Income Tax Appellate Tribunal - Hyderabad
Mekins Agro Products (P.) Ltd. vs Assistant Commissioner Of Income-Tax on 30 November, 1994
Equivalent citations: [1995]53ITD99(HYD)
ORDER
R.P. Garg, Accountant Member
1. This is an appeal by the assessee against the order of the Commissioner of Income-tax (Appeals) for asst. year 1990-91. Two grounds have been raised in this appeal. One is against levy of additional tax under Section 143(1A) and the other is against adjustment by reducing the deduction under Section 80HHC of the Income-tax Act, 1961.
2. The assessee, a private limited company, was engaged since its inception in 1984 in the business of manufacture of agricultural machinery, tools and implements and acted as a Merchant Exporter from the year 1989-90. For the year under consideration, it filed a return declaring a loss of Rs. 3,04,430 on 27-12-1990, which was accepted by the Assessing Officer under Section 143(1)(a) vide intimation dated 26-4-1991. Thereafter, a notice under Section 148 was issued to the assessee in response to which a fresh return was filed on 8-4-1993 declaring the same amount of loss. A fresh intimation under Section 143(1)(a) was sent to the assessee on 26-7-1993 determining the total income of the assessee at Rs. 11,04,130 by recomputing the deduction under Section 80HHC at Rs. 53,27,408 as against Rs. 66,37,879 claimed by the assessee. This adjustment was made by taking into consideration both the manufacturing and the trading activities together. An additional tax of Rs. 1,43,095 was accordingly levied under Section 143(1 A) of the Income-tax Act.
3. The assessee moved an application under Section 154 raising the following objections, inter alia :
1. Assessment under Section 143(1)(a) shall not be made on a return filed under Section 148 of the Act as the same cannot be treated as voluntary return required to be filed under Section 139(1).
2. Further action under Section 143(lA)(b) do not stipulate the levy of addl. tax for an asst. made under Section 147.
3. Our claim for deduction made under Section 80HHC of the Act, computing separate deduction for the two businesses is a question of law and shall not fall within the purview of 'prima facie adjustments'.
The request of the assessee was, however, rejected by the Assessing Officer, vide order dated 24-8-1993, by stating that the objections raised at SI. Nos. 1 and 2 above were not acceptable in view of the provisions of Section 148(1) and that the objection at SI. No. 3 was not acceptable in view of the provisions of Section 80HHC(3)(b) of the Act according to which the deduction has to be worked out proportionately by applying the following formula :-
Profits of the business x Export turnover Total turnover An appeal there against was filed by the assessee to the CIT (Appeals).
4. In the meantime, an assessment under Section 143(3) read with Section 147 was made determining the total income of the assessee at Rs. 11,04,130, the figure at which the intimation was sent to the assessee under Section 143(1)(a) and by determining the deduction under Section 80HHC at Rs. 53,27,408 as against Rs. 66,37,879 claimed by the assessee. This order was also appealed against by the assessee before the CIT (Appeals).
5. Both the appeals were heard together by the CIT (Appeals) and were dismissed by him by observing in paragraphs 2.1 and 3 of his order as under :
2.1 After going through the facts of the case and the submissions by the learned representatives I find that the decisions by the Delhi Tribunal, referred to by the learned representative, reported in 47 ITD page 656 In the case of Aswini Kumar Consultants (P.) Ltd. v. DCIT does not apply to the facts of the case before me. In this case, the learned ITAT, B-Bench, Delhi allowed the appeal of the Revenue and the facts are distinguishable. On the other hand, the Asstt. Commissioner of Income-tax, Circle 4(3), Hyderabad, assessing the appellant has brought out clearly on record both in his order under Section 143(3) and in his order under Section 154 that the turnover by the assessee does not consist exclusively of the export out of India and also the assessee declared sales within India. Therefore, he allowed the deduction on a proportionate basis after applying the formula indicated above. This finding of fact was not challenged before the Assessing Officer at the stage of proceeding before him. Besides, in my order dated 6-7-1993 in ITA No. 312/AC 4(3)/CIT. IV/92-93 dt. 6-7-1993 for the asst. year 1991-92, on similar facts, I have already held that the action by the Assessing Officer was legally correct. Therefore I agreed with the Assessing Officer to his computation under Section 80HHC. In view of the above, I have to conclude here that I am unable to agree to the submissions made by the learned representative. In the result, the order by the Assessing Officer on this point gets sustained.
3. The second ground of appeal is against the charging of additional tax. It was argued by the learned representative that the additional tax cannot be charged in this case under Section 143(1)(a), because the adjustment made by the Assessing Officer was not permissible under the law. After perusing the facts on record, I find that the Assessing Officer was completely within the four corners of law while making the adjustment as his action with regard to the computation under Section 80HHC was legally correct. Hence no interference is called for with the Assessing Officer's order on this point. In the circumstances the additional tax levied by the Assessing Officer is in order.
