similar is the position of other adjustments.

16. We entirely agree with the learned counsel for the assessee that even if all the adjustments initially made by the Assessing Officer are upheld it is not a case of levy of additional income-tax. The case of the assessee falls within clause (i) of Explanation to section 143(1A)(a). The adjustments proposed by the Assessing Officer do not exceed the total income since it is a return of loss for exceeding the adjustments made. In this regard, we are supported by the judgment of the Hon'ble Delhi High Court in the case of Modi Cement Ltd.

17. In view of the above discussion, the action of the Assessing Officer in making adjustments of the items discussed above, is patently erroneous. He has acted in an unjudicious manner. His order has, therefore, been rendered erroneous. All the adjustments made by him are deleted.

18. In the result, the appeal is allowed

 

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