Allahabad High Court
Indo-Gulf Fertilizers And Chemicals ... vs Union Of India (Uoi) And Anr. on 11 February, 1992
Equivalent citations: [1992]195ITR485(ALL)
Author: Brijesh Kumar
Bench: Brijesh Kumar
JUDGMENT Brijesh Kumar, J.
1. The petitioner is aggrieved by order dated February 8, 1991, by which adjustments have been made in the return under Section 143(1)(a) of the Income-tax Act (hereinafter referred to as "the Act"), and additional income-tax has been levied under Section 143(1A) of the Act. A copy of the order dated February 8, 1991, has been filed as annexure-6 to the petition.
2. It appears that, according to the return submitted by the petitioner, losses to the tune of rupees sixty-two crores sixty-nine lakhs odd were shown for the assessment year 1990-91. On adjustment under Section 143(1)(a) of the Act, it was found that an amount of rupees four crores odd, claimed on account of investment allowance under Section 32A of the Act was not admissible. Therefore, the assessing authority disallowed the amount claimed under Section 32A of the Act. As a result of the disallowance of the said amount, the figure of losses was brought down in the order, as "Adjusted total loss for the year . . . Rs. 58,02,60,207". The amount disallowed was to the extent of Rs. 4,67,10,306. The petitioner was thus required to pay Rs. 50,44,713 as additional tax under Section 143(1A) of the Act. A sum of Rs. 37,98,100 was prepaid, hence the balance required to be deposited was Rs. 13,46,936, according to the impugned order.
3. It has been submitted on behalf of the petitioner that no amount of income-tax or additional income-tax is chargeable on losses. By disallowance of investment allowance, only the amount of losses has been reduced. The petitioner still remains in loss to the tune of rupees fifty-eight crores odd. It has further been elaborated by saying that a decrease or reduction in losses does not amount to income.
4. Sri S. C. Misra, learned counsel appearing on behalf of the opposite party, submits that the writ petition is not maintainable on the ground of availability of an alternative remedy. He further submits that additional income-tax charged under Section 143(1A) of the Act is in the nature of penalty for submitting an incorrect return and it can be levied even though the return shows losses. Therefore, section 143(1A) of the Act will be applicable in the present case. After having heard learned counsel for the parties, we are of the view that an alternative remedy would be no bar in the present case. We, however, propose to deal with that question later.
5. Sri Umesh Chandra, learned counsel, appearing for the petitioner, submits that the question of additional income-tax arises only if the returns show any income on which tax can be charged. He refers to section 143(1A) of the Act which reads as follows :
"(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first 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 (i) ;
(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) . . .
Explanation.--For the purposes of this Sub-section, tax payable on such excess amount means,--
(i) in any 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."
6. The language of the provision quoted above itself shows that where "the total income" after making adjustments under Clause (a) of Sub-section (1) of Section 143 of the Act exceeds the total income declared in the return, in that event an order can be passed levying additional income-tax. In a case like the present one, there is no income shown in the return but only losses are indicated. Adjustment resulting in reduction of the amount of losses can, by no stretch of imagination, be said to have increased the "total income" declared in the return. There is no dispute that in the return, only losses are shown even after adjustment and if there is no income, no tax or additional income-tax can be charged. Therefore, it is immaterial that the amount of losses are more or less. To elaborate further, it may be pointed out that if no tax was chargeable on the losses to the tune of rupees sixty-two crores odd, as shown in the return submitted by the petitioner, there would be no question of charging any additional income-tax under Section 143(1A)(a) of the Act, on the amount of reduced losses, i.e., rupees fifty-eight crores odd. To put it plainly, if there is no income, there would be no income-tax of any kind, whether additional or by way of surcharge. Learned counsel for the petitioner has rightly placed reliance upon a case, Modi Cement Ltd. v. Union of India [1992] 193 ITR 91 (Delhi). In the said case, the order passed under Section 143(1A)(a) of the Act was quashed under similar circumstances where, after adjustment, the assessee was still found to be in losses.
