INCOME TAX

Scope of prima facie disallowances under section 143(1)(a) of the Income-tax Act, 1961--Regarding

Circular No. 689

Dated 24/8/1994

To

All Chief Commissioners of Income-tax.

All Directors-General of Income-tax.

Sir,

Section 143(1)(a) authorises, with effect from the assessment year 1989-90, inter alia, disallowance of any loss carried forward, deduction, allowance or relief claimed which, on the basis of information available in the return or the accompanying accounts or documents, is prima facie inadmissible. The earlier instructions of the Board were to the effect that no disallowance should be made of items on which two opinions are possible. The matter has been further considered by the Board in the light of the recommendations of the  (see [1992] 197 ITR (St.) 177)Tax Reforms Committee headed by Prof. Raja J. Chelliah and it has been decided that prima facie disallowances shall be made only in respect of the following types of claims :_

(a) an incorrect claim, if such incorrect claim is apparent from the existence of other information in the return or the accompanying accounts or documents.

Example :

If a deduction has been claimed under the head Capital gains under section 54F, and if there is information in the return of income or the accompanying accounts or documents to show that the unutilised net consideration had not been deposited in an account specified in the notified scheme as stipulated under section 54F(4), the claim is incorrect and can be disallowed as a prima facie adjustment.

(b) any claim in respect of which there is an omission of information which is required, under the specific provisions of the Act or the Rules, to be furnished along with the return to substantiate such claim.

Example :

If the audit report specified under section 80HHC(4), which is required to be filed along with the return of income is not so filed, the deduction claimed under that section can be disallowed as a prima facie adjustment. Some more examples in this regard are the non-filing of audit reports or other evidence along with the return of income as required under sections 12A(b), 33AB(2), 35E(6), 43B (first proviso), 54(2), 54B(2), 54D(2), 54F(4), 54G(2), 80HH(5), 80HHA(4), 80HHB(3), 80HHD(6), 80HHE(4), 80-I(7), 80-IA(8) and the like. But if evidence is subsequently furnished, rectification under section 154 should be carried out to the extent permitted by the Board's Circular No. 669, dated 25-10-1993 (see [1993] 204 ITR (St.) 105). No prima facie disallowance shall, however, be made if any evidence, required to be filed along with the return of income only in pursuance of the non-statutory guidance notes for filling in the return of income, is not so filed.

(c) A claim for deduction or rebate of any amount which exceeds statutory limit imposed, if such limit is expressed either as a specific mandatory amount or as a percentage, ratio or a fraction, and if the information relevant to application of the statutory limits appear in the return or the accompanying accounts or documents.

Example :

(i) If under section 24(1)(i) the deduction in respect of repairs and collection charges is claimed in excess of one-fifth of the annual value (applicable with effect from the assessment year 1993-94), such excess can be disallowed as a prima facie adjustment.

(ii) If the rebate on contribution eligible under section 88 is claimed in excess of 20% of such contribution, the excess can be disallowed, provided there is indication of the total amount of such contribution in the return or the accompanying accounts or documents.

(d) Any claim which is patently inadmissible in law.

Example :

Deductions of items like income-tax, wealth-tax, personal expenses, depreciation claimed on conveyances under the head Salary, depreciation claimed under the head House property and the like. The items of disallowance should be such that no two opinions are possible on their inadmissibility.

3. The Board desires that no other prima facie disallowance should be made except with the previous approval of the Commissioner of Income-tax who will, after according approval in suitable cases, bring the same to the notice of the Board.

4. The above procedure applies to all returns pending processing under section 143(1) on the date of issue of this circular.

Yours faithfully,

(Sd.) G. Muthuramakrishnan,

Director-ITA.II,

Central Board of Direct Taxes.