High Court Of Kerala
Steel And Industrial Forgings Ltd. vs. DCIT
Section 143(1A)
Asst. Year 1991-92
G. Sivarajan & J.M. James, JJ.
IT Appeal No. 56 of 2001
11th April, 2003
Counsel Appeared
K. Vinod Chandran, for the Appellant : P.K.R. Menon & George K. George, for the Respondent
JUDGMENT
G. Sivarajan, J. :
The matter arises under the IT Act, 1961 (for short ‘the Act’). M/s Steel and Industrial Forgings Ltd., Athani, a Government of Kerala undertaking carrying on the business of manufacture and sale of forgings is the appellant. It is aggrieved by the order of the Income-tax Appellate Tribunal, Cochin Bench (for short ‘the Tribunal’) in ITA No. 75/Coch/1993. The assessment year is 1991-92, the relevant accounting period ended 31st March 1991.
For the asst. yr. 1991-92 the assessee filed a return on 27th Dec., 1991, disclosing a total income/loss of Rs. 2,74,33,870. The AO processed the same under s. 143(1)(a) of the Act and sent an intimation dt. 17th Jan., 1992 (Annexure A). In the said intimation the AO had made a prima facie adjustment and brought down the loss to Rs. 2,48,40,672. The AO also levied additional tax of Rs. 2,38,574 under s. 143(1A) of the Act. The details of the adjustment are given in the explanatory sheet. The enclosed statement shows that the assessee had claimed depreciation on block assets of Rs. 1,35,95,225 whereas the admissible deduction was only 75 per cent of the normal depreciation of Rs. 1,10,02,023 for the year 1991-92. Thus, the excess claim of depreciation came to Rs. 25,93,202. It is in view of the above that additional tax is levied under s. 143(1A). The fact that by virtue of the amendment made to the provisions regarding depreciation the assessee is entitled to get a deduction of only 75 per cent of the normal depreciation for the year 1991-92 is not in dispute. The assessee had claimed normal depreciation without noticing the amendment in the return is also not in dispute.
Being aggrieved by the levy of additional tax under s. 143(1A) the appellant filed an application dt. 20th Feb., 1992, under s. 154 of the Act for rectification of the intimation (Annexure C) in the light of the decision of the Delhi High Court in Modi Cement Ltd. vs. Union of India & Ors. (1991) 100 CTR (Del) 48 : (1992) 193 ITR 91 (Del). Since the said application was rejected, the appellant filed appeal before the CIT(A), Calicut. The appellate authority cancelled the levy of additional tax made under s. 143(1A) by his order dt. 30th Oct., 1992 (Annexure D). The Department filed appeal before the Tribunal. The appellant also filed cross-objection. The Tribunal following the decisions of this Court in Kerala State Coir Corpn. Ltd. vs. Union of India & Ors. (1994) 121 CTR (Ker) 245 : (1994) 210 ITR 121 (Ker) and in Aluminium Industries Ltd. vs. Dy. CIT & Anr. (1997) 141 CTR (Ker) 29 : (1998) 234 ITR 165 (Ker) which held that the provision for levy of additional income-tax even where the net result of the prima facie adjustment is a loss is intended to prevent evasion of tax and levy of additional tax does not violate the Constitution, set aside the order of the first appellate authority and restored the order of the AO levying additional income-tax. It is against this order of the Tribunal the appellant has filed this appeal. This Court while admitting the appeal which ordered notice on the following questions of law :
“1. Whether, on the facts and circumstances of the case, additional tax under s. 143(1A) was leviable especially since the levy has been made with respect to redetermination of depreciation governed by the provisions of s. 32(2) of the Act?”
2. Whether additional tax under s. 143(1A) was attracted having regard to the retrospective amendment to s. 143(1A) of the Act ?”