7. Learned counsel for the opposite parties submits that the amount which is levied under Section 143{lA)(a) of the Act is by way of penalty; therefore, it is charged at the rate of 20 per cent, only of the tax payable on the excess amount. According to him, the amount of income-tax would be much higher on the excess amount, but if the amount payable is calculated under Clause (i) of Sub-section (1A)(a) of Section 143 of the Act, it is only 20 per cent, of the tax payable. In this connection, he has placed reliance upon Circular No. 549 dated October 31, 1989 (See [1990] 182 ITR (St.) 123) of the Direct Taxes Circulars. The relevant paragraphs of the said Circular read as under :
"5.7 Insertion of Sub-section (1A) in Section 143 by the Amending Act, 1989, to provide for charge of additional tax where returned income is increased as a result of adjustment made under Section 143(1)(a).--The new section 143, as substituted by the Amending Act, 1987, while dispensing with the necessity of passing assessment orders in all cases, did not contain any deterrent provision against filing of incorrect returns to show lesser tax liabilities. Consequently, the new scheme of assessment was liable to be misused by unscrupulous taxpayers, who might return lesser income by making obvious mistakes or by claiming obviously incorrect deductions and taking a chance that if the same are detected by the Department, they would have to pay the correct tax only. The Amending Act, 1989, has, therefore, inserted a new Sub-section (1A) in the section to provide for the levy of 20 per cent additional tax in such cases. Besides its deterrent effect, the purpose of this levy is also to persuade all the taxpayers to file their returns of income carefully to avoid mistakes. It is thus a sort of negligence tax on the assessee and compensates the Department for the effort involved in detecting the obvious mistakes committed by the taxpayers by the taxpayer in their returns of income or loss. The provisions are discussed in greater detail in the following sub-paragraphs."
"5.9. An Explanation in the said Sub-section (1A) provides that the additional tax of 20 per cent, will be levied on,--
(i) in a case where the amount of the aforesaid adjustments exceeds the total income, the tax that would have been chargeable had the amount of adjustment 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.
The provisions of Clause (i) of the Explanation apply in the case of loss returns only. These provisions are on the same lines as the provisions for the levy of penalty under Section 271(1)(c) for concealment of income in the case of loss returns, as contained in Clause (a) of Explanation 4 to section 271(1)."
8. On the basis of the above paragraphs, it is submitted that the purpose of levy of additional income-tax is to deter the assessees from filing incorrect returns "to show lesser tax liabilities". It is further submitted that the cases of returns showing losses are also covered by Clause (i) of the Explanation which applies in the cases of loss returns only. Para 5.9 further says that these provisions are on the same lines as the provisions for the levy of penalty under Section 271(1)(c) for concealment of income in the case of loss returns.
9. Sri S.C. Misra, learned counsel for the opposite party, submits that the judgment of the Delhi High Court in the case of Modi Cement Ltd. [1992] 193 ITR 91, would not be applicable as it appears that the circular mentioned above and the provisions contained in Clause (a) of Explanation 4 to section 271(1) and the Explanation to section 143(1A) of the Act were not placed before their Lordships. Therefore, the aspect of the matter that the additional income-tax under Section 143(1A)(a)(i) of the Act is levied by way of penalty was not taken into consideration.
10. To appreciate the above contention, it will be necessary to look into certain provisions of the Act which are as follows :
"271. (1) If the Assessing Officer or the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the course of any proceedings under this Act, is satisfied that any person,--
(b) has failed to comply with the notice under Sub-section (1) of Section 142 or Sub-section (2) of Section 143 or fails to comply with a direction issued under Sub-section (2A) of Section 142, or
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty--. ..
(ii) in the cases referred to in Clause (b), in addition to any tax payable by him, a sum which shall not be less than one thousand rupees but which may extend to twenty five thousand rupees for each such failure ;
(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed three times, the amount of tax sought to be evaded by reason of the concealment of particulars of his income or the furnishing of inaccurate particulars of such income : . . .
Explanation 4.-For the purposes of Clause (iii) of this sub-section, the expression 'the amount of tax sought to be evaded',--
(a) in any case where the amount of income in respect of which particulars have been concealed or inaccurate particulars have been furnished exceeds the total income assessed, means the tax that would have been chargeable on the income in respect of which particulars have been concealed or inaccurate particulars have been furnished had such income been the total income."
At this stage, it may also be pertinent to quote Explanation 6 to section 271 of the Act which reads as follows :
Explanation 6.-Where any adjustment is made in the income or loss declared in the return under the proviso to Clause (a) of Sub-section (1) of Section 143 and additional tax charged under that section, the provisions of this sub-section shall not apply in relation to the adjustment so made."
