Income Tax Appellate Tribunal - Chandigarh
Nahar Spinning Mills Ltd. vs Assistant Commissioner Of Income-Tax on 11 April, 1996
Equivalent citations: [1996]59ITD51(CHD)
ORDER
J. Kathuria
1. This appeal by the assessee-company pertains to assessment year 1992-93. Ground No. 1 is against the passing of order under section 143(1)(a) of the Income-tax Act.
2. Brief facts of the case are these. The assessee-company filed its return of income on 31-12-1992 declaring total income of Rs. 4,55,80,306. In his return, deduction under section 80HHC of the Act was claimed at Rs. 16,70,22,438. The assessee filed a revised return on 11-3-1994 on total income of Rs. 5,67,65,120. While arriving at the said total income, the assessee claimed deduction under section 80HHC of the Act at Rs. 15,58,37,625. In other words, the claim of the assessee under section 80HHC was reduced in the revised return. The reason for reduction in the claim under section 80HHC was that in the revised return, 90% of other specified income was taken at Rs. 3,65,83,198 as against a lower figure in the original return. In the revised return, interest income was taken in respect of the gross amount of interest whereas in the original return, this figure had been taken on the amount of net amount of interest. The Assessing Officer issued a notice under section 143(2) dated 17-12-1993 posting the case for hearing for 27-12-1993. The assessee attended the proceedings. The Assessing Officer, however, passed an order (intimation) under section 143(1)(a) of the Act on 11-1-1994, i.e., after the filing of the original return but before the filing of the revised return. However, while working out the deduction under section 80HHC of the Act, the Assessing Officer took the income of Rs. 2,04,27,492 which was on account of non-trade investments, as income from other sources and not as income from business. He accordingly worked out deduction under section 80HHC at Rs. 14,02,93,479. On the basis of this adjustment, net demand payable was created at Rs. 1,39,56,135, resulting in additional tax levied under section 143(1A) of the Act at Rs. 16,09,466. The assessee filed an application under section 154 of the Act requesting the Assessing Officer to allow the claim made by the assessee under section 80HHC of the Act. The Assessing Officer vide his order dated 25-4-1994 held that he had rightly computed the deduction under section 80HHC of the Act in his intimation under section 143(1)(a) of the Act. The learned CIT(A) dismissed the assessee's appeal. The assessee has come up in further appeal before the Tribunal.
3. Shri Navdeep Sharma, the learned Counsel for the assessee, submitted that after having issued a notice under section 143(2) of the Act, the Assessing Officer could not issue an intimation under section 143(1)(a) of the Act. For this proposition, reliance was placed on the Calcutta High Court decision in the case of Modern Fibotex India Ltd., v. Dy. CIT [1995] 212 ITR 496 at 497. The learned Counsel in particular drew our attention to the following observations of the High Court :
"The third limitation on the exercise of the powers under section 143(1)(a) is that once the notice under section 143(2) has been issued, there is no scope for the authorities either to make prima facie adjustment on the basis of the return as filed or issue an intimation under section 143(1)(a). The omission by the Legislature to make the issuance of a notice under section 143(2) without prejudice to an intimation under section 143(1)(a) would be without prejudice to section 143(2) was deliberate because of the difference in the nature of the two sections. The jurisdiction under section 143(1)(a) is a summary one, whereas section 143(2) precedes an assessment under section 143(3). It is true that the word 'shall' has been used in connection with the issuance of an intimation but it is well established that the construction of the expression 'shall' depends upon the provisions of the Act, the setting in which the direction is given and the consequences that would follow from the infringement of the direction and other such considerations. The context in which the word 'shall' has been used in section 143(2) has to be read in the background of the proviso to the section and that is that where there is no scope for any adjustments in terms of the proviso, there would be no scope for sending any intimation."
The learned Counsel, therefore, submitted that the intimation sent by the Assessing Officer was invalid and hence the same may be annulled.
4. The learned D.R., on the other hand, contended that the intimation under section 143(1)(a) of the Act was not bad in law and that the Assessing Officer was not precluded from processing the same under section 143(1)(a) of the Act even when notice under section 143(2) of the Act had been issued.
5. After carefully considering the rival submissions, we respectfully follow the judgment of the Calcutta High Court relevant portion of which has been extracted above in the submissions of the learned Counsel for the assessee. The learned Counsel for the assessee. The learned D.R. has not pointed out any authority to the contrary. We, therefore, accept the rationale and the reasoning of the aforesaid judgment and decide ground No. 1 in favour of the assessee by holding that the intimation under section 143(1)(a) was invalid because the Assessing Officer had already issued a notice under section 143(2) and heard the assessee in response thereto. This ground is allowed.
6. Ground No. 2 which is the only other substantive ground is on merit and is against the non-allowance of claim under section 80HHC in full and against the charging of additional tax at Rs. 16,09,466.
