Income Tax Appellate Tribunal - Bangalore
Deputy Commissioner Of Income Tax vs Verifone Software Systems (P) Ltd. on 19 February, 2001
Equivalent citations: [2003]84ITD521(BANG), (2003)78TTJ(BANG)791
ORDER
T.A. Bukte, J.M.
1. The Revenue has filed all these appeals against the different orders of the CIT(A), dt. 3rd Dec., 1992 and 29th March, 1993, for the asst. yr. 1991-92, dt. 18th March, 1993, for the asst. yr. 1989-90, dt. 15th Feb., 1993, for the asst. yr. 1991-92 and dt. 17th July, 1992, for the asst. yr. 1991-92. The only one issue involved in all these appeals is whether the additional tax under Section 143(1A) is chargeable on the loss return of income when the loss admitted by the assessee is charged to another loss figure after making adjustments under Section 143(1)(a) of the Act.
2. We have heard the learned Departmental Representative Shri Bhat and the learned Departmental Representative Shri G.S. Sriram and others. Their arguments are taken into consideration. We have also perused the written submissions and different decisions relied upon by the learned Departmental Representative Shri Bhat. The extracts of the judgments of the Hon'ble Supreme Court and various High Courts are on record.
3. All these appeals were heard together and therefore, they are disposed by this consolidated order for the sake of convenience. In all these cases the CIT(A) has followed his own order in ITA No. 43 & 44/DC.SR. 4 for the asst. yr. 1990-91 in the case of National Textiles Corporation. The Tribunal reversed that order by its order dt. 30th June, 2000. The Tribunal's order is also on record. The Tribunal took two different views regarding the levy of additional tax under Section 143(1A) of the Act and that was another reason to hear all these appeals at one time and to dispose them of by this consolidated order. In a good number of cases the Tribunal consistently held that the additional tax could be levied in such cases. Particularly the Tribunal in ITA No. 568/Bang/93 in the case of Unique Creations vide its order dt. 15th Sept,, 1999, held that the additional tax is leviable, by citing several decisions. In this case the decision of the Hon'ble Karnataka High Court in the case of Bidar Sahakari Sakkare Kaikhane Niyamit and Ors. v. Union of India and Ors. (1999) 237 ITR 445 (Kar). However, the Tribunal took a different view in the case of Indian Tin Industries (P) Ltd. in ITA No. 1326/Bang/92 for the asst. yr. 1989-90, vide its order dt. 30th June, 2000, holding that additional tax cannot be levied under Section 143(1A) where loss admitted was converted into another figure of loss by way of prima facie adjustments. The Tribunal deleted the levy of additional tax in that case. The main reason for deletion of additional tax in the case of Indian Tin .Industries, is that in the case of CIT v. Hindustan Electro Graphites Ltd. (2000) 243 ITR 48 (SC) the Hon'ble Supreme Court has held that additional tax under Section 143(1A) has a character of penalty. The jurisdictional Karnataka High Court in the case of Bidar Sahakari Sakkare Karkhane Niyamit and Ors. v. Union of India and Ors. (supra) has held that the additional tax is also in the nature of tax and not penalty. The decision of the jurisdictional High Court still stands and it is in force. Another reason given by the Tribunal in the case of India Tin Industries is that the Gauhati High Court has struck down the constitutional validity of the retrospective amendment made by the Finance Act, 1.993, to Section 143(1A) of the Act. The third reason given is that when the CIT(A) passed the order there was no amendment to Section 143(1A). The learned Departmental Representative submitted that as the question of levy of additional tax assumed importance and as it may arise again and again in other appeals the issue may be set at rest. To counter the reasons given by the Tribunal in the case of India Tin Industries, the learned Departmental Representative has urged to consider the following points :
(a) Firstly, the Supreme Court did not deal with the levy of additional tax in the loss to loss case at all.
(b) Secondly, in the case before the Supreme Court, the assessee had questioned the proprity of adjustment made in the intimation under Section 143(1)(a).
(c) Thirdly, the law as on the date of filing, the return of income was different, inasmuch as the cash compensatory support was not taxable, but there was retrospective amendment to Section 28 by which the cash compensatory support became taxable when the intimation was passed by the AO.
(d) Fourthly, the AO chose to levy of additional tax in that case keeping in view the amendment made to Section 28 of the Act retrospectively and when he was well within the parameters of Section 143(1A)(a)(i)(A).
(e) Fifthly, the Court was dealing with retrospective amendment of Section 28 by Finance Act, 1990 vis-a-vis Section 143(1A) and not retrospectively made amendment by the Finance Act, 1993, to Section 143(1A).
4. According to him, the facts of the case before the Supreme Court are distinguishable from the facts of the present cases.
5. The learned Departmental Representative submitted that there is distinct and clear difference between the facts of the case decided by the Supreme Court and the case before us. According to him the Supreme Court itself in the case of Hindustan Electro Graphites (supra) has held as follows :
"What is to be seen is the law on the date of filing of the return. To attract penalty provisions there has to be some element of lack of bona fides unless the law specifically provides otherwise. No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990 had not so provided even though retrospectively. Assessee could not have suffered additional tax but for the Finance Act, 1990. After he had filed his return of income which was correct as per law on the date of filing of return, it was thereafter that the cash compensatory support also came within the sway of Section 28. When additional tax has imprint of penalty, Revenue cannot be heard saying that levy of additional tax is automatic under Section 143(A). If additional tax could be levied in such circumstances it will be punishing the assessee for no fault of his. In the circumstances of the present case levy of additional tax taking into account the income by way of cash compensatory support is not warranted" .
