Income Tax Appellate Tribunal - Delhi
New United Motors vs Assistant Commissioner Of Income-Tax on 3 March, 1993
Equivalent citations: [1993]45ITD302(DELHI)
ORDER
J. Kathuria, Member
1. This appeal by the assessee is directed against the order dated 23-7-1992 passed by the CIT (Appeals) XI, New Delhi.
2. Brief facts of the case are as follows. The assessee filed its return of income for assessment year 1990-91 on 31-10-1990 declaring income of Rs. 3,89,388. The Assessing Officer processed the case under Section 143(1)(a) of the Income-tax Act, 1961 on 20-1-1991 and made the following prima facie additions :
Bonus payable Rs. 93,799 EPF payable Rs. 5,520 ESI payable Rs. 2,265 Sales-tax payable Rs. 32,80,858
The above additions were made because there was no proof of payments of the aforementioned amounts before the due date for submission of return under Section 139(1) of the Act.
3. The assessee vide application under Section 154 dated 20-3-1991 requested the Assessing Officer to rectify the intimation under Section 143(1)(a) primarily for the reason that the aforesaid amounts had been paid within the due dates specified by law. The Assessing Officer, however, following the Board's circular No. 581 dated 28-9-1990, rejected the application for rectification. The learned CIT (Appeals) upheld the action of the Assessing Officer.
4. Shri M.S. Syali, the learned Counsel for the assessee, submitted that there were two circulars of the Board which were against the assessee. The first circular is circular No. 581 dated 28-9-1990 which stands reproduced in 186 ITR (Statutes). According to this circular where deduction under Section 43B was disallowed as prima facie inadmissible, on the ground that the assessee had not furnished evidence of payment of tax, duty etc. alongwith the return, such sums cannot be allowed later on under Section 154. The other circular is circular No. 601 dated 4-6-1991 which stands reproduced in 190 ITR 4 (Statutes) which specifically deals with the disallowances made under Section 43B of the Act. This circular lays down that according to the first proviso to Section 43B when the payments are made belatedly, the evidence of such payments has to be furnished alongwith the return. By way of liberalization it has been mentioned that even if no challan is enclosed alongwith the return, a certificate from an Accountant, as defined in Explanation to Section 288 of the Act, to the effect that the payment of tax etc. has been verified and that the payment has been made by the due date for the filing of the return under Section 139(1), would be enough. It was stated by Shri Syali that the action of the Revenue authorities was in consonance with the circulars issued by the Central Board of Direct Taxes. It was, however, submitted that the circulars did not lay down the law and if the circulars went against the law, these had to be ignored. Relying on the Delhi High Court decision in S.R.F. Charitable Trust v. Union of India [1992] 193 ITR 95 it was submitted that there was no statutory requirement to furnish proof of payment as the stage of furnishing proof is reached as and when proof is demanded by the Assessing Officer by a notice under Section 143(2) being issued. It was submitted that according to the High Court, if no proof in support of claim is available with the Assessing Officer on the return, accounts or documents filed by the assessee, he can issue a notice under Section 143(2), but he cannot unilaterally make a disallowance by seeking to invoke the provisions of the first proviso to Section 143(1)(a). It was elaborated that if such a narrow construction is put on the interpretation of Section 143(1)(a) as done by the Revenue authorities, then the effect of Section 139(9) will be nullified. It was pointed out that for removal of defects as catalogued in Section 139(9), an opportunity was specifically to be given to the assessee but in a case like the present one, the department would merrily take unilateral action prejudicial to the interests of the assessee. Pointing to the departmental circular No. 56 dated 19-3-1971 (which stands reproduced at page 3369 of 4th Edition, Volume 3 of Chaturvedi and Pithisaria's Income-tax Law) it was submitted that the wording of Section 143(1)(a) was identical to the wording contained in Section 143(1A). It was pointed out that in the said circular, the Board had emphasised that the new scheme was introduced to enable the administration to speed up the work of regular assessments in the bulk of cases which did not involve any substantial point of dispute, while guarding against leakage of revenue where the income declared in the return happened to be grossly understated. It was thus argued that where there are substantial disputes, the Revenue must be sympathetic and liberal in calling for information from the assessee if it had not been filed alongwith the return. Shri Syali further placed reliance on the Bombay High Court decision in Khatau Junkar Ltd. v. K.S. Pathania [1992] 196 ITR 55 for the proposition that the disallowance of claim for deduction can be made only on the basis of information available in the return and in the documents and accounts accompanying it and that a claims should be prima facie inadmissible. It was submitted that so far as the facts of the present case were concerned, it could not be said that the assessee had not paid the necessary amounts before the due date. It was vehemently argued that the absence of narration of particular facts should not be taken to mean absence of payment before the due date. Relying on the Delhi High Court decision in Geep Industrial Syndicate Ltd. v. Central Board of Direct Taxes [1987] 166 ITR 88 it was submitted that a circular issued by the Board was not binding on the Officers in respect of the areas or fields covered by judicial decisions. It was submitted that the High Court had held that in fields which are covered by judicial decisions, the circular shall not be conclusive even so far as the Income-tax Officer was concerned. It was submitted that for purposes of Section 80J, the Revenue authorities had been negativing the claims of the assessee if the audit report was not submitted alongwith the return. Similarly exemption to trusts had been denied if audit report which was considered mandatory by the Revenue had not been submitted alongwith the return. It was pointed out that various Benches of this Tribunal later on held that necessary exemption could not be denied to the assessee if such audit reports were filed before the assessment was completed. Reliance in this regard was placed on the Tribunal's decisions in Trustees of Virji Perqj Trust v. Eighth ITO [1984] 8 ITD 890 (Bom.), ITO v. Manav HitkariTrust [1987] 20 ITD 42 (Delhi) and ITO v. Arihant Kalyan Trust [1989] 28 ITD 135 (Delhi).
