Income Tax Appellate Tribunal - Mumbai
Premier Automobiles Ltd. vs Assistant Commissioner Of Income-Tax on 4 April, 1997
Equivalent citations: [1997]63ITD418(MUM)
ORDER
M.A. Bakshi (Judicial Member)
1. Appeal of the assessee for assessment year 1995-96 is directed against the order dated 15-3-1996 of CIT (Appeals), Central-V, Mumbai.
2. The dispute in this appeal is relating to the adjustment made by the AO under section 143(1)(a) to the returned loss and levy of additional tax of Rs. 7,48,06,120 as consequence of the aforementioned adjustment.
3. The relevant facts in this case are that the assessee had filed a return for assessment year 1995-96 on 30-11-1995 declaring a loss of Rs. 1,07,56,35,591. The assessee had filed a statement of computation of total income along with the return as under :
Rs.
"A. Profit as per Profit & Loss Account ... 45,9,83,000
B.
C. Items credited to Profit & Loss
Account to be considered separately :
Rs.
(i) Interest on debentures/bonds 3,15,407
(ii) Surplus on sale of fixed assets 1,61,834
(iii) Dividend from subsidiary and
UTI 1,28,89,711
(iv) Surplus of slump sale of Kalyan
business 83,31,10,000 82,64,76,952
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D. to H. .................
I. Business loss after depreciation
(G-H) - 30,49,35,314
J. Add : Income from other sources
1. Interest on debentures/bonds 3,15,407
2. Dividend from subsidiaries
& UTI 1,28,89,711 1,32,05,118
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K. Taxable loss carried forward
(H + I + J) -29,17,30,196
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In the profit & loss account enclosed with the return of income, the
assessee had credited a sum of Rs. 8,131.10 lakhs under the head
'Other income'. In Schedule 'J', the computation of 'other income' was
given as under :
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Other income This year Previous year
Rs. Rs. Rs.
(Lakhs) (Lakhs) (Lakhs)
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Interest, gross (tax
deducted Rs. lakhs
previous year
Rs. 39.37 lakhs)
On Government securities 00 00
On debentures 3.15 18.27
Others 55.77 195.80
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58.92 214.06
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Dividend other than
trade tax deducted
Rs. lakhs(previous year
Rs. 15.03 lakhs) 128.90 69.92
Income from Units of
Unit Trust of India,
gross (Tax deducted
Rs. lakhs previous 26.81 263.45
Rs. 14.16 lakhs)
Miscellaneous income 211.62 343.62
Profit on slump sale of
Kalyan business 8,131.10 .00
Surplus on sale of fixed assets 1.62 19.01
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8,558.97 910.07
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The Assessing Officer on perusal of the statement of computation of total income observed that assessee had reflected a sum of Rs. 8,131.10 lakhs as income on account of surplus on slump sale of Kalyan business in the profit & loss account. While computing the total income, assessee had excluded four items from the profit as per profit & loss account, for separate consideration. However, assessee gave the computation of income in respect of two items out of the four excluded items and in respect of the other two items, viz., surplus on sale of fixed assets and surplus on sale of Kalyan business, assessee neither gave its computation nor included the same for purposes of computation of assessable income. These two items were also not claimed as exempt. Assessee had not given any information or justification for excluding the profit on sale of Kalyan business, etc. Therefore, while processing the return under section 143(1)(a), the Assessing Officer made an adjustment on Rs. 81,31,10,000 in respect of Kalyan business being profit credited to the profit & loss account as part of assessee's income. In the adjustment explanatory sheet, the Assessing Officer gave the computation as under :
"Returned loss (-) 1,07,56,35,591
Adjustment under section 143(1)(a)(iii)
of 1st proviso on account of surplus
of slump sale of Kalyan business 81,31,10,000
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Adjusted loss (-) 26,25,25,591"
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As is evident from above, even after the adjustment the computation of income was the loss amounting to Rs. 26,25,25,591. The Assessing Officer charged additional tax under section 143(1A) of Rs. 7,48,06,120.
4. Assessee appealed to the CIT (Appeals) challenging the adjustment made by the Assessing Officer of Rs. 81,31,10,000 under section 143(1)(a) as also the levy of additional tax of Rs. 7,48,06,120. Assessee had also furnished written submissions before the CIT (Appeals), a copy of which had been furnished to the Addl. CIT who represented the department before the CIT (Appeals). The ld. Addl. CIT had also furnished written submissions before the CIT (Appeals) in response to which assessee's representative had also furnished counter submissions. The CIT (Appeals) disposed of the appeal of the assessee after hearing assessee's representative as well as Shri A.K. Basu, Addl. CIT who represented the department before him.