6. Sri, Sarangan, learned senior counsel along with Sri. Vinod Chandran appearing for the appellant, submits that the decisions rendered by this Court in Kerala State Coir Corporation Ltd.’s case and in Aluminium Industries’ case supra are cases of loss returns where even after the prima facie adjustments made under s. 143(1)(a) was a loss and this Court was concerned with the validity of the amended provisions of s. 143(1A) made by the Finance Act, 1993, with retrospective effect from 1st April, 1989. The senior counsel submitted that it is in the above context this Court held that the provisions for levy of additional tax even where the net result is a loss after carrying out adjustment is intended to prevent evasion of tax and the amendment of s. 143(1A) levying additional tax with retrospective effect from 1st April, 1989, does not violate Arts. 14 and 265 of the Constitution. The senior counsel, however, submits that those two decisions have no application to the facts of the present case where the levy of additional tax under s. 143(1A) was not on account of any reduction in the loss as a result of the prima facie adjustment made under s. 143(1)(a) of the Act. The senior counsel submitted that, as already observed by this Court in the above-mentioned two cases, s. 143(1A) was inserted only to prevent evasion of tax and, therefore, the additional tax under the said section can be levied only where as a result of the prima facie adjustment the tax liability has been increased. The senior counsel submits that under the scheme of the Act loss and depreciation are dealt with separately and they are mutually exclusive. The senior counsel, in support of the above contention, has referred to the provisions of ss. 32(2), 32A (3), 72, 79 and s. 80 and submitted that all through depreciation and loss are dealt with separately. The senior counsel also submitted that s. 143(1A) is not attracted to a case where the prima facie adjustment is made in respect of depreciation claimed. The senior counsel submitted that in view of the provisions of s. 32(2) of the Act depreciation does not go to enhance the loss because unless there is business income there is no question of adjusting the depreciation in the computation of total income. The senior counsel also relied on a decision of the Karnataka High Court in Brahmavar Chemicals (P) Ltd. vs. CIT & Anr. (1999) 153 CTR (Kar) 617 : (1999) 239 ITR 867 (Kar).
Sri P.K.R. Menon, learned senior Central Government standing counsel for taxes appearing for the respondent, on the other hand, submitted that income will take in both positive as well as negative figure or, in other words, income includes loss. He in support of the above relied on the decision of the Supreme Court in CIT vs. Harprasad & Co. (P) Ltd. 1975 CTR (SC) 65 : (1975) 99 ITR 118 (SC). He had further relied on the decision in CIT vs. Maharajadhiraja Kameshwar Singh of Darbhanga (1933) 1 ITR 94 (PC) and submitted that the return filed by the assessee has to be accepted subject to prima facie adjustments to be made by the AO. The senior standing counsel further relied on the two decisions of this Court mentioned earlier and submitted that the question is covered by the said decisions and also by the decision of the Supreme Court in Asstt. CIT vs. J.K. Synthetics Ltd. (2001) 166 CTR (SC) 498 : (2001) 251 ITR 200 (SC).
We have considered the rival submissions. The intimation under s. 143(1)(a) Annexure A shows that the appellant had filed the return as a loss return. It further shows that the adjustment is made only in respect of the depreciation claimed. By virtue of the amendment made to s. 32, for the asst. yr. 1991-92 the appellant was entitled to claim deduction of only 75 per cent of the normal depreciation and the appellant without considering the amendment claimed full depreciation in the return. Thus, the AO was entitled to make prima facie adjustment by bringing down the claim to 75 per cent of the amount claimed in the return. As such there is no illegality in the adjustment.