5. It was also submitted that the assessee had since filed a report from its Chartered Accountants dated 20-3-1991 which clearly certified that the payments had been made before the due date for filing of the return. It was submitted that this report should relate back to the date of filing of the return. According to the learned Counsel for the assessee, Equity and Income-tax Law may be strangers but they are not enemies. Reliance for this proposition was placed on the Supreme Court decisions in Saroj Aggarwal v. CIT [1985] 156 ITR 497 and Badri Prasad Jagan Prasad v. CIT [1985] 156 ITR 430. According to the learned Counsel for the assessee one should take a pragmatic approach in these matters and not get enmeshed in technicalities. It was submitted that in a case like this, where the bona fides of the assessee were established and the payments had in fact been made before the due date, the omission to mention such a fact in the documents etc. accompanying the return would at worst be a procedural irregularity which could not be allowed to defeat justice. It was vehemently argued that the attitude of the revenue authorities in this regard was rather stringent and hence unwarranted. It was submitted that in the case of CIT v. Rai Bahadur Bissesswarlal Motilal Malwasie Trust [1992] 195 ITR 825, the Calcutta High Court had interpreted the word "shall" and held that it was not mandatory. It was explained that submission of audited report alongwith the return was not a mandatory condition just as submission of evidence regarding payment of tax, duty etc. was not a mandatory condition in the present case. In this regard it was pointed out that the Punjab and Haryana High Court in CIT v. Jaideep Industries [1989] 180 ITR 81 had held that audit report must be filed alongwith the return if special deduction for newly established industrial undertaking under Section 80J was to be claimed. It was, however, pointed out that when two views on the matter were available, the view favourable to the assessee must prevail and if the assessee had not given proof of payment of tax alongwith the return, it should not have been singled out for a harsh treatment. Shri Syali, therefore, submitted that, in the first instance the Assessing Officer should not have made a prima facie disallowance that he did and secondly, when application under Section 154 was moved in which it was proved that the payments of tax etc. had been made before the due date for filing of the return under Section 139(1), then such rectification application should have been accepted and the relief allowed to the assessee, He, therefore, submitted that the order of the first appellate authority was wrong and must be struck down.
6. The learned D.R., on the other hand, submitted that the scope of Section 154 was rather restricted and that the learned Counsel for the assessee had pressed into service long drawn-out arguments which did not fall with the province of rectification and which actually made the case of the assessee debatable. According to the learned D.R. the scheme of Section 143(1)(a) was penal in nature. It was submitted that this scheme was devised and designed to put trust in the assessee and if that trust was betrayed by the assessees, then the penal consequences must follow. It was submitted that a perusal of the balance-sheet of the assessee clearly established that the amounts aggregating to Rs. 33,82,442 remained payable and since these amounts represented trading receipts of the assessee, these were taxable in the hands of the assessee. It was explained that the assessee could claim deduction of these amounts only if it had paid the taxes etc. by 31-10-1990, which was the due date for filing of the return under Section 139(1). It was submitted that neither the return of income nor the documents accompanying it indicated anywhere that the assessee had made the payments before the due date. In such a situation, it was argued, the Assessing Officer has no alternative but to make the disallowance which was in conformity with the instructions issued by the Board also. If, in the process of making the disallowance, the assessee had to pay extra interest, it was submitted that such an interest was the penalty that the assessee had to pay. It was also submitted that whatever may be the position with regard to other disallowances, so far as the disallowance covered by Section 43B was concerned, the Section itself required mandatorily the assessee to file proof of payment of tax and if no such proof was forthcoming, then it was the duty of the Assessing Officer to make the necessary disallowance. It was submitted that it was a clear case where adjustment under Section 143(1)(a) could be made because there was no evidence that the tax had been paid subsequently and before the due date of filing of the return. It was vehemently argued that one has to see the position of the case at that particular point of time when prima facie disallowance was made under Section 143(1)(a) and not with respect to any subsequent point of time. It was submitted that reference to the provisions of Section 139(9) would not be proper because the Assessing Officer could not presume that the assessee had made the payment. According to the learned D.R., there was no defect which required to be cured for which an opportunity had to be given to the assessee. It was also submitted that the learned Counsel for the assessee had relied on several decisions which were not relevant for our limited purpose. It was repeatedly emphasised that subsequent events were not relevant and one had to see the position as at the point of time when the prima facie disallowance was made. Since the matter was highly debatable, it was submitted that the revenue authorities had correctly rejected the rectification application of the assessee. It was submitted that the record available at the original intimation did not show that the assessee was entitled to any deduction and that the subsequent revised audit report could not render the initial prima facie disallowance bad. It was also submitted that the Delhi High Court decision in the case of S.R.F. Charitable Trust (supra) was distinguishable on facts because that case was not with reference to the specific provisions of Section 43B but was in respect of other disallowances. He strongly supported the orders of the Revenue authorities.