6. Aggrieved by the order of the CIT(Appeals), the assessee has filed second appeal before the Tribunal. The present appeal before us is with regard to the order under Section 154. Two issues are raised before us : one is against the power of the Assessing Officer to make adjustment by reducing the claim of the assessee under Section 80HHC and the other is against levy of additional tax under Section 143(1A) of the Income-tax Act. The contention of the assessee is that there are two different activities carried on by it - (1) manufacture and sale of agricultural tools and implements and (2) trading in pumps and rigs. The first activity has local as well as export sales, but the second activity has only export sales. Therefore, Clause (b) of Sub-section (3) of Section 80HHC would apply only to the manufacturing division and for trading division the case of the assessee would be covered by Clause (a). In any case, it is submitted, the issue being debatable as to whether both the businesses are to be taken as one for computing the deduction under Section 80HHC or two separate computations are to be made for the two activities, no adjustment under Section 143(1)(a) can be made and consequently no additional tax can be levied under Section 143(1A). The learned departmental representative, on the other hand, supported the order of the CIT (Appeals).
7. We have heard the parties and considered the rival submissions. The provisions of Section 143(1 A) are as follows :
(lA)(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 (1);
(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).
(b) where as a result of an order under Section 154 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264, the amount on which additional income-tax is payable under Clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and,-
(i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under Section 156;
(ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded.
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) exceeded 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.
On a plain reading of this section, it appears to us that this section applies to a case where the income declared by the assessee is increased or the loss returned is reduced or converted into income as a result of adjustment made under the first proviso to Clause (a) of Sub-section (1). The additional tax so charged is to be reduced/increased on variation of income as a result of an order under Section 154, 250, 254, 260, 262, 263 or 264. It does not as such provide for computation of total income in a proceeding under Section 147, nor is the reduction or increase contemplated and the variation of income as a result of a proceeding under Section 147.
8. Section 143(1)(a) provides :
Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142,-
(i) if any tax or interest 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-section (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 Section 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 :
The first proviso below this clause, which is also referred to in Section 143(1A), 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 :
9. The assessee's contention is that Section 143(1)(a) applies only where the return is made under the provisions of Section 139 or in response to a notice under Sub-section (1) of Section 142. The assessee had not been required to make a return in response to a notice under Section 142(1). The return filed by the assessee was in pursuance of a notice under Section 148. The assessee's contention is that the return filed in pursuance of notice under Section 148 could not be a return made under Section 139 as only a voluntary return could be filed there under as per the provisions prevailing at the relevant time, i.e., the requirement of filing a return by issue of a notice under Section 139(2) was dispensed with and was not there for the year under consideration. It was, therefore, submitted that the provisions of Section 143(1)(a) are not applicable and consequently no intimation could be sent by making adjustments as stated in the first proviso there under and if that be so, the provisions of Section 143(1A) would not come into operation. We do not find any merit in this contention of the assessee. Section 148, by the issue of notice where under the assessee was required to file a return, reads as under :
148(1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.
[Emphasis supplied] In view of the italicised words aforesaid, it is clear that all the provisions of the Act shall apply to a return filed in pursuance of notice under this section as if it was a return required to be filed under Section 139. When a fiction is created that the return is to be deemed as a return required to be filed under Section 139, it has to be assumed that it was made by the assessee under Section 139. We, therefore, reject the contention of the assessee that the return filed by the assessee in pursuance of notice under Section 148 was not a return made under Section 139 of the Income-tax Act. In this connection, the decision of the Supreme Court in the case of CIT v. S. Teja Singh [1959] 35 ITR 408, has to be kept in mind.
9.1 It was held by the Supreme Court in the case referred to above that it is a rule of interpretation well-settled that in construing the scope of a legal fiction it would be proper and even necessary to assume all those facts on which alone the fiction can operate. In that case, by a legal fiction the failure of a person not hitherto assessed, to send an estimate of tax payable by him in accordance with Section 18A(3) of the Indian Income-tax Act, 1922, was treated as a failure to furnish a return of income under Section 22 of the said Act. By reason of this fiction, the notice required to be given under Section 22 must be deemed to have been given and the assessee must be deemed to have failed to comply with it. On that basis, it was held that Section 28 of the said Act would apply on its own terms. The High Court in that case held that penalty under Section 28(1) could be levied only when a person failed to furnish the return when he had been required to do so by notice under Section 22(1) or Section 22(2) or Section 34, or had failed to furnish it within the time allowed and in the manner required by the notice and that there could be no such notice with reference to Section 18A(3). Their Lordships of the Supreme Court rejected the contention and stated that this reasoning fails to give due effect to the fiction contained in Section 18A(9)(b) under which when an assessee fails to comply with Section 18A(3), he shall be deemed to have failed to furnish the return of his total income and the provisions of Section 28, so far as may be, shall apply accordingly. Their Lordships held that by a legal fiction the failure to send an estimate of the tax under Section 18A(3) was treated as a failure to furnish return of income under Section 22. It was, therefore, held that the fiction under Section 18A(9)(b) that failure to send an estimate under Section 18A(3) is to be deemed to be a failure to send a return must mean that all those facts on which alone there could be a failure to send the return must be deemed to exist and it must accordingly be taken that by reason of this fiction, the notices required to be given under Section 22 must be deemed to have been given and in that view, Section 28 would apply on its own terms. Their Lordships, in this regard, extracted the following oft-quoted observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 :
If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.