The contention of the appellant is that s. 143(1A) is not attracted in this case and to that extent the intimation demanding additional tax is bad. Let us examine the correctness of the said contention. Sec. 143(1A) of the Act as it originally stood, the relevant portion reads : “(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to cl. (a) of sub-s. (1), exceeds the total income declared in the return by any amount, the AO shall, (i) further increase the amount of tax payable under sub-s. (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess and specify the additional income-tax in the intimation to be sent under sub-cl. (i) of cl. (a) of sub-s. (1) : ” Sec. 143(1A) as amended by the Finance Act, 1993, w.e.f. 1st April, 1989, i.e., the date of insertion of s. 143(1A) relevant portion reads : “(1A)(a) Where as a result of the adjustments made under the first proviso to cl. (a) of sub-s. (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 AO shall, (A) in a case where the increase in income under sub-cl. (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-s. (1) by an additional income-tax calculated at the rate of twenty per cent 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-cl. (i) of cl. (a) of sub-s. (1); (B) in a case here the loss so declared is reduced under sub-cl. (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 per cent of the tax that would have been chargeable on the amount of the adjustments 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-cl. (i) of cl. (a) of sub-s. (1)”.
It is evident from the provisions of s. 143(1A) as it stood before the amendment that the said provision is attracted only if the total income as a result of the adjustments made under the first proviso to s. 143(1)(a) exceeds the total income declared in the return. However, after the amendment of s. 143(1A) either there must have increase in the income disclosed by such person in the return or the loss declared by such person in the return is reduced or is converted to income. It is only in such a case the question of levy of additional income-tax arises. However, it would appear from a reading of the provisions of s. 143(1A) both before and after the amendment, it occurs to us that in order to attract sub-cl. (ii) of s. 143(1A)(a) as amended the adjustment must affect the total income returned, be it a case of income or loss.
The intimation, as already noted, shows that the return filed by the appellant was a loss return of Rs. 2,74,33,870 and after adjustment the loss so returned came down to Rs. 2,48,40,672 and consequently it would appear that the loss is reduced attracting the sub-cl. (ii) of s. 143(1A)(a). In that case the amended provisions will apply. To that effect is the decision of this Court in the two decisions mentioned earlier. However, it must be noted that the adjustment made is only in respect of depreciation and not loss. Senior counsel submits that loss and depreciation are different concepts and provisions regarding deduction of depreciation and loss are also different. The senior counsel also relied on the provisions of s. 32(2) of the Act and submitted that the deduction of depreciation in the computation of total income arises only in a case where there is income by way of profit and since there is no positive income during the previous year relevant to the assessment year there is no question of depreciation entering in the computation of total income and consequently there is no question of evasion of tax which is the very basis for introduction of s. 143(1A). The senior counsel also brought to our notice that in the assessment order (Annexure B) passed under s. 143 of the Act the AO has treated loss and depreciation separately.
As already noted the appellant had contended before the AO that a loss return even after adjustment results in loss will not attract the provisions of s. 143(1A). The decision of the Delhi High Court in Modi Cements Ltd. vs. Union of India (supra) supported the above stand. However, the amendment to s. 143(1A) made by the Finance Act, 1993, with retrospective effect from 1st April, 1989, got over the said decision and as per the said Amendment Act, additional tax can be levied even in such cases. The Supreme Court had further reversed the decision of the Delhi High Court in Asstt. CIT vs. J.K. Synthetics Ltd. (supra). Even earlier this Court upheld the validity of the amendment made to s. 143(1A) in the two decisions already mentioned. It is in the above background the assessee had taken the contention that the present is not a case of reducing the loss as a result of the prima facie adjustment and that the reduction in the depreciation claimed does not have the effect of affecting the total income declared. The Tribunal, as we already noted, has allowed the appeal filed by the Department restoring the order of the AO on the basis of the two decisions of this Court upholding the validity of the amended provisions of s. 143(1A) of the Act. Having regard to the submissions made by the senior counsel appearing for the appellant we feel that an opportunity must be given to the appellant to agitate the question of liability to additional tax under s. 143(1A) on the lines argued by the appellant before us. For the said purpose we set aside the orders of the two appellate authorities on this question and direct the AO to consider the said question afresh and to take a decision in accordance with law. It is open to the appellant to file a detailed statement putting forward its claim. The AO will consider the same in the light of the provisions of the Act and in the light of the observations contained in this judgment and pass orders after affording a personal hearing also to the appellant.
This appeal is disposed of as above.
[Citation : 264 ITR 100]