11. To re-enforce the submission that the additional tax on the loss figure, after adjustment, has been rightly levied, learned counsel for the opposite parties has placed reliance upon the directions issued by the Board under the title "Kar Niriharan ke Naye Pravidhan Aur Unki Prakriya". It contains certain examples on the working of Section 143 of the Act. In one of the examples, it is provided that additional tax is chargeable even if, after adjustment, it results in loss return. The submission is that the authorities are bound by the directions issued by the Board, hence they have committed no mistake in passing the impugned order in accordance with the directions indicated above. He refers to section 119 of the Act under which the authorities of the Department are bound to carry out the directions issued by the Board. In this connection, it may be observed that so far as the direction given by the Board is concerned, it may no doubt be binding upon the departmental authorities, but such directions do not bind the courts, and it is needless to cite cases on the point. So far as courts are concerned, they would only examine whether the orders passed by the departmental authorities are in accordance with the provisions of the Act or not. If the directions of the Board are beyond the scope of the provisions of the Income-tax Act, they will not hold good and the authorities can very well be asked to act according to law.
12. The main question for consideration, as indicated earlier as well, would be whether additional income:tax or penalty, or so to say additional tax by way of penalty, could be levied where there is no income but the return originally and after adjustment, shows losses alone. Section 271 of the Act provides for imposition of penalty. Clause (c) of Section 271(1) of the Act quoted above covers cases of concealment of the particulars of "income" or furnishing of inaccurate particulars of "such income". Such conduct, as indicated in Clause (c), can entail imposition of penalty. Explanation 6 to section 271 of the Act provides that, where any adjustment is made in the income or loss declared in the return under Section 143(1)(a) and additional tax is charged under that section, the provisions of Section 271(1) shall not apply in relation to the adjustment so made. From the above provision, it no doubt appears that levy of additional tax under Section 143(1A) of the Act may be by way of penalty but the question which still remains to be considered is as to whether penalty can be imposed in a case of "no income" in terms of Section 143(1A) of the Act.
13. We may now consider the relevant provision contained in Section 143(1A) of the Act. Sub-section (1A)(a) of Section 143 of the Act talks of "exceeds the total income declared in the return". This provision clearly rules out cases relating to "no-income" or where, after adjustment, there still remains losses. By adjustment, the income shown in the return has to exceed so as to attract the above-noted provision. Similarly, we find that Clauses (i) and (ii) of the Explanation to section 143(1A) of the Act also talk of increase in the income side of the return. Clause (i) of the said Explanation provides about cases where the total income is increased, whereas Clause (ii) provides for any other case, where total income is reduced by the amount of adjustment. In none of these provisions, there is anything to indicate that, where losses are reduced, such cases would also be covered under the said provision. Circular No. 549, dated October 31, 1989 (see [1990] 182 ITR (St.) 1), relied upon by the opposite parties is not correct when it says that Clause (i) of the aforesaid Explanation applies in the cases of loss returns only. It may be true that it may apply in a case where a loss return has been filed but on adjustment, the losses have disappeared and there is positive income which can be taxed. But to apply it in cases where after adjustment, the return showing losses still shows' losses, would not be correct.
14. Since it is the case of the opposite parties that additional income-tax is charged by way of penalty and further for the reason that Explanation 6 to section 271 of the Act provides that, where an order for payment of additional income-tax is passed under Section 143(1A), provisions of Clause (c) of Section 271(1) would not be attracted, it may be seen, under what circumstances penalty can be imposed under Section 271(1)(c) of the Act. In this connection, learned counsel for the petitioner has placed reliance upon the case, CIT v. Prithipal Singh and Co. [1990] 183 ITR 69 (P & H), and it is submitted that in case of levy of additional income-tax by way of penalty, the same principle would be applicable. It appears that the amount of losses as shown in the return submitted by the assessee was reduced considerably by the assessing authority, yet the return showed losses. The penalty was sought to be imposed for concealing and suppressing income under Section 271(1)(c) of the Act. It was held that, in such circumstance, it could not be said that the assessee had suppressed the income which would have attracted the tax liability. After considering the meaning of the term "income" as defined under Section 2(24) of the Act, it was held that the loss could not be termed as "income". It was further held that the word "income" occurring in Clause (c) and (iii) of Section 271(1) of the Act refers to positive income only. We feel that the same principle would apply in the case of an order imposing additional income-tax by way of penalty. According to Circular No. 549 (see [1990] 182 ITR (St.) 1), referred to above, Clause (i) of the Explanation to section 143(1A) of the Act is on the same lines for the purpose of imposition of penalty as that of Section 271(1)(c) of the Act, for concealment of income in case of loss returns as contained in Clause (a) of Explanation 4 to section 271(1). The circular, we find, does not contain correct directions, nor the directions issued by the Board for imposition of additional tax in case of reduced losses. For imposition of additional tax or penalty for concealment of income or for furnishing inaccurate returns to evade income tax, there should be some concealment of positive income. We may clarify here that we are only considering the question of imposition of additional tax under Section 143(1A) of the Act. It does not cover cases of imposition of penalty or additional tax under any provision for any other act, omission or commission on the part of the assessee.