6. The Supreme Court has categorized the additional tax in that case as having the imprint of penalty. But it did not speak anything about the opportunities to be provided. If the real purpose of the Supreme Court was to hold that additional tax in all cases as a penalty, it would have spoken about the principles of audi alteram partem also. The Supreme Court did not speak anything about the judgment of Karnataka High Court. Therefore, he submitted that the reliance placed on the decision of the Supreme Court is not correct as the observations of the Supreme Court were on the peculiar facts of that case. The question for consideration before the Supreme Court was as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the AO under Section 143(1)(a) in view of the clear-cut provisions of Sections 143(1)(a), 143(1A) and 234 ?"
7. It is clear that the question posed before the Supreme Court has nothing to do with the issue before the Tribunal. There was no discussion in the decision of the Supreme Court about the Finance Act, 1993, vis-a-vis 143(1A). The Supreme Court dealt with a situation whether the assessee had filed a return and the AO had not found it wanting in anyway and meanwhile law was amended retrospectively attracting levy of tax. In such a situation the assessee could not be held liable for filing a wrong return and could not be subjected to levy of additional tax. It is in these circumstances, the Supreme Court held that the additional tax in that case had an imprint of penalty. It was not as though the additional tax was generally held as penalty. Therefore, to say that the Supreme Court held that the term 'additional tax' is in the nature of penalty is not correct. It will amount to quoting the decision of the Supreme Court out of context. Such an interpretation would also in our opinion be doing violence to the plain reading of the judgment.
8. The Hon'ble Supreme Court itself in the case of CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) at p. 319 has held as follows :
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the judgment have to be considered in the light of the question which were before this Court. Decision takes its colour from the questions involved. Court must carefully try to ascertain the true principle."
9. In view of this decision of the Supreme Court, the decision in the case of Hindustan Electro Graphites (supra) will not apply to the facts of the instant appeals as the circumstances under which the Supreme Court observed that additional tax has the character of penalty, are wholly absent in this case.
10. So far as the decision of Gauhati High Court in the case of Sati Oil Udyog Ltd. & Am. (1998) 232 ITR 502 (Gau) is concerned, the Gauhati High Court has held that retrospective operation of the amendment by the Finance Act, 1993, is unreasonable, arbitrary and ultra vires of Art. 14 of the Constitution. According to the learned Departmental Representative the Tribunal in the case of India Tin Industries (P) Ltd. in ITA No. 1326/Bang/92 for the asst. yr. 1989-90 overlooked the fact that the Kerala High Court in Kerala State Coir Corporation Ltd. v. Union of India (1994) 210 ITR 121 (Ker) (at p. 124) following the decision in the case of Aluminimum Industries Ltd. v. Dy. CIT (1998) 234 ITR 165 (Kei) 166. The Madras High Court in the case of Sukra Diamond Tools (P) Ltd. v. Dy. CIT (1998) 229 ITR 682 (Mad) and the Madhya Pradesh High Court in Sanctus Drugs Pharmaceutical (P) Ltd. v. Union of India (1997) 225 ITR 252 (MP) have upheld its constitutional validity of the very amendment. According to Shri Bhat, the learned Departmental Representative, no doubt, the Tribunal has distinguished the case of Karnataka High Court (1999) 237 ITR 445 (Kar) (supra), but he submitted that in Karnataka High Court decision the vires of Section 143(1A) have been upheld taking into account even the cases where loss is converted into loss. The Karnataka High Court has extended the observations of Kerala, Madras and Madhya Pradesh Courts including the Gauhati High Court as follows :
Para. 8 "Retrospective amendment from 1st April, 1989, provided levy of additional tax when the resultant figure is loss. Kerala High Court in the case of Kerala State Coir Corporation Ltd. v. Union of India and Ors. (1994) 210 ITR 121 (Ker) : TC 10PS.13, observed that the object of Section 143(1A) is prevention of tax evasion, it was observed thus :
Apart from that the objective Section 143(1A) is prevention of tax evasion, Its purpose is to see that the assessee makes a true and correct disclosure of the income and expenditure. A true picture of the loss has to be made inasmuch as the loss is liable to be carried forward to the succeeding years, the provision for additional tax is thus one intended to prevent evasion of tax and such a legislation intended for purposes ancillary to the correct assessment of the arbitrary or struck down as such, the section is invoked only when the return filed does not accord with the realities, It was considered that Entry 97 of the List of VIIth Schedule to the Constitution authorizes Parliament to legislate on any subject so long as it is not enumerated in List II or List III and the levy of additional tax can also be justified under Entry 97."