5. The CIT (Appeals) has upheld the action of the Assessing Officer in making the adjustment and has also upheld the levy of additional tax under section 143(1A).
6. The ld. counsel for the assessee Shri Jagdish Khanna contended that the Assessing Officer had exceeded his jurisdiction by making an adjustment which was not permissible under law. According to the ld. counsel, intimation under section 143(1)(a) is to be issued by the Assessing Officer on the basis of the returned income subject to some adjustments as provided under section 143(1)(a). According to the ld. counsel, only three types of adjustments can be made by the Assessing Officer while processing the return under section 143(1)(a). In this connection, reference has been made to the three sub-clauses of section 143(1)(a) and it has been contended that the adjustment made by the Assessing Officer does not fit in any of the sub-clauses of section 143(1)(a). The ld. counsel further contended that adjustment permissible under section 143(1)(a)(iii) can be made in respect of a deduction, allowance or relief claimed in the return, which on the basis of the information available in such return, accounts or documents is prima facie inadmissible. According to the ld. counsel, the profit made on slump sale is not liable to tax. Assessee had reflected the surplus in the books of account as it had earned a profit, but while preparing the return only such income as was taxable was included in the return of income. The ld. counsel further contended that if the Assessing Officer was not satisfied about the correctness of the claim or wanted some more information for purpose of determination of the taxability of slump sales, then the proper course for him was to issue a notice under section 143(2) and make an assessment under section 143(3). It has further been pointed out that the Assessing Officer has resorted to that course subsequent to the sending of an intimation to the assessee under section 143(1)(a) and the process of assessment is in progress.
7. The ld. counsel contended that whatever might be the ultimate decision in respect of the taxability of profits earned on slump sale, it will not be decisive in respect of the adjustment that can be made under section 143(1)(a). According to the ld. counsel only such adjustment can be made, which on the basis of information available was prima facie inadmissible and on issues in respect of which further investigation is required or in respect of which there is a possibility of debate, no adjustment can be made under section 143(1)(a). Reliance has been placed on the decision on of the Delhi High Court in the case of S.R.F. Charitable Trust v. Union of India [1992] 193 ITR 95 and the decisions of the Bombay High Court in the cases of Khatau Junkar Ltd. v. K.S. Pathania [1992] 196 ITR 55/61 Taxman 157 and Bank of America N.T. & S.A. v. Dy. CIT [1993] 200 ITR 739. The ld. counsel invited our attention to Schedule-J placed at page-20 of the paper book where a sum of Rs. 8,131.10 lakhs has been reflected as profit on slump sale of Kalyan business. Our attention has also been invited to note (8) of the auditor's which clearly indicates that the assessee had derived profit on slump sale. According to the ld. counsel, the information available to the Assessing Officer at the time of making adjustment establishes the fact that the profit derived by the assessee of Rs. 8,131.10 lakhs was on account of slump sale. The ld. counsel pointed out that there are several cases in support of the proposition that slum sale is not liable to tax. The ld. counsel further contended that the Assessing Officer could not have decided that the entire amount of profit made by the assessee on slump sale was liable to tax. Relying upon the decision of the Supreme Court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1, the ld. counsel contended that even otherwise unless it was decided as to whether the asset was held on capital account or revenue account, it could not be decided as to whether the profit made by the assessee was on revenue account of capital account.
8. The ld. counsel further pointed out that the assessee had excluded four items for separate consideration out of the profit disclosed in the profit & loss account. In respect of two items assessee had given separate computation. However, in respect of other two items, which were thought by the assessee to be as to taxable, no computation was given and according to the ld. counsel, it was not obligatory upon the assessee to give any justification. The ld. counsel contended that the Assessing Officer has not made any adjustment in respect of the profit on sale of fixed assets. The assessee had not included this amount also in the returned income and as such, the Assessing Officer was not justified in making the adjustment in respect of the slump sale profit.
9. The ld. counsel further pointed out that the assessee had sold the assets to a subsidiary and by virtue of section 47(iv) transfer of capital assets of a company to its subsidiary company is not regarded as transfer within the meaning of section 45. It is, accordingly, urged that the adjustment made by the Assessing Officer may be deleted. Levy of additional tax is consequential to the adjustment made by the Assessing Officer, the ld. counsel pleaded that the additional tax levied by the Assessing Officer may also be cancelled.
