High Court Of Madras
CIT vs. C.S. Kothari
Section 143(1)(a)
Asst. Year 1991-92
R. Balasubramanian & P.P.S. Janarthana Raja, JJ.
Tax Case (Appeal) No. 97 of 2003 (Appeal No. 88 of 2003)
20th March, 2006
Counsel Appeared
Mrs. Pushya Sitaraman, for the Appellant : None, for the Respondent
JUDGMENT
P.P.S. Janarthana Raja, J. :
This appeal is by the Revenue under s. 260A of the IT Act, 1961 (hereinafter referred to as the ‘Act’). The above appeal came up for hearing before this Court on 20th Oct., 2003 and this Court admitted the appeal and formulated the following substantial questions of law :
“1. Whether in the facts and circumstances of the case, the Tribunal was right in holding that interest paid under ss. 234B and 234C forms part of the tax paid to be deducted to arrive at the taxable income ?
2. Whether in the facts and circumstances of the case, the Tribunal was right in holding that the question whether interest under ss. 234B and 234C forms part of the tax is a debatable issue, and cannot be adjusted in proceedings under s. 143(1)(a) ?”
2. The facts relating to the above questions of law are as under : The assessment year involved is 1991-92 and the corresponding accounting year ended on 31st March, 1991. The assessee is an individual and his main income is the share of income from M/s Basic Engineers & Traders, Chennai. For the said assessment year, the assessee furnished his return of income on 30th Oct., 1991 declaring an income of Rs. 64,11,050. The assessment was completed under s. 143(1)(a) of the Act vide intimation dt. 9th Jan., 1992, wherein the total income was determined at Rs. 65,18,034 instead of Rs. 64,11,050. In the adjustment explanatory sheet annexed to the intimation referred supra, the share income of the assessee was taken at Rs. 65,49,099 as against the declared share income of Rs. 65,18,034. Aggrieved by the variation in income, the assessee, vide letter dt. 1st Sept., 1992 requested rectification of the assessment under s. 154(1)(b) of the Act. The AO, by letter dt. 21st Sept., 1992 pointed out that the variation in income was due to the correct share of income from the firm of M/s Basic Engineers, Madras, being adopted and there was no mistake apparent from the records which required rectification. While arriving at the correct share of income, the AO had excluded a sum of Rs. 2,13,972 being interest payable under ss. 234A, 234B and 234C of the Act from the total tax payable by the firm for determining apportionable profit among the partners.
Aggrieved by that order, the assessee filed an appeal to the CIT(A). The CIT(A) dismissed the appeal and confirmed the order of the AO. Aggrieved by the same, the assessee filed an appeal before the Tribunal. The Tribunal allowed the appeal filed by the assessee and set aside the order of the AO issued under s. 143(1)(a) to the extent of not adding interest under ss. 234A, 234B and 234C to the tax portion of the firm for determining apportionable profit among the partners.
The learned senior standing counsel appearing for the Revenue submitted that the AO was right in not adding interest payable under ss. 234A, 234B and 234C to the tax portion of the firm for determining apportionable profit among the partners. The counsel also relied on the Supreme Court judgment in the case of Bhor Industries Ltd. vs. CIT (1961) 42 ITR 57 (SC). Though notice has been served on the respondent/assessee, there is no representation on behalf of the assessee.
We heard the learned standing counsel appearing for the Revenue. Sec. 143 of the IT Act deals with the procedure for assessment of income of the relevant assessment year. When the return was filed, s. 143(1) contemplates acceptance of the return as it is with apparent adjustment required to be made on the basis of information contained in the return itself, without requiring the presence of the assessee or production by him of any evidence in support of the return. It is not a form of regular assessment after enquiring into the correctness of the return filed and verified by the assessee. It is a summary act on the basis of undisputed material furnished by the assessee, without factually disputing its correctness. Under s. 143(3), regular assessment takes place after giving opportunity to the assessee to enable him to produce the evidence and support return.