Para 9 "The Madhya Pradesh High Court in the case of Sanctus Drugs Pharmaceuticals (P) Ltd. and Anr. v. Union of India and Ors. (1997) 225 ITR 252 (MP) observed thus :
"Penal provision means imposition of penalty or any criminal prosecution. That is not the case here. It is only the device to check evasion of tax by the clever taxpayers. Hence, it is more of a compensatory nature. Parliament is competent to enact the law prospectively and this power also denotes the competence of Parliament to make the law retrospective also. In this connection, reference can be made to a decision in the case of Rai Ramakrishna and Ors. v. State of Bihar (1963) 50 ITR 171 (SC): AIR 1963 SC 1667, wherein their Lordships have held as under:
The legislative power conferred on the appropriate legislature to enact law in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively. Where the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, but it can also provide for the retrospective operation of the said provisions.' The Madras High Court in the case of Sukra Diamond Tools (P) Ltd. v. Dy. CIT (1998) 229 ITR 682 (Mad) on the basis of the Finance Bill, 1993 observed that it is clear that the intention is to impose penalty for filing improper return. Amendment by Finance Act, 1993, of Section 143(1A) was held applicable from the asst. yr. 1989-90 by Allahabad High Court in the case of Banwari Paper Mills (P) Ltd. v. Dy. CIT and Ors. (1997) 228 ITR 320 (All). Gauhati High Court in the case of Sati Oil Udyog Ltd. and Anr. v. CIT and Ors., (1998) 232 ITR 502 (Gau) considered levy of additional tax as penal in character and therefore prospective. Assistance was taken from Expln. 6 to Sub-section (1) of Section 271 of the Act by Direct Tax Laws (Amendment) Act, 1989, to the effect that wherein 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 an additional tax was charged and under that section provisions of Sub-section (1) of Section 271 for imposition of penalty would not apply in relation to adjustment so made."
11. The Karnataka High Court has taken into account the loss cases also as can be seen from the extracts of the judgment (1999) 237 ITR 445 (Ker) (supra). Para (10) of the said judgment reads as follows ;
"It is the computation of the income by which resultant figure may result in a loss figure which is sought to be taxed. This is with the object to prevent tax evasion or filing of incorrect return and to ensure proper payment of tax and compliance with law. Such an object could be considered as ancillary and incidental to the main power and thus even without seeking any assistance from entry 97 of the Union List, I feel that Parliament has power to levy the tax. The word 'tax' will include additional tax. The character of tax and penalty may differ, but not of tax and additional tax."
12. Para 11 of the said Judgment deals with the argument of the standing counsel for the Department which is as follows :
"Learned standing counsel for the Department has pointed out that this 20 per cent additional tax is levied in all the cases where on account of puma facie adjustment figure is varied resulting in higher income or lesser loss or loss figure is converted into income figure. The provision being within the legislative competence ensuring proper and correct payment of tax and particulars in the return dispensing with hearing at pre-decisional stage and providing such hearing under the provisions of the Act subsequently under different provisions cannot be considered as unreasonable."
13. The Karnataka High Court in para 12 of its judgment has specifically stated to have considered the various observations and has upheld the constitutional validity of the provisions of Section 143(1A).
14. The situation arising now is that the Gauhati High Court has struck down the retrospective amendment but whereas the jurisdictional High Court has upheld the constitutional validity of 'this' section considering the cases of losses also. In addition to this, the Kerala, Madras and Madhya Pradesh High Courts have also upheld the constitutional validity.
15. The learned Departmental Representative submitted that the situation arising now is that the Gauhati High Court's decision was more relied ignoring the jurisdictional High Court's decision especially when the Karnataka High Court was exactly on the point of levy of additional tax, when the loss was reduced to another figure of loss. It is the argument of the learned Departmental Representative that, had the decision of the Gauhati High Court was the sole decision as regards the vires of the provision, then the Tribunal is entitled to proceed on the footing that such provision was non-existent and decide the appeal on that basis. But when there is cleavage of judicial opinion as regards the vires of the provisions, the Tribunal has to hold in Revenue's favour.
16. With regard to retrospective amendment the learned Departmental Representative contended that the Tribunal has, as of now the retrospective amendment which applies squarely to the facts of the case. The Finance Act, 1993, modified the provisions relating to levy of additional tax. The learned Departmental Representative drawn our attention to CBDT's Circular No. 657, dt. 30th Aug., 1993 [reported in (1993) 204 ITR (St) 106]. Para Nos. 40, 40.1, 40.2 and 40.3 which are relevant.are reproduced below :
"40. The provisions of Section 143(1A) of the IT Act provided for levy of twenty per cent additional income-tax where the total income, as a result of the adjustments made under the first proviso to Section 143(1)(a), exceeded the total income declared in the return. These provisions sought to cover cases of returned income as well as returned loss. Besides its deterrent effect, the purpose of levy of the additional income-tax was to persuade all the assessees to file their returns of income carefully to avoid mistakes.
40.1. In two recent judicial pronouncements, it had been held that the provisions of Section 143(1A) of the IT Act, as these were worded, were not applicable in loss cases to provide that where as a result of the adjustments made under the first proviso to Section 143(1)(a) the income declared by any person in the return is increased, the AO shall charge additional income-tax at the rate of twenty per cent on the difference between the tax on the increased total income and the tax that would have been chargeable had such total income would have been reduced by the income of adjustments. In cases where the loss declared in the return has been reduced as a result of the aforesaid adjustments or the aforesaid adjustments have the effect of converting that, loss into income, the Act provides that the AO shall calculate a sum (referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person.
40.2. The Act, therefore, amends Section 143(1A) of the IT Act.
40.3. This amendment takes effect from 1st April, 1989 and, accordingly, applies in relation to the asst. yr. 1989-90 and subsequent years."