10. In reply, the ld. Departmental Representative contended that the Assessing Officer has acted strictly in accordance with section 143(1)(a) insofar as the assessee had omitted to include the profit derived on slump sale in the return of income. Since, the assessee had included the aforementioned profit in the profit & loss account and no reasons had been assigned for excluding it from the returned income, the Assessing Officer, according to the ld. Departmental Representative, was justified in making the adjustment. Referring to the statement of computation of income, the ld. Departmental Representative pointed out that assessee had increased the loss by excluding the profits derived from sale of concern. Referring to the contention raised on behalf of the assessee that the sale of the concern was to its subsidiary, the ld. Departmental Representative contended that under section 212 of the Companies Act, assessee was required to attach the balance sheet of the subsidiary company to its balance sheet which in this case has not been done. Moreover, it is not evident from records that assessee owns all the shares of the subsidiary company in the event of which provisions of section 47(iv) would be applicable. Referring the decision of the Bombay High Court in the case of Khatau Junkar Ltd. (supra), the ld. D.R. contended that their Lordships of the Bombay High Court at page-71 have used the phrase "on the face of it" for purposes of attracting the provisions of section 143(1)(a). Relying upon the same phrase, the ld. Departmental Representative contended that in order to claim exemption, the income in respect of which exemption is sought, must be non-taxable on the face of it. According to the ld. Departmental Representative, since the profit on slump sale was not automatically exempt, the Assessing Officer was justified in making the adjustment under section 143(1)(a). The ld. Departmental Representative further contended that according to assessee's own perception, the profit on slump sale required separate consideration. When assessee did not include this income in the computation of the taxable income, there was apparent omission which could be adjusted by the Assessing Officer in exercise of his powers under section 143(1)(a).
11. Reacting to the contention raised on behalf of the assessee that the nature of the profit derived indicated that the same was not liable to tax, the ld. Departmental Representative contended that all profits derived on account of slump sales are not exempt. It would depend on the facts and circumstances of each case. The ld. Departmental Representative pointed out that whereas the profit made on sale of whole concern may have to be considered on a different footing, the profit derived on sale of one branch of the whole concern would not fall in the same category as the sale of whole concern. The ld. Departmental Representative further contended that assessee has wrongly used the word "slump" in the statement of accounts. Relying on the decision of the Supreme Court in the case of Parimisetty Seetharamamma v. CIT [1965] 57 ITR 532, the ld. Departmental Representative contended that it was for the assessee to establish that the income derived by it was not liable to tax. The burden, according to the Departmental Representative was on the assessee, which has not been discharged. Referring to the judgments cited on behalf of the assessee, the ld. Departmental Representative contended that these decisions are distinguishable. It was further contended that in those cases, assessee had given explanatory notes indicating as to why the income was not included. He further contended that the mistake committed by the assessee is not including the Profit on slump sale could also fall within the ambit of arithmetic mistake.
12. In the counter reply, the ld. counsel for the assessee contended that the auditors of the assessee-company have in their notes referred to the profit derived by the assessee as on account slump sale. It had also been specifically pointed out that the profits were derived in respect of the whole Kalyan business. In regard to the obligation to file the balance sheet of the subsidiary company, the ld. counsel contended that that obligation to file the balance sheet of the subsidiary company was not applicable in the first year of business of subsidiary company. It was, accordingly, contended that the appeal of the assessee may be accepted. The adjustment made by the Assessing Officer be deleted and the levy of additional tax cancelled.
13. We have given our careful consideration to the rival contentions. There is no dispute on facts. Assessee had derived profit on account of sale of Kalyan business to the tune of Rs. 81,31,113,000. It is not disputed that the said amount was reflected in the profit & loss account of the assessee for the previous year relevant to assessment year 1995-96. A perusal of the statement of computation of income reveals that assessee had excluded four items of income out of the net results, to be considered separately. These four items of income are as under :
1. Interest on Debentures/Bonds Rs. 3,15,407
2. Surplus on sale of Fixed assets Rs. 1,61,834
3. Dividend from Subsidiary and UTI Rs. 1,28,89,711
4. Surplus on slump sale of Kalyan Rs. 81,31,10,000 business
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Rs. 82,64,76,952
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Subsequently, assessee had added income on account of debentures/ bonds and dividend from subsidiary and UTI at Rs. 3,15,407 and Rs. 1,28,89,711 respectively. The other two items of income, viz., surplus on sale of fixed assets and surplus on slump sale of Kalyan business amounting to Rs. 1,61,834 and Rs. 81,31,10,000 respectively, did not find place in the computation of the taxable income. It is also admitted that no note was given in the computation of taxable income regarding the non-taxability of the two items out of the four items excluded for separate consideration.
14. The question before us is as to whether the Assessing Officer while processing the return under section 143(1)(a) could make an adjustment in respect of the excluded items of income. For appreciating the issue it will be convenient if we make a reference to the relevant provisions of the Act.