7. Shri Navdeep Sharma submitted that under section 143(1)(a) of the Act, the Assessing Officer could only make prima facie adjustments to the disclosed income as per law. It was submitted that in the present case, the Assessing Officer had exceeded his jurisdiction. The contention of the learned Counsel was that in the printed form of balance-sheet, the assessee had shown income of Rs. 2,04,27,492 from investments of surplus funds invested voluntarily in short-term deposits or on Government securities as income from non-trade investments under the head 'Other income'. It was submitted that the presentation of income in this manner was as per the provisions of Schedule VI, Item 3, Part II, clause (xi)(a) of the Companies Act. It was pointed out that this presentation would not make any difference to the real nature of income which was income from business and not income from other sources. It was submitted that in the statement of income and in the return, the entire income including the aforesaid income of Rs. 2,04,27,492 was shown as income from business on which deduction under section 80HHC of the Act was admissible. The learned Counsel pointed out that this was an area which was not free from controversy or doubt and, therefore, fell beyond the pale of section 143(1)(a) of the Act. It was submitted that latter on, the Assessing Officer had made an assessment under section 143(3) of the Act in which the claim of the assessee under section 80HHC was restricted but those proceedings were said to be different and independent proceedings which had nothing to do with the proceedings from which the present appeal had emanated. The learned Counsel for the assessee relied on the ratio of the Tribunal's decision in the case of Avon Cycles Ltd. Asstt. CIT [1995] 52 ITD 426 (Chd.). In particular, the learned Counsel for the assessee relied on the following observations of the Chandigarh Bench of the Tribunal contained in para 18 of the order :
"18. We have carefully considered the rival submissions as also the facts on record. We wish to make it clear that we are not expressing any final opinion on the various issues involved in this appeal. The question to be decided is as to what is the scope and ambit of the adjustments to be made under section 143(1)(a) of the Act. As rightly pointed out by the learned Counsel for the assessee, the Central Board of Direct Taxes and Chief Commissioners of Income-tax in various instructions have laid down that only those adjustments can be made under section 143(1)(a) which are self evident, glaring and apparent from record. In other words, any issue which is of a debatable nature and about which there can conceivably be more than one opinion, cannot be made a subject-matter of prima facie adjustments under section 143(1)(a) of the Act. The various authorities cited by the learned Counsel for the assessee also go to show that a debatable issue cannot form the basis of adjustments under section 143(1)(a) of the Act."
The learned Counsel for the assessee vehemently argued that the only adjustments permissible in law to the Assessing Officer were of self-evident, glaring and patent mistakes and not of those items which were debatable or controversial. It was, therefore, submitted that in the intimation under section 143(1)(a), the Assessing Officer was not justified in reducing the assessee's claim under section 80HHC of the Act thereby charging additional tax of Rs. 16,09,466. The learned Counsel for the assessee further submitted that the learned CIT(A) had made the matter more controversial by trying to find difference between the profits from business and profits of business. It was pointed out that there was no such expression as "profit from business" in any of the relevant sections, namely, sections 28 to 43 and section 80HHC of the Income-tax Act. It was submitted that the learned CIT(A) had unnecessarily introduced an element of further controversy into the matter which was also not relevant to section 143(1)(a) of the Act.
8. The learned D.R. contended that the Assessing Officer had taken income from non-trade investments as non-business income on the basis of the material produced and on the basis of the profit and loss account and the balance-sheet of the assessee. It was submitted that such an adjustment was called for because the assessee had committed a mistake which was apparent, self-evident and glaring. It was also pointed out that when the matter was further enquired into at the time of framing the assessment under section 143(3), the Assessing Officer still held his ground and treated the income of Rs. 2,04,27,492 as non-business income. Relying on the impugned order, the learned D.R. supported the levy of additional tax.
9. We have carefully considered the submissions of both the sides. We wish to make it clear that we are not expressing any final opinion on the merits of the case. Suffice it to say, that we shall be concerning ourselves with the short question as to whether in the intimation under section 143(1)(a) of the Act, the Assessing Officer was justified in making the adjustments which he made in the present case. In our order in the case of Avon Cycles Ltd. (supra), we have already held that only apparent, self-evident and glaring mistakes could be made the subject-matter of prima facie adjustments under section 143(1)(a) of the Act. In the instant case, the showing of investment income of Rs. 64,65,196 and portfolio income of Rs. 1,39,62,295, aggregating to Rs. 2,04,27,492 at page 14 of the balance-sheet under the head "Other income" was a matter of form and not of substance. The assessee showed the aforesaid income of Rs. 2,04,27,492 as "other income" because of the requirement of Schedule VI of the Companies Act. A mere nomenclature of an income or a mere presentation of income in a particular manner would not determine its true nature. In income-tax proceedings, we have to see the true and real nature of the income rather than its form. It is the substance or the content which is material and not the external trappings. In spite of the presentation as indicated above, the assessee while making claims under section 80HHC of the Act had claimed the aforesaid income of Rs. 2,04,27,492 as business income. This was a matter of controversy and debate and without putting the matter across to the assessee, the Assessing Officer, in our opinion, could not have proceeded under section 143(1)(a) of the Act by making the so-called prima facie adjustment. The learned CIT(A) has also not improved upon the matter as he has brought in unnecessarily the controversy to which a reference has been made in the submissions of the learned Counsel for the assessee. We are clear in our mind that the kind of adjustment made by the Assessing Officer in the present case was not the one which was permitted by law as envisaged by section 143(1)(a) of the Act. The ratio of the decision in the case of Avon Cycles Ltd. (supra) is applicable with full force even on merits was not justified in making the prima facie adjustment under section 143(1)(a) by restricting the claim of the assessee under section 80HHC of the Act. We further hold that the charging of additional tax of Rs. 16,09,466 was also not warranted.
10. In the result, the appeal is allowed.