Delhi H.C : Assessing Officer proposes to reject any expenditure in intimation issued under section 143(1)(a) for want of proof/evidence, he should issue notice and call for evidence for deciding question

High Court of Delhi

Indian Drugs & Pharmaceuticals Ltd. VS. Union Of India

Section : 143

Sanjiv Khanna And R.V. Easwar, JJ.

W.P. (C) No. 4007 of 1990

May 14, 2012


Sanjiv Khannaj, J. – Indian Drugs and Pharmaceuticals Ltd. a public sector undertaking has filed the present writ petition for quashing of intimation dated 04.04.1990 under Section 143(1)(a) of the Income Tax Act, 1961 (‘Act’, for short). The petitioner has also prayed for quashing of the consequential orders passed thereafter by the Assessing Officer rejecting the application for rectification in respect of two items (i) unpaid bonus of Rs.1,57,05,083/- and (ii) unpaid taxes of Rs. 1,67,76,886/-. We may record that some other adjustments were also made in the intimation under Section 143(1)(a) but these have been deleted/ withdrawn by the Assessing Officer while passing rectification orders under Section 154 of the Act. These orders are dated 17.07.1990 and 24.09.1990.

2. With regard to unpaid bonus and taxes in the adjustment sheet, the Assessing Officer has mentioned that he relies upon the audit report paragraphs 7(a) and 7(d).

3. In the rectification application dated 22.05.1990, which was filed before the Assessing Officer, it was stated as under: –

“3.1 Provision for Bonus: An amount of Rs.1,59,00,702/- has been provided for bonus for the staff at 8.33 percent in accordance with the provisions of the payment of Bonus Act, 1965. The Auditor’s report in Form 3 CD does not contain any qualification. Annexure No. 7 attached to the said Audit Report gives the breakup of the aforesaid figure location-wise of the various units. Under these circumstances, it is just not understood as to how the amount of Rs.1,57,05,083/- could be disallowed. The section under which the disallowance has been made has not been indicated. The reason for making the disallowance is conspicuous by its total absence.

3.2 Unpaid taxes: An amount of Rs. 1,67,76,886/- has been added back under this heed presumably as per the observations contained in the Auditors Report as per clause (7a) and (7d) thereof.

3.2.1 In particular, the entirety of the sum as mentioned by the Auditors in clause (7d) has been disallowed. The Auditors have nowhere said in their report that the impugned amount was not paid over to the exchequer on such date on which they were due. After the amendment of section 43B of the Act there are two conditions involved in making any disallowance. The first of these is that it must be a sum which falls within the ambit of section 43B of the Act and second condition is that such sum according to the law applicable to that sum, should not have been paid by the due date prescribed under that law. Your goodself has made a most arbitrary disallowance without either considering the legal requirements or the factual position pertaining to the case. The payments relate to sales tax, income tax, professional tax, tax deducted at source, CPF and ESI contributions for which the due dates of payments fall after 31st March. All these are in the nature of statutory payments where delay in payment beyond the prescribed date involves penalties. In other words, payment or these items can, at most, be delayed but cannot be avoided. All these payments would have been made after 31 MAR 89 as per the prescribed dates. If at all there was any difference of opinion between ourselves and the Department then it was incumbent on the Department to point out such items along with the reasons applicable to those items for making disallowance. There cannot be a wholesale disallowance of the type as made by your goodself.

3.2.2 A further amount of Rs.42,42,531/- pertaining to the staff dues must also have been cleared by the respective units as per the dates applicable to such amounts under the Government statutes has been disallowed in toto without even making as much as an enquiry into the aspect of such amount within the time as required under law.

3.2.3 The entirety of the disallowance on both the above counts is totally misconceived and untenable.”

4. The assessee during the course of the rectification proceedings had filed full details for the payments made towards bonus up to the date of filing of the return and also actual payment made along with photocopy of challans towards sales tax, surcharge, ESI, etc. Copy of the said letters have been placed on record by the petitioner. With regard to bonus, it stated that full details of the actual bonus paid were earlier not available as the offices were located at Madras, Gurgaon, Hyderabad and corporate office. These details and proof were filed with the rectification application.

5. The first order passed by the Assessing Officer under Section 154 of the Act dated 17.07.1990 did not specifically deal with the contention of the petitioner-assessee. In the second order passed by the Assessing Officer under Section 154 of the Act dated 24.09.1990 records as under; –

“The various contentions put forth by the assessee company have been carefully considered but it is found that the claims put forward at S. No.1& 2 above cannot be accepted because as per the provisions of sec. 43B the assessee did not enclose with the return the necessary evidence for the payment thereof. The certificates now filed cannot be considered. Thus there is no mistake apparent from record which could be rectified u/s 154. Hence the claim for deduction now made is disallowed.”