15. Under section 139(1) every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeds the maximum amount which is not chargeable to income-tax it required to file the return of income in the prescribed form and verified in the prescribed manner. Section 139(3) provides that if any person who has sustained a loss in any previous year under the head 'Profits and gains of business or profession' or under the head 'Capital gains' and claims that the loss or any part thereof should be carried forward, then a return is required to be filed in the prescribed form and in the verified manner and containing such particulars as may be prescribed.
16. In this case, assessee had filed a return of income within the time allowed under sub-section (3) of section 139 declaring a loss of Rs. 107,56,35,591. Assessee had filed a statement of computation of income along with the return. It may be stated at the cost of repeatation that four items of income included in the profit & loss account were excluded for separate consideration and only two items were added back. These two items of income were neither considered separately nor included in the computation of taxable income. Even no reasons were given for exclusion of these two items of income. A perusal of the statement of computation of income may give rise to a view that the return filed by the assessee was defective insofar as complete particulars relating to the excluded income were not furnished along with the return. It could be argued that whereas profit had been derived by the assessee and reflected in the books of account as such it was incumbent upon the assessee to give full particulars and give reasons as to why the amount not included in the taxable income has been so excluded. However, the question is not as to whether the assessee had furnished complete information with regard to the exclusion of the income in respect of sale of Kalyan business, but the real issue before us is as to what are the consequences of such omission. In this connection, it may be relevant to refer to section 139(9) which is reproduced hereunder :
"Section 139(9), where the (Assessing) officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and given him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the (Assessing) Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return :
** ** ** The Assessing Officer in this case has not considered the return as defective nor has be intimated the defect to the assessee and given them an opportunity to rectify the defect within the specified period. It is, thus, follows that the Assessing Officer did not consider the return filed by the assessee as defective within the meaning of section 139(9).
17. Now having treated the return as valid return, we proceed to consider as to what are the permissible adjustments that can be made by the Assessing Officer under section 143(1)(a). For this purposes it will be relevant to reproduce the proviso to section 143(1)(a) which reads as under :
"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 claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed :"
"The case of the revenue is that the adjustment made by the Assessing Officer is in respect of the deduction claimed by the assessee which was prima facie inadmissible. The crucial issue for determination is as to whether the amounts excluded by the assessee could be said to be deduction, allowance or relief and if so, if the same is prima facie inadmissible on the basis of the information available in the return, accounts or documents. When we consider the nature of the amount excluded by the assessee as the profit derived on account of slump sale of Kalyan business, it is difficult to equate the same with a deduction, allowance or relief claimed by the assessee. In our view in simple terms exclusion of profits on sale of Kalyan business could be termed as assessee having not returned such profits for taxation. Non-inclusion of profits in the taxable income may not fall within the ambit of deduction, allowance or relief, claimed in the return within the meaning of section 143(1)(a) proviso (iii). In any case even if it is assumed that the exclusion of income would amount to claiming a deduction, allowance or relief or reduction of loss, then the question remains as to whether such a claim was prima facie inadmissible. The word 'prima facie' literally means on the face of it. An item of deduction, allowance or relief, which on the face of it, may not be allowable, can be adjusted by the Assessing Officer in exercise of his powers under section 143(1)(a). It may be relevant at this stage to refer to the decision of the Delhi High Court in the case of SRF Charitable Trust (supra). In this case, their Lordships of Delhi High Court held that "adjustment under section 143(1)(a)(iii) can be made if 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 Assessing officer to disallow a claim for the reason that there is no truth in support of the claim made by the assessee".
18. In the case of Bank of America N.T. & S.A. (supra), their Lordships of the Bombay High Court held that "for purposes of making adjustments under section 143(1)(a) it is necessary that the amount sought to be adjusted in respect of any deduction, allowance or relief claimed, must be prima facie inadmissible". In this case, the petitioner-bank had returned a total income of Rs. 16,86,48,302 as its total income during the previous year relevant to assessment year 1989-90. The assessee had not included in its return a sum of Rs. 2,30,11,856 towards interest on securities as, according to the petitioner, the said amount was not taxable either in the assessment year 1988-89 or in the assessment year 1989-90. A note explaining why this amount was not included in the return for assessment year 1989-90 was also attached to the return. The Assessing Officer made the adjustment in respect of Rs. 2,30,11,856 while making an order of intimation under section 143(1)(a). On a writ petition, their Lordships of the Bombay High Court held that the Assessing Officer had no jurisdiction to make the adjustment and levy the additional tax. The decision of the same Court in the case of Khatau Junkar Ltd. (supra) was followed.