7. We have carefully considered the rival submissions as also the facts on record. Before appreciating the matter, it is necessary to note a view facts which have a bearing on the case. It is not denied that certain amounts aggregating to Rs. 33,82,442 payable in respect of sales tax etc. were outstanding in the balance-sheet relevant to assessment year 1990-91. The return was filed on 31-10-1990 whereas the balance-sheet was drawn as on 31-3-1990. There was no evidence on record to show that the assessee had paid those amounts before 31-10-1990. There was no information on record either that the assessee had not paid those amounts. This was thus a grey area as far as the return and accompanying documents were concerned. If the assessee had mentioned the dates of payment of tax and those were before the due date of filing of the return under Section 139(1), then the Assessing Officer could not have made any prima facie adjustments. At the same time, if the assessee had mentioned that the payment had been made subsequent to the due date of filing of the return under Section 139(1), then there should have been no difficulty in making the prima facie disallowance. Unfortunately, the present case did not belong to these categories. It was a case where there was no information as to whether any payment had been made and as to the date when it was made. In such a situation the proper course for the Assessing Officer should have been to call for the correct information from the assessee because it could not be said with certainty as to whether the payment had been made in time or belatedly. No heavens would have fallen if such a course of action had been adopted. The idea of sending the intimation to the assessee is that bulk of the assessment work is eliminated or disposed of by such a method and the department is able to concentrate on a few selected cases so as to achieve psychologically deterrent results by making correct assessments which can stand the scrutiny of appeals. It is true that the assessee have to reciprocate the trust reposed in them by the department and if a prima facie disallowance has to be made, nothing prevents the revenue to make the disallowance but in an area like the present one where it cannot be said for certain as to what the factual position was, the Assessing Officer, in our opinion, was duty bound to make an enquiry from the assessee and if the claim made by the assessee was wrong, penal consequences would have followed. Instead of following that course, however, the Assessing Officer has made the disallowance and thereby saddled the assessee with the additional liability of interest under various Sections of the Act. The Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CTT [1980] 160 ITR 961 has held that interest levied under Section 139(8) or Section 215 is not penal but compensatory. For the same reasoning, interest chargeable under Sections 234A, 234B and 234C is also held to be compensatory and not penal in nature. We, therefore, do not accept the argument of the learned D.R. that with a view to penalising the assessee, the interest had to be charged. The word "prima facie" means "on the face of it". In the present case, can it be said that the prima facie disallowance could be made simply because there was no evidence of proof of payment before the due date of filing of the return ? As held by the Delhi High Court in the case of S.R.F. Charitable Trust (supra) the stage of furnishing of the proof is reached as and when proof is demanded by the Assessing Officer and no unilateral disallowance can be made if no proof of the claim is available. Though the Delhi High Court decision is not in respect of the disallowance made under Section 43B, it certainly lays down certain principles which cannot be ignored. The Delhi High Court has taken into consideration the Board's circular No. 549 reported at 182 ITR (Statutes 1 at page 21 which gives certain examples of prima facie admissibles or inadmissibles. That it is only when a disallowance is evident from the record, an adjustment can be made, is the underlying principle in that judgment. We are clear in our mind that the prima facie disallowance made by the Assessing Officer in the present case is not justified from the facts on record because there is no evidence or information on record to show that the payments were made after the due date of furnishing the return under Section 139(1). It was thus a grey area inasmuch as no specific and certain information could be gathered from the material on record. Under these circumstances, a prima facie disallowance could not have been made in the first instance. And if such a disallowance had been made, the assessee was entitled to claim rectification of the intimation. The learned D.R. is only starting with the second stage and forgetting the first one. If the error was committed at the first stage itself, correction of that error by way of application under Section 154 was only a logical consequence. We, therefore, hold that under these circumstances, the Assessing Officer should have allowed the claim of the assessee under Section 154 and deleted the disallowance aggregating to Rs. 33,82,442 and the first appellate authority should not have upheld the order of the Assessing Officer. Taking the entirety of facts and circumstances of the case into consideration and taking a pragmatic view of the matter and not getting enmeshed by technicalities, we hold that the assessee was entitled to the deletion of Rs. 33,82,442 from its total income as determined under the intimation.
8. In the result, the appeal is allowed.