17. The learned Departmental Representative, Shri Bhat submitted that according to the decision of the Supreme Court in CIT v. Bijilee Cotton Mills (1954) 15 STC 664-665 (SC) decided on 20th March, 1964 (refer p. 8036 of Chaturvedi and Pithisaiia Income-tax Law, Fifth Edn., vol. 5) the Tribunal called upon to decide a taxing statute must apply the relevant law applicable to a particular transaction to which the problem relates, and that law normally is the law as on the date on which the transaction in dispute has taken place: If the law which the Tribunal seeks to apply to the dispute is amended, so as to make the law applicable to the transaction in dispute, it would be bound to decide the question in the light of the laws so amended. Similarly, when the question has been referred to the High Court and in the meanwhile the law has been amended with retrospective operation, it would be the duty of the High Court to apply the law so amended if it applies, according to the learned Departmental Representative.
18. In this context the learned Departmental Representative has relied on the decision of the Supreme Court in the case of CIT v. Straw Products Ltd. (1966) 60 ITR 156 (SC) at p. 163 wherein it was held that it is the duly of the High Court or the Supreme Court to answer the reference in accordance with the retrospectively amended law unless the question referred is not couched in terms of sufficient amplitude to cover an enquiry into the Question in the light of the amended law. Further, reference can be made to CIT v. Mangatram Kuthiala (1978) 111 ITR 823 (P&H), according to the learned Departmental Representative. In this case, the question before the High Court was whether penalty under Section 271(1)(a) was imposable for delayed filing of return even when there was no tax payable. While answering the question in favour of Revenue, the Hon'ble Punjab High Court has held as under:
"We are relieved of much of the difficulty in answering the question as a result of the amendment of Section 271(1)(a) in which the expression now used is 'assessed tax' and not 'tax payable'. This amendment has been made retrospective and the amending Act further provides that it shall be deemed to have always been substituted. In view of this amendment, it is clear that the only answer that we can return to the question has to be in the negative. Shri Gupta argued that in the exercise of our advisory jurisdiction, we should not take notice of subsequent amendments but answer the question in the light of the law as it stood at the time of the order of the Tribunal. We cannot agree with this submission. We have to take notice of the Amending Act which has expressly given retrospective operation to the amendment and has further provided that the substituted provision shall be deemed to have always been in force. This view also receive support from the decision of the Supreme Court in CTO v. Sri Venkateswara Oil Mills (1973) 32 STC 660 (SC). The question referred to us is, therefore, answered in the negative."
19. The learned Departmental Representative Shri G.N. Bhat further pointed out the judgment of the Allahabad High Court in the case of CIT v. Raza Buland Sugar Company Ltd. (1993) 202 ITR 191 (All) at p. 196 wherein it was held that it is the duty of the High Court to apply the law as amended when reference is pending. According to the learned Departmental Representative, when a question is referred to the High Court for its opinion under Sub-section (1) or Sub-section (2) of Section 256 and subsequently, the relevant provisions of the Act are amended retrospectively, it has to answer the question on the basis of the law as it exists after the amendment or deemed to have existed in view of the amendment but not on the basis of law as it existed when the Tribunal passed the order out of which the reference arose. In this case the High Court was considering the question whether the income from sale of agricultural lands has to be treated as, agricultural income, But due to the insertion of Explanation to Section 2(1 A), retrospectively, the income was held as taxable under Section 45. [CIT v. Smt Kazia Munnisa Begum (1995) 213 ITR 172 (AP)).
20. He has further pointed out to the judgment of the Bombay High Court in CIT v. May & Baker (India) (P) Ltd. (1991) 192 ITR 239 (Bom) to the effect that where the relevant provisions are amended retrospectively, the Tribunal will have to consider, in disposing the case conformably to the decision of the Court, the claim in the light of such retrospectively amended law while giving effect to the said judgment.
21. The learned Departmental Representative pointed out that the observation of the Tribunal in the case of India Tin Industries (supra) that the amendment came after CIT(A)'s order and, therefore, it cannot be applied to the case, is not correct. According to the Hon'ble Supreme Court and various High Courts, it is the amended law, as on the date of disposal of appeal by Tribunal which has to be applied. Even if the High Court passes the order, the Tribunal will have to invoke the retrospective amended law while giving effect to the High Court or Hon'ble Supreme Court's order. According to the learned Departmental Representative, in this case, the Tribunal is seized of the matter and the retrospectively amended law is staring as it. In such a situation, according to the learned Departmental Representative, there is no alternative but to implement the amended law. The fact that the amendment was not available at the time of passing the order by the CIT(A) is immaterial as the retrospective amendment always takes effect from an earlier date.
22. While summing up the arguments, the learned Departmental Representative Shri Bhat submitted that the ratio of the decision of the Hon'ble Supreme Court in Hindustan Electro Graphites Ltd. (supra) is not applicable to this case. He further contended that the decision of the Karnataka High Court in the case of Bidar Sahakari Sakkare Karkhane Niyamit Ltd. (supra) needs to be followed in preference to the decision of the Gauhati High Court in the case of Sati Oil Udyog Ltd. (supra) and the retrospectively amended law has to be invoked to the facts of the present cases.
23. The learned representative for the assessee contended that the decision of the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) squarely applies to the facts of the present cases. He has also relied on the decisions of Gauhati High Court in the case of Sati OH Udyog Ltd. (supra), Calcutta High Court in Modern Fibotex India Ltd. v. Dy. CIT (1995) 212 ITR 496 (Cal). It is contended by the learned representative for the assessee Shri Sriram that the amended law should not be applied to the present cases as the amendment came much after the assessment year under appeals, though retrospectively. According to him amendment to Section 143(1A) does not hold good in view of the decision of the Gauhati High Court (supra). It is contended by the other representatives that the decision of the Karnataka High Court reported in (1999) 237 ITR 445 (Kar) (supra) is impliedly overruled by the Hon'ble Supreme Court. According to them, the amendment is valid prospectively but not retrospectively. Further, their contention is that the decision of the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P) Ltd. (supra) is de horse the context.