19. In the case of Khatau Junkar Ltd., assessee had claimed an investment allowance, expenditure incurred on presentation articles, ex gratia payments to employees and had debited certain amounts in the profit & loss account relating to earlier year. The Assessing Officer under section 143(1)(a) made adjustment on account of investment allowance, expenditure incurred on presentation articles, ex gratia payments to employees, cash purchases over Rs. 10,000 and amount debited to profit & loss account relating to earlier year. Their Lordships of the Bombay High Court held that section 32A which grants deduction of investment allowance to the assessee does not provide that investment allowance can be disallowed unless supporting evidence was attached. Assessee had furnished details of plant and machinery in tabulated statement along with the return and, therefore, the Assessing Officer could not make the adjustment under section 143(1)(a) in respect of the claim of investment allowance. Their Lordships further held that the expenditure on presentation articles falls within the ambit of rule 6B therefore, the disallowance was debatable. It was held that the Assessing Officer could not disallow the expenditure on presentation articles under section 143(1)(a). Similarly, it was held that claim for ex gratia payments and cash purchases could not be disallowed under section 143(1)(a). The assessee had debited to the profit & loss account expenditure pertaining to earlier year, their Lordships of the Bombay High Court held that the disallowance could not be made without examining the nature of the account maintained by the assessee. Similarly company in this very case had revalued shares of M company held by it and, consequently, transferred certain amounts to share revaluation reserve account. The Assessing Officer made adjustment on account of amount transferred to share revaluation reserve account under section 143(1)(a) for determining the income of company under section 115J. Their Lordships of the Bombay High Court held that the basis of calculation of profits of company could not be rejected under section 143(1)(a).
20. In the case of Modern Fibotex India Ltd. v. Dy. CIT [1995] 212 ITR 496, their Lordships of the Calcutta High Court held that the jurisdiction of the Assessing Officer under section 143(1)(a) of Income-tax Act, 1961 to make an adjustment and to issue an intimation is limited, Their Lordships further held that the power under section 143(1)(a) though described as a prima facie determination is not a temporary one in the sense that an interlocutory order is passed which is subject to a final order on further scrutiny. The intimation as far as the Assessing Officer is concerned is final and it entails immediate and drastic consequences unless corrected or revised by a higher authority under section 154 or 264, as the case may be. The exercise of power under section 143(1)(a) of the Act is, therefore, required to be scrutinised carefully and kept strictly within the bounds of the statute, any dispute being resolved in favour of the assessee.
21. On careful consideration of the decisions referred to above, it becomes crystal clear that the powers under section 143(1)(a) of the Assessing Officer are limited to the adjustment as are provided in section 143(1)(a). Since the Assessing Officer has also the power to issue a notice under section 143(2) for scrutinising the claim of the assessee in respect of which he is of the opinion that some clarification or investigation is required, section 143(1)(a) has got to be strictly interpreted. In the case of Parimisetti Seetharamamma (supra). Their Lordships of the Supreme Court held as under :
"By sections 3 and 4, the Indian Income-tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee.
Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the Income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provisions."
Now, applying the principles laid down by their Lordships of the Supreme Court, the Bombay High Court, Delhi High Court and Calcutta High Court referred to above we are of the view that the adjustment made by the Assessing Officer under section 143(1)(a) in this case does not fall within the ambit of the said section, As already pointed out elsewhere in this order, the exclusion of income by the assessee in the return of income may not fall within category of deduction, allowance or relief and nevertheless if it falls within any of the specific categories than on the basis of the information available with the Assessing Officer along with the return, the taxability of the surplus could not be decided without further investigation and enquiry. When taxability of an item cannot be decided without gathering further material, the same cannot fall within the ambit of prima facie adjustment. In the case of sale of assets or business as a whole, several issues have got to be considered before arriving at a conclusion regarding taxability of the surplus. In some cases, the surplus may not at all be taxable, in some cases the surplus may be assessable to tax as capital gains. In that case, a separate computation shall have to be made and deduction as permissible under the Statute shall have to be allowed. In some cases, the entire profit may be taxable as profits of business. The claim of the assessee that the sale is to a subsidiary company and, therefore, provisions of section 47(iv) are attracted cannot be decided without gathering further material. In the light of these factors, we do not have any hesitation to come to the firm conclusion that the adjustment made by the Assessing Officer does not fall within the ambit of section 143(1)(a). Such an adjustment no being permissible under law is, accordingly, vacated. The levy of additional tax is consequential to adjustment made by the Assessing Officer, the same is, accordingly, deleted.
22. In the result, appeal of the assessee is allowed.