15. We may now come to the question of alternative remedy as raised on behalf of the opposite parties. It has first been pointed out by Sri S.C. Misra, learned counsel for the opposite parties, that the petitioner has already availed of its alternative remedy before the departmental authorities and an appeal is pending before the Deputy Commissioner, Income-tax. The petitioner has not denied that an appeal is pending but it has been submitted that no appeal lies against an order passed under Section 143(1A) of the Act. It has been submitted that only an application for rectification under Section 154 of the Act was moved before the Competent Authority against disallowance of investment allowance under Section 32A of the Act. The rectification application has been rejected and it is against that order that the petitioner went up in appeal which is pending before the Deputy Commissioner, Income-tax. The fact that no appeal lies against the order passed under Section 143(1A) of the Act has not been refuted on behalf of the opposite parties. Learned counsel for the petitioner submits that the question for consideration before the Deputy Commissioner, Income-tax, is confined to whether the petitioner was entitled to the investment allowance or not. It has then been submitted that the petitioner could move the Commissioner of Income-tax under Section 264 of the Act in revision. In this connection, it has been rightly pointed out by learned counsel for the petitioner that, in view of the stand taken by the opposite parties that the circulars and directions issued by the Board bind the departmental authorities, it will be of no use to approach the Commissioner of Income-tax. We also feel that the petitioner is right when it pointed out that no statutory appeal is provided against an order passed for payment of additional tax under Section 143(1A) of the Act, and the matter under consideration before the Deputy Commissioner, Income-tax, is confined only to the question of admissibility of investment allowance as provided in Section 32A of the Act. In these proceedings, it may not be possible for the petitioner to get any relief from the authorities against imposition of additional income-tax. On the other hand they are being pressed to pay a huge amount of rupees fifty lakhs odd, out of which considerable amount has already been adjusted and the remaining amount is sought to be recovered. It has also been pointed out that the writ petition was admitted for hearing by an order of this court passed on August 27, 1991 ; therefore, according to the petitioner, it would be too late to say that the petition is not entertainable on the ground of alternative remedy which actually is not available to the petitioner. We also find that it is a case which does not involve any factual controversy. The legal arguments alone, based on admitted position of facts and provisions of law, have to be considered. The question whether the investment allowance was admissible or not will continue to be considered by the departmental authorities in proceedings whichever may be available under the provisions of the Act. But the question of levy of additional tax under Section 143(1A) of the Act is involved at present. The submission is that even if it is presumed that investment allowance is not admissible, then too no order for payment of additional tax could be passed. This petition is confined to that point alone. Therefore, the petition cannot be thrown out on the ground of alternative remedy, as submitted on behalf of the petitioner and we find force in the said submission. In view of the facts, circumstances and position in law as indicated above, we do not accept the contention of counsel for the opposite parties that the petition be dismissed on the ground of alternative remedy.
16. In the result, we allow the writ petition and set aside the order contained in annexure-6 to the writ petition in so far as it raises a demand for additional income-tax as a result of disallowance of investment allowance.
17. Immediately after dictation of the judgment, learned counsel for the opposite parties made a prayer for grant of certificate of fitness for filing an appeal before the Hon'ble Supreme Court. We feel that no important question of law, much less a substantial question of public importances, is involved which may require consideration by the Hon'ble Supreme Court. The position under the law is also clear. The leave prayed for is, therefore, refused.