24. We thought it fit to discuss the facts of the cases before us also. In the case of Verifone Software Systems (P) Ltd. the assessee claimed pre-operative expenses of the business. As these were not allowable, the AO capitalised the expenses and allowed depreciation also. Because of this action the loss admitted by the assessee was reduced to another figure of loss and on the difference of these losses additional tax was levied, In the case of Eastern Radiators (P) Ltd. Bangalore, the AO made prima facie adjustment of excess .investment allowance and reduced the loss admitted into another figure of loss. In the case of S.G.R. Balaji Silks (P) Ltd., the AO disallowed the excess depreciation claimed by the assessee by way of prima facie adjustment and reduced the loss admitted into another figure of loss. In the case of Crystal Cab (P) Ltd. also, the AO made disallowance of excess depreciation claimed by the assessee and by way of prima facie adjustment, he reduced the loss admitted into another figure of loss.
25. The CIT(A) has confirmed the disallowances in the case of Verifone Software Systems (P) Ltd. and Eastern Radiators (P) Ltd. Bangalore though cancelled the levy of additional tax as the loss admitted loss was reduced to another figure of loss. In the case of S.G.R. Balaji Silks (P) Ltd. while dealing with the rejection of application of the assessee under Section 154, the CIT(A) held that no additional tax is leviable as even after adjustment, the figure happens to be the loss. Though the assessee has taken alternative grounds, according to the CIT(A), as he has granted substantial relief sought for by the assessee, those grounds are to be dismissed as such. In the case of Crystal Cabs Ltd. also while dealing with the rejection of application under Section 154, the CIT(A) held that the learned representative for the assessee did not dispute the adjustment as such but levy of additional tax. Therefore, as usual, the CIT(A) held that levy of additional tax in the case of reduction of loss into another figure of loss is unwarranted.
26. As seen from the appellate orders of the CIT(A), the decision in all the cases is uniform in respect of levy of additional tax in the cases where loss admitted is reduced to another figure of loss. However, in some cases, the CIT(A) did confirm the prima facie adjustments made by the AO under Section 143(1)(a).
27. We have gone through the case law cited by both the parties. We would first go to the decision of the Madhya Pradesh High Court in the case of CIT v. Hindustan Electrographite Ltd. (1998) 229 TTR 16 (MP). The observation of the MP High Court with regard to prima facie adjustment under Section 143(1)(a) is as under :
"As per Section 143(1A), in the case of a return filed by an assessee it is found that certain income is increased on the voluntary disclosure by the assessee, additional tax can be imposed. The idea behind this insertion of the provision is to keep the assessee under check not to file the return in a thoughtless manner so that the Revenue may not be cheated inadvertently or advertently. This was only with a view to keep the assessee under check and not to take liberty of filing rash and irresponsible return."
28. In the case before the MP High Court, there were peculiar circumstances. The assessee could not have though of adding the compensation received from the Government of India,, which would be taxed with retrospective effect. At the time when the return was filed under Section 139 of the Act on 29th Dec., 1989, he aforesaid provision of Section 28(iiib) was not in existence. It was only when the AO was finalising the return filed by the assessee that the law came into force w.e.f. 1st April, 1967. In this context, the MP High Court observed as under:
"The question is whether the assessee in the present case is liable to be levied with additional tax as contemplated under s, 143(1A) of the Act. In our opinion, it would be unfair and unjust to levy additional tax on the assessee because the assessee has not mislead the AO while filing the return under Section 139 of the Act and the AO had already intimated the assessee under s, 143(1)(a) of the Act.
[Emphasis, italicised in print, supplied].
29. The MP High Court felt that because there was no faultr on the part of the assessee and because the assessee has not misled the AO, the assessee was not liable to additional tax. The MP High Court has also held that Section 143(1A) of the Act read with the proviso to Clause (a) of Sub-section (1) will come into play only where the assessee on his voluntary return makes certain statements for purposes of claiming certain deductions and allowances and if they are found to be inadmissible prima facie. In that case additional tax can be charged. As per the decision of the MP High Court, it is nowhere laid down that levy of additional tax is incorrect. More so, the MP High Court approved levy of additional tax where there is fault on the part of the assessee while not computing the correct income in the return of income. But in the circumstances of the case before the MP High Court insertion of a new Section 28(iiib) after the due date for filing the return by that assessee was involved and the MP High Court opined that levy of additional tax was not attracted.
30. In the case before the MP High Court the prima facie adjustment was made as a result of insertion of Section 28(iiib) at a much later date then the due date of filing of return though retrospective effect was given. But for the retrospective operation of the provisions of Section 28(iiib), the assessee could not have suffered additional tax. But in the present case before us, the prima facie adjustments were made because the assessees defaulted themselves in not computing their income correctly and properly while submitting their returns. In other words, the MP High Court decision applied where there was no fault on the part of the assessee. But herein, the assessees committed mistakes in computing depreciation, investment allowance, etc. The MP High Court at (P) 20 of 229 ITR, upheld the levy of additional tax where the assessee makes certain statements for purposes of claiming certain deductions and allowance and if they were found to be inadmissible prima facie. It is needless to say that this decision of the MP High Court was affirmed by the Hon'ble Supreme Court.