6. The aforesaid reasoning cannot withstand legal scrutiny and is contrary to the decision of this Court in S.R.F. Charitable Trust v. Union of India [1992] 193 ITR 95, wherein it has been held as under: –

“In the instant case, it is clause (iii) of the proviso which was sought to be applied by the Income-tax Officer. The said clause clearly provides that the Income-tax Officer can make an adjustment to the income or loss declared in the return if, on the basis of the information available in such return, accounts or documents, the deduction allowance or relief claimed is prima facie inadmissible.

The conclusion that the claim of the assessee is inadmissible must, in other words, flow from the return as filed. No power is given to the Income-tax Officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee. In a way, the said clause (iii) of the proviso is analogous to section 154 of the Act. Where it is evident from the return as filed, along with the documents in support thereof that a claim of the assessee is inadmissible, only then an adjustment under the said proviso can be made. If poof in support of the claim is not furnished by an assessee, then for the lack of proof no disallowance or an adjustment can be made.

The only option which is open to the Income-tax Officer, in such a case, is that he can require the assessee to furnish proof in which case he will presumably have to issue notice under section 143 (2). This is also evident from the fact that, except for the documents specified, the assessee is not required to file the entire hooks of account or other documents along with the return. The proof in support of the claim may be evidenced from correspondence, from the books of account or other documents and it is not the law, as we understand it, that, in support of a claim made in the return for deduction or non-taxability of a receipt, all the proofs available and original documents must be filed along with the return. It is apparent on a reading of the said provision that adjustment can be made only if there is information available in such return that prima facie a claim or allowance is inadmissible. For the aforesaid view which we are taking, support is available from the understanding of the said provision by the Department itself. Learned counsel for the petitioner has drawn our attention to Circular No. 549 reported at (1990) 182 ITR (St.) I, at page 21 issued by the Central Board of Direct Taxes wherein examples have been given of adjustments which can be carried out. The relevant part of the said circular is as under:

“The prima facie adjustments mentioned at (ii) above can be made only on the basis of information available in the return or the accompanying accounts or documents and not on the basis of the past records of the assessee. Some examples of such prima facie admissible or inadmissible in respect of which adjustments can be made to the returned income or loss are:

(i) While computing income under the head ‘Salaries’, standard deduction under section 16(1) is not claimed, or claimed at a figure which is less than or in excess of the permissible limit.

(ii) While computing income under the head Income from house property’, deduction for for repairs or for a new unit under the proviso to section 23(1) is not claimed, or claimed at a figure which is less than or is in excess of the permissible amount.

(iii) While computing income under the head ‘Profits and gains of business or profession depreciation is claimed at rates lower or higher than those provided for in the Income-tax Rules.

(iv) While computing capital gains, deduction of Rs. 10,000 under section 48(2) is not claimed or claimed less or in excess of this amount.

(v) Carried forward speculation loss set off against income from business or profession or against income under any other head.

(vi) Loss under any head, other than under the head ‘Profits and gains of business or profession’, carried forward and set off against the current income.

(vii) Carried forward loss of business set off against income of the current year under other heads.

(viii) Old loss of more than eight assessment years set off against the current business income, if the information is available in the return or the accompanying documents.

(ix) Deduction tinder section 80C in respect of provident fund contributions or life insurance premia or N.S.C. VI or VII Issue not claimed, though the information is available in the documents accompanying the return, or claimed at a figure which is less than or is in excess of the permissible amount.

(x) Deduction under section 80L not claimed or claimed at figure which is less than or is in excess of the permissible amount.

(xi) Deduction under section 80G not claimed, although allowable on the basis of the information available in the return or the accompanying documents or claimed at a figure which is less than or is in excess of the permissible limit.

(xii) Deduction under section 8OM claimed at sixty per cent, of gross dividend income instead of on net dividend income in violation of the provisions of section 8OAA.

It may he mentioned that the above is not an exhaustive but only an illustrative list of prima facie admissibles or in admissibles for which adjustments can be made to the returned income or loss.”

The aforesaid examples contained in the circular clearly show that, for want of proof no disallowance or adjustment can be made. It is only when a disallowance is evident from the facts on record that in adjustment can be made.”

7. It is clear from the aforesaid reasoning that in case the Assessing Officer wanted to reject any expenditure for want of proof/ evidence, he should have issued notice and called for the said evidence for deciding the question. The Assessing Officer could not have made the said addition for want of documents. In the present case, this procedure was not followed and the adjustment were made without notice. The adjustment made are not covered by the scope of Section 143(1)(a) and as per the law expounded in SRF Charitable Trust (supra). We may record that the payments were made by the assessee before the due date of filing of the return and these aspects have not been denied and referred to by the Assessing Officer. In these circumstances, we allow the present writ petition and intimation dated 04.04.1990 making adjustment of Rs.1,57,05,083/- and Rs. 1,67,76,886/- on account of alleged unpaid bonus and taxes is set aside and quashed. The writ petition is allowed to the extent indicated above. There will be no order as to costs.

[Citation : 349 ITR 32]

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