In this case, the return of income was processed under s. 143(1)(a) of the Act, and the same reads as follows : “143. Assessment.—(1) (a) Where a return has been made under s. 139, or in response to a notice under sub-s. (1) of s. 142,— (i) if any tax or interests 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 sub-s. (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 s. 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, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed; …….…..”
7. A perusal of the above clearly indicates that in making the adjustment of total income of the assessee, the AO is entitled to make the adjustment of the income or loss declared in the return. The adjustments permissible have been enumerated in the above cls. (i), (ii) and (iii) of the first proviso to s. 143(1)(a) of the Act. Clause (i) deals with correction of arithmetical errors. Clause (ii) relates to grant of relief to the assessee, which is found due, but not claimed in the return. Clause (iii) deals with disallowance of claims of brought forward loss, deduction, allowance or any other reliefs claimed in the return which are prima facie inadmissible. No authority has been conferred on the AO to make any adjustment by way of excluding a sum of Rs. 2,13,972 being interest payable under ss. 234A, 234B and 234C of the Act, from the total tax payable by the firm for determining the apportionable profit among the partners. Hence, the AO has clearly transgressed his authority under s. 143(1) in excluding a sum being interest payable under ss. 234A, 234B and 234C from the total tax payable by the firm, without notice to the assessee and without taking recourse to the regular assessment proceedings. Excluding the interest by the AO from the total tax payable by the firm is not a matter enumerated in the list of adjustments that could be made without requiring the presence of the assessee. The AO was of the opinion that the assessee claimed certain benefit to which he is not entitled to, then it is for him to initiate appropriate proceedings to assess the assessee instead of making adjustment in the manner which he has done. In this case, the Tribunal considered the scope of s. 143(1)(a) and held as follows : “On consideration of the material made available before the Tribunal and analysing the same in the light of the arguments advanced by the assessee, we find that the return of the assessee was processed under s. 143(1)(a) of the IT Act which says that only prima facie adjustments are to be made. As was observed by the CIT in his impugned order it is clear that whether the interest on income-tax is to be treated as tax is a debatable question which cannot be considered under s. 143 (1)(a). Therefore, considering this aspect in s. 143(1)(a) proceedings is not at all tenable under law. If at all the Department is of the view that the interest on income-tax should not be taken as tax it has to give an opportunity of being heard to the assessee as per principles of natural justice which are to be followed by the Revenue. But on perusal of the impugned order as well as the assessment order, we find that such an opportunity was not given to the assessee. Therefore, we are of the considered view that this is not an issue to be taken up under s. 143(1)(a). Such a view taken by the AO under s. 143(1)(a) proceeding is to be set aside. Similarly, the order of the CIT(A) upholding such an order also requires to be set aside. Accordingly, we hereby set aside the order of the AO issued under s. 143(1)(a) to the extent of not adding interest under ss. 234A, 234B and 234C to the tax portion of the firm for determining apportionable profit among the partners.”
8. From the above reasoning of the Tribunal, it is clear that the Tribunal considered the scope of s. 143(1)(a) and correctly came to the conclusion that the AO is wrong in excluding a sum of Rs. 2,13,972 being interest payable under ss. 234A, 234B and 234C of the Act from the total tax payable by the firm for determining apportionable profit among the partners. The determination of the said question would have been made by the AO only under s. 143(2) of the Act and not under s. 143(1)(a). It may be true that after exhausting the procedure prescribed under s. 143(2) of the Act, the consequence may be the same. We have also gone through the judgment relied on by the standing counsel for the Revenue as cited supra, and it has no relevance to the facts of the present case. In the present case, the issue involved is whether the AO can make the adjustments under s. 143(1)(a), or not, especially when the same is a debatable one. We are of the view that the Tribunal correctly set aside the order of the AO issued under s. 143(1)(a) to the extent of not adding interest under ss. 234A, 234B and 234C of the tax portion of the firm for determining the apportionable profit among the partners.
9. In view of the foregoing reasons, we find there is no error or infirmity in the order of the Tribunal and the same does not require interference. Hence, we answer the questions in favour of the assessee and against the Revenue. Accordingly, we dismiss the tax case. No costs.
[Citation : 286 ITR 397]