31. Further, in the case of Hindustan Electro Graphites Ltd., before the MP High Court cash compensatory assistance was not taxable at the time of filing of return by the assessee but became taxable from the date of filing of return by way of amendment with retrospective effect from 1st April, 1967. But in the cases before us, the provisions of Section 143(1A) was very much in existence w.e.f. 1st April, 1989. Because of certain judicial pronouncements it was made clear in the Finance Act, 1993, that loss cases converted into another loss also, come under the purview of Section 143(1A). That is the reason why the provisions were amended retrospectively, which is evident.from the Board's circular pointed out by the learned Departmental Representative. and reproduced by us in the preceding paras.
32. The decision of the Calcutta High Court in the case of Modem Fibotex (supra) is exactly again on the point of cash compensatory, support. While referring to the decision of the Calcutta High Court the Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. (supra) at para 53 held as under:
"The High Court was further of the view that there was limitation on the power under Section 143(1)(a) and that the AO must determine the question of assessment thereunder by applying law prevailing when the return was filed. One has to see the nature of the obligation to which an assessee is subjected in filing his return and the object sought to be achieved by the introduction of Section 143(1A) and Section 143(1)(a) which direct levy of additional tax. The obligation is to file a correct return within the time specified, that is to say, a return which is correct according to law in force, when it is required to be filed. It was not. disputed that the return when filed by the assessee could not be termed out of hand as an incorrect return on the date of filing of the return."
33. In the case of Cement Marketing Co. of India Ltd v. Asstt. CST (1980) 124 ITR 15 (SC) before the Hon'ble Supreme Court, the assessee did not include in its return of turnover the amount of freight included in the price of sugar in the bona fide belief that it was not liable to be included in the taxable turnover.
34. In the cases before us it was neither correct return nor there was no bona fide belief. Therefore, the facts of the cases in the judgments delivered by the Calcutta High Court and the Hon'ble Supreme Court (supra) are different.
35. Now we shall come to the decision of the Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. (supra). This decision is rendered by the Hon'ble Supreme Court on appeal filed by the Revenue against the decision of the MP High Court reported in (1998) 229 ITR 16 (MP) (supra), We have already discussed as to how the facts before the MP High Court are distinguishable from the facts before us in the preceding paragraphs. Again the decision rendered by the Hon'ble Supreme Court in the case reported in (2000) 243 ITR 48 (SC) (supra) are on the point of deleting the addition made by the AO under Section 143(1)(a) in view of the clear-cut provisions of Sections 143(1)(a) and 143(1A). Here the Hon'ble Supreme Court for holding additional tax as not leviable, held that the case before it does not represent even a bona fide mistake. The Hon'ble Supreme Court was on the point of additional tax under Section 143(1A) when a prima facie adjustment was made as a result of insertion of a new section and giving retrospective effect to that section. In other words, the Hon'ble Supreme Court found fault with the adjustment made under Section 143(1)(a) and levy of additional tax on that because of insertion of a new section which was not existing at the time of due date for filing the return by the assessee or at the time of filing the return of income by the assessee though retrospective effect was given to the amendment.
36. The Hon'ble Supreme Court found that there was no element of lack of bona fides in the case before it, because the assessee does not know that cash compensatory support was taxable as on the date of filing of the return. In the fact as on the date of filing of the return by the assessee in the case before the Hon'ble Supreme Court, cash compensatory support was not taxable. But in the cases before us the facts are different. The adjustments made are very much according to law. Even the assessee did not dispute. But what is in dispute is whether additional tax was leviable when admitted loss was converted into another figure of loss. The assessees wanted to take shelter under the decision of the Hon'ble Supreme Court rendered on a different context.
37. The learned Representative for the assessee relied on the decision of Gauhati High Court in the case of Sati Oil Udyog Ltd. & Am. v. CIT (supra) considered levy of additional tax as penal in character and therefore, prospective. This judgment is dt. 12th June, 1998. But the jurisdictional High Court in the case of Bidar Sahakari Sakkare Kharkhane Niyamit and Ors. v. Union of India and Ors. (supra) has taken note of the Gauhati High Court's decision (supra) but held that the word 'tax' will include 'additional-tax' and that the character of tax and penalty may differ but not of tax and additional tax. The Hon'ble Karnataka High Court relied on the decisions of Hon'ble Supreme Court in the cases of Union of India v. Bombay Tyre International Ltd. (1986) 59 Comp. Cas. 460 (SC) and CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294 (SC). The Hon'ble Karnataka High Court has categorically held as follows :
"Parliament has power to legislate prospectively or retrospectively. Section 143(1A) inserted by the Finance Act, 1993, retrospectively from 1st April, 1989, therefore, cannot be considered to be violative of Arts. 14 and 265 of the Constitution of India. The very object of Section 143(1)(a) by making prima facie adjustment is to avoid hearing being given. Debatable adjustments excludes prima facie adjustments. It is post-decisional hearing which is provided enabling the assessee to file objection by moving an application under Section 143(2)(a) within one month from the date of service of notice of demand. A revision could have been filed under Section 264 and now in view of the Explanation to Section 143(5) even against an intimation, appeal could be filed under Section 246 besides availability of the remedy of revision under Section 264. The provisions of Section 143(1)(a) or 143(1 A) of the Act cannot be considered to be violative of the principles of natural justice or discriminatory, arbitrary or unreasonable being violative of Arts. 14 and 265 of the Constitution."