9.2 We accordingly reject the contention of the assessee.
10. The next contention of the assessee is that Section 147 provides for assessment, reassessment or recomputation but not for making adjustment or sending intimation under Section 143(1)(a) and, therefore, the adjustment made by the Assessing Officer is not in accordance with law. Here also, we do not find any merit in the contention of the assessee. Section 143(1) provides for making assessment on the basis of return filed and if any tax is found due on the basis thereof, the intimation in lieu of notice of demand is to be issued and adjustments are made while making such assessment. This section in fact provides for determination of income of the assessee though after making certain adjustments provided therein. Section 234B which provides for charging of interest for defaults in payment of advance tax, introduced with effect from 1-4-1989, gives an indication in this regard by inserting the words "determination of total income under Sub-section (1) of Section 143". We, therefore, do not find any merit in this contention of the assessee as well.
11. The next contention of the assessee is that no adjustment can be made in the claim of the assessee under Section 80HHC under the proviso to Section 143(1)(a). The said proviso provides for three types of adjustments which can be made by the Assessing Officer, viz., (1) rectification of any arithmetical errors in the return, accounts or documents accompanying it, (2) allowance of any loss carried forward, deduction, allowance or relief which, on the basis of the information available in the return, accounts or documents, is prima facie admissible but which is not claimed in the return and (3) disallowance of any loss carried forward, deduction, allowance or relief which, on the basis of the information available in the return, accounts or documents, is not prima facie admissible. The case of the assessee falls in the third category. The use of the phrase "prima facie inadmissible" in Clause (iii) of the first proviso in its literal sense, as held by the Bombay High Court in the case of Khatau Junkar Ltd. v. K.S. Pathania [1992] 196 ITR 55, means "on the face of it". Therefore, on the face of the return and accounts and documents accompanying it, the deduction must be inadmissible. Only then can it be disallowed under the proviso to Section 143(1)(a). If any further enquiry is necessary or if the Assessing Officer, feels that further proof is required in connection with the claim for deduction, he will have to issue a notice under Sub-section (2) of Section 143. The use of the phrase "prima facie" thus indicates that there is no possibility of an alternative consideration of the nature of loss, deduction, allowance or relief claimed, for it is on the face of it inadmissible.
11.1 The Supreme Court in the case of Management of the Bangalore Woollen & Cotton & Silk Mills Ltd. v. B. Dasappa AIR 1960 SC 1352, held that a prima facie case does not mean a case proved to the hilt but a case which may be said to be established, if evidence which is led in support of the same is believed. Therefore, if on the basis of the information available on record it can be established that the claim of the assessee is not established, only then the adjustment can be made under this proviso.
11.2 A direct case of adjustment regarding deduction under Section 80HHC came up before the Bombay High Court in the case of Tanna Exports v. M.G. Kamat [1993] 202 ITR 219. The Bombay High Court held that it is not permissible under Section 143(1)(a) of the Income-tax Act. There also, the calculations were made under Section 80HHC(3)(b) of the Act. The issue as to whether the deduction under Section 80HHC is to be computed by taking into consideration the entire turnover of the entire business of the assessee or it is to be calculated with reference to each and every business activity of the assessee is a debatable issue. It has to be determined by a long-drawn process of reasoning. Several Benches of the Tribunal had occasion to deal, with this matter. The views taken by them have not been uniform and, therefore, a Special Bench was constituted by the President of the Income-tax Appellate Tribunal in the case of International Research Park Laboratories Ltd. v. ACIT [1994] 76 Taxman 1 (Mag.)(Delhi) to resolve the issue. We are, therefore, of the opinion that it was not a prima facie inadmissible claim of the assessee the adjustment for which could be made under the proviso to Section 143(1)(a) of the Act.
12. If that be so, the provisions of Section 143(1A) providing for levy of additional tax as a result of the adjustment made under the first proviso to Section 143(l)(a), cannot be applied. As we have already held earlier, the provisions of Section 143(1 A) do not provide for any variation in the amount on which the additional tax is payable under Clause (a) if the same has increased as a result of an order under Section 147. Increase or reduction in the additional tax has been provided only as a result of an order under Section 154, 250, 254, 260, 262, 263 or 264 but not under Section 147. We, therefore, hold that no adjustment in this case by reducing the assessee's claim for deduction under Section 80HHC can be made under the first proviso to Section 143(1)(a) and consequently no additional tax in this case can be levied under Section 143(1 A). We accordingly delete the same.
13. In the result, the appeal is allowed.