38. Thus, the Karnataka High Court has upheld the validity of the provisions of Section 143(1)(a) and Section 143(1A) and also the retrospective amendment of Section 143(1A). The Karnataka High Court has considered the decision of the Gauhati High Court in the case of Sati Oil Udyog Ltd. v. CTT (supra). The Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) did not consider the decision of the Karnataka High Court and did not hold the provisions of Section 143(1)(a) or 143(1 A) as invalid, including the retrospective amendment to Section 143(1A). It was only held amendment to Section 28 by way of insertion of Section 28(iiib) was not valid retrospectively in that particular case before the Hon'ble Supreme Court as this amendment led to levy of additional tax under Section 143(1)(a) for no fault of the assessee. The Hon'ble Supreme Court also did not approve the judgment of the Gauhati High Court (supra). As already mentioned the judgment of the Gauhati High Court is dt. 12th June, 1998, and the judgment of Karnataka High Court is dt. 28th Nov., 1998. Further the judgment of the Karnataka High Court is binding on this Tribunal and all over Karnataka.
39. For the aforementioned reasons the decision of the Karnataka High Court holds the field in the matter of levy of additional tax even in cases where loss admitted was reduced to another figure of loss. In such circumstances, not following the decision of jurisdictional High Court, which is exactly on the point amounts to overlooking the judgment of Karnataka High Court which is binding in Karnataka.
40. As far a the decision of the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra), we would like to quote certain excerpts and discuss. In the second paragraph at (P) 55 of 243 ITR, the Hon'ble Supreme Court has mentioned as under :
"No additional tax would have been leviable on the cash compensatory support if the Finance Act, 1990, had not so provided even though retrospectively."
41. As already mentioned by us in the preceding paragraphs, the case before the Hon'ble Supreme Court, because of insertion of a new section viz., Section 28(iiib) with retrospective effect, the assessee suffered additional tax. In the cases before us, it is not so. Even prior to explanatory amendment to Section 143(1A) prima facie adjustments were made under Section 143(1)(a) and additional tax levied in all the appeals before us.
42. In the last para of the judgment the Hon'ble Supreme Court held as follows :
"Keeping in view the principles laid down by this Court it has to be held that in the circumstances of the present case levy of additional tax taking into account the income by way of cash compensatory support is not warranted".
43. The Hon'ble Supreme Court has clearly held that keeping in view the circumstances of the present case, it has to be held levy of additional tax taking into account the cash compensatory support is not warranted. Therefore, the decision of the Hon'ble Supreme Court is only in respect of levy of additional tax where cash compensatory support is made as an adjustment prior to 1st April, 1990. After perusing the judgment of the Hon'ble Supreme Court we are of the opinion that the judgment in the case of Hindustan Electro Graphites Ltd. (supra), is as judgment in personem but not a judgment in rem even with regard to the obiter dictum in connection with retrospective amendment.
44. We have gone through the facts of the case, number of decisions cited by the learned Departmental Representative and the decisions cited by the learned representative for the assessee. At the cost of repetition we quote hereunder the excerpts of the judgment of Hon'ble Supreme Court in the case of Sun Engineering Works (P) Ltd. (supra) at p. 319 :
"It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the judgments have to be considered in the light of questions which were before this Court. Decision takes its colour from the questions involved. Court must carefully try to ascertain the true principle."
45. The question before the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) was "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the addition made by the AO under Section 143(1)(a) in view of the clear-cut provisions of Section 143(1)(a), 143(1A) and 234 ?" The question was answered in the affirmative, i.e., in favour of the assessee. In other words, the Hon'ble Supreme Court held that deletion of addition made by the AO under Section 143(1)(a) was justified. For coming to this conclusion, the Supreme Court examined whether levy of additional tax in the case before it bears all the characters of penalty. The intention of the Hon'ble Supreme Court for observing this, perhaps would be to say that the penalty should be imposed with reference to the law at the time of commission of the offence only while considering the provisions of the law as they stood without any further amendment brought about by the time of penalty was imposed. This view gets support from the decision of the Hon'ble Supreme Court in the case of Brij Mohan v. CIT (1979) 120 ITR 1 (SC). In the case before the Hon'ble Supreme Court in Hindustan Electro Graphites Ltd. (supra) the levy of additional tax under Section 143(1A) was treated as bearing all the characteristics of penalty and consequently the commissioning of the offence should be after 1st April, 1990 and as the assessee did not show in the return of income cash compensatory support on 29th Dec., 1989 during which time it was not taxable, the Hon'ble Supreme Court deleted the addition made under Section 143(1)(a) and cancelled the levy of additional tax under Section 143(1A). But in the cases before us, even if it is treated for a moment that levy of additional tax is in the nature of penalty, the offence of not disclosing the correct income or not showing the deductions, etc. properly commenced on the date of filing of the return or due date for filing of the return. The inadmissibles prima facie adjustable under Section 143(1)(a) are to be adjusted even as on the date of filing of the return as per law. The law in this respect neither prohibited prima facie adjustment made by the AO as on the date of filing of the return, nor amendment was brought in this respect retrospectively. Therefore, as far as the inadmissibles made as prima facie adjustments in the returns filed by the assessee are concerned, the AO was perfectly right in making such adjustments and commissioning of offence started on the date of filing of the returns itself.
46. One cannot interpret the decision of the Hon'ble Supreme Court in the case Hindustan Electro Graphites Ltd. (supra) that because the Hon'ble Supreme Court observed that additional tax bears all the characteristics of penalty in that case, therefore, the AO should not levy additional tax under Section 143(1A) in all the cases. In these circumstances, we thought it fit to rely on the decision of the Hon'ble Supreme Court in the case of Sun Engineering Works (P) Ltd. (supra) not to pick a sentence that additional tax is in nature of penalty, and treat the same as complete law declared by the Hon'ble Supreme Court. The judgment should be read as a whole, viz., with reference to Sections 28, 143(1)(a) and 143(1A) but not in isolation.
47. In this set of circumstances, we have to hold that levy of additional tax is envisaged under the law by the maintainability or otherwise of the prima facie adjustments per se made in pursuance of the provisions of Section 143(1)(a) and the mere conversion of returned loss into assessed loss as a consequence of such adjustments does not come in the way of levy of additional tax.
48. When the Tribunal was consistently following a line and rendering decisions basing on the decision of the Karnataka High Court which is exactly on the point, leaving a jurisdictional High Court's binding decision aside and all of a sudden following the decisions of other High Courts rendered much earlier to the decision of the Karnataka High Court leads to chaos. The observations of the Hon'ble Supreme Court cannot be taken as obiter dictum inasmuch as it was not held by the Supreme Court that levy of additional tax itself is illegal. In this connection, we are in agreement with the learned Departmental Representative that :
(i) Firstly, the Hon'ble Supreme Court did not deal with the levy of additional tax in the loss to loss cases;
(ii) Secondly, in the case before the Hon'ble Supreme Court the assessee had questioned the propriety of adjustments made in the intimation under Section 143(1)(a);
(iii) Thirdly, in the case before the Hon'ble Supreme Court, the law as on the date of filing the return of income was different, inasmuch as the cash compensatory support was not taxable, but there was retrospective amendment to Section 28 by which the cash compensatory support became taxable when the intimation was passed by the AO;
(iv) Fourthly, the Court was dealing with retrospective amendment of Section 28 by Finance Act, 1990, vis-a-vis Section 143(1A) and not the retrospectively made amendment by the Finance Act, 1993 to Section 143(1A).
49. We are also of the opinion that the decision of the Calcutta High Court in the case of Modern Fibotex India Ltd. and Anr. (supra) was again rendered with reference to charging of additional tax in a case where cash compensatory support was not chargeable at the time of filing of the return, but has become chargeable at a later date of course with retrospective effect. It is this decision the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) has approved. Therefore, the decision of the MP High Court in the case of CIT v. Hindustan Electro Graphites as affirmed by the Hon'ble Supreme Court in (2000) 243 ITR 48 (SC) (supra), and the decision of the Calcutta High Court in the case of Modern Fibotex Ltd. (supra) as approved by the Hon'ble Supreme Court stand on a different facts and circumstances. We are further of the opinion that neither the decision of the Gauhati High Court in the case of Sati Oil Udyog, Ltd. (supra) nor the decision of the Karnataka High Court in the case of Bidar Sahakari Sakkare Kharkhane Niyamit (supra) was considered by the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra), and therefore, both the decisions are not struck by the Hon'ble Supreme Court and they stand. After going through judgment of the Hon'ble Supreme Court, we are of the opinion that the decision of the Karnataka High Court is not even overruled by implication. Both the decisions of Gauhati High Court and Karnataka High Court are exactly on the point which arose before us, But the decision of the Karnataka High Court is the latest one and the same has to be followed for the following reasons.
(i) The decision of the Karnataka High Court being a jurisdictional High Court is bending on the Tribunal, Bangalore Benches;
(ii) The decision of the Gauhati High Court was very much considered by the Hon'ble Karnataka High Court and thereafter only it delivered the judgment in the case of Bidar Sahakari Sakkare Kharkhane Niyamit.
(iii) Retrospective amendment to Section 143(1A) was held as valid and the Hon'ble Supreme Court in no decision has reserved this decision.
50. With this background, we are bound to follow the decision of the jurisdictional High Court as long as it is not reversed by the apex Court, and not even obiter dictum was there as the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) has only referred to the retrospective amendment to Section 28 in a different context. The issue before the Bidar Sahakari Sakkare Karkhane Niyamit is on the point of levy of additional tax when prima facie adjustments were made to the income/loss. It was answered in favour of the Revenue. The issue before the Karnataka High Court in the case cited supra and before the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) is not "Whether levy of additional tax is in the nature of penalty". The issue to be decided is whether additional tax is leviable when prima facie adjustments are made. As long as the decision of the Hon'ble Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra) is distinguishable on facts and the decision of the Karnataka High Court squarely applies to the facts of the case, it cannot be said that the decision of the Karnataka High Court is overruled by implication. It is also not material whether at the time of tendering the decision by the first appellate authority the decision of jurisdictional High Court exists or not. But it is material whether at the time of passing the order by the Tribunal the jurisdictional High Court's decision was rendered or not.
51. For all these reasons, we uphold the levy of additional tax in all the cases before us and reverse the decision of the CIT(A) on the point of cancellation of levy of additional tax under Section 143(1A). We are concerned with the appeals before us and we need not suggest the Revenue as to what to do with regard to the appeals already decided otherwise. The Revenue is at liberty to take whatever steps it deems fit.
52. Finally, the Revenue succeeds and the appeals filed by it are all allowed.