Income Tax Appellate Tribunal - Chandigarh
H. P. Financial Corpn. vs Deputy Commissioner Of Income Tax on 26 October, 1998
Equivalent citations: [2000]70ITD247(CHD)
ORDER
R.M. Mehta, V.P. This appeal is directed against the order passed by the Commissioner (Appeals) whereby he has confirmed rejection of assessee's application under section 154 vis-a-vis the working of "chargeable profits" under section 115J of the Income Tax Act, 1961.
2. We have heard both the parties and also perused the orders passed by the tax authorities. The brief facts are to the effect that the assessee filed return of income whereby he computed book profits for purposes of section 115J at a figure of Rs, 1,52,99,221 and 30 per cent thereof came to Rs. 45,89,766. It is a subject-matter of record that the figure of Rs. 1,52,99,221 included three items, namely, income- tax paid Rs. 16,15,000, amount carried to reserves Rs. 58,88,329 and dividend paid/proposed Rs. 16,50,218, the aggregate of the aforesaid figures coming to Rs. 91,88,547. It is also a matter of record that the net profit as per profit and loss account reflected a figure of Rs. 61,10,674.
3. By means of an intimation under section 143(1)(a), the assessing officer accepted the aforesaid figure of book profits under section 115J.
The assessee on receipt of the intimation filed an application under sect ion 154 contending that the three items in question had been inadvertently added while computing the book profits and this had resulted in an error within the meaning of section 154. It was submitted that the aforesaid three items had not been debited to the profit and loss account and the same had been provided/ appropriated directly in the balance-sheet. It was requested that the intimation under section 143(1)(a) be modified by, excluding the aforesaid three items. The prayer made aforesaid came to be rejected by the assessing officer as according to him the figure of book profits as shown by the assessee in its return had been accepted and there was no mistake apparent from the record which required rectification. On further appeal, the Commissioner (Appeals) confirmed the view taken by the assessing officer adopting the same line of reasoning.
4. Before us the learned counsel for the assessee reiterated the arguments advanced before the Commissioner (Appeals) and these being to the effect that the three items in question had been inadvertently added to the net profit as per profit and loss account whereas these were not required to be so added for working out the book profits as they had not been initially debited to the profit and loss account. A reference was made to the audited accounts of the assessee-corporation contending that these were items reflected directly in the balance-sheet. In support of the arguments, the learned. counsel placed reliance on CBDT Circular No. 549 as also certain reported decisions which are referred to at page 3 of the appellate order in para (iii)(b). The further submission of the learned counsel was to the effect that whereas the assessee while filing the return had committed a mistake, it was the duty of the assessing officer to rectify the same and work out the correct figure of book profits and consequentially the correct income. Inviting our attention to proviso (ii) to section 143(1)(a), the learned counsel urged that this itself took care of the situation which had arisen in the present case as it stipulated relief to be allowed to the assessee which was prima facie admissible but not claimed. The learned counsel also referred to the written arguments filed before the Commissioner (Appeals) contending that these had not been considered in the proper perspective. Even before us the learned counsel referred to the audited accounts inviting our attention to the relevant pages for the submission that the three items in question had not been debited to the profit and loss account but taken directly in the balance-sheet. In concluding he urged that necessary direction be given to the assessing officer to modify the adjustment.
5. The learned Departmental Representative, on the other hand, strongly supported the orders passed by the tax authorities contending that the scope of section 143(1)(a) was limited in the sense that only arithmetical errors could be rectified and adjustment made in respect of prima facie admissible or inadmissible items. According to her, the facts of the case did not fall under any of the aforesaid situations and in that view of the matter, the view point canvassed was required to be rejected.
6. After examining rival submission, we are of the view that there is substantial merit in the arguments advanced by the learned counsel for the assessec. It would be a great hardship for an assessee in case tax was to be levied on him in respect of any item or items which patently and apparently are not liable to be so taxed. On the facts of the case it is quite clear that the assessee inadvertently and without understanding the provisions of law worked out the book profits under section 115J by adding the figures on account income-tax paid/payable, amounts carried to reserves and dividend paid/proposed whereas these were required to be added back to the figure of profit and loss account only if these had earlier been debited to the said profit and loss account. It is not the case of the department that the audited accounts were not filed alongwith the return of income and we cannot comprehend a situation where an intimation under section 143(1)(a) has been prepared and sent to the assessee in a mechanical and automatic manner without referring to the audited accounts. The profit and loss account appears at pages 28 and 29 of the audited accounts and the net profit shows a figure of Rs. 6 1.11 lakhs. Below the said profit and loss account at page 29 are the appropriations which are reflected directly in the balance-sheet and these contain the provision for taxation, transfer to reserve and amount appropriated for purpose of paying dividend. This is further substantiated by the profit and loss account which appears at pages 72 to 74 of the audited accounts and a perusal of the same shows that the three items in question are not debited and a further reference to page 62 which is the balance-sheet of the corporation shows the addition to the reserves and the provision for taxation appears at page 66 of the balance-sheet and the dividend is shown at page 68 which is once again the balance-sheet of the assessee-corporation The learned counsel referred extensively to the aforesaid audited accounts during the course of the hearing and the learned Departmental Representative did not rebut the factual aspect vis-a-vis the non-debit of the three items in question to the profit and loss account.
7. A reference at this stage to proviso (ii) to section 143(1)(a) can be made and the same reads as under:
(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 been claimed in the return, shall be allowed.
This speaks of various prima facie admissible items with reference to the information available in the return of income and other accounts and documents accompanying such return, but which have not been claimed in return. According to the aforesaid proviso, necessary deduction/ relief would have to be allowed by the assessing officer while sending the intimation. An argument can be raised that the proviso speaks of carried forward loss, deductions, allowance or relief and what the assessee is asking for in the present appeal does not come under any of the aforesaid categories. In our opinion, this would be taking a very strict and technical view of the matter when one has to consider the much larger intention of computing the correct taxable income of an' assessee and also allowing to an assessee who is ignorant or does not understand or know the law, those reliefs to which he is patently, apparently and prima facie entitled. Another aspect has to be kept in mind i.e. the completion of the assessment under section 143(1)(a) without calling an assessee and this by itself casts a greater responsibility on the assessing officer as he has to ensure that whatever is prima facie allowable is to be allowed although not claimed and conversely as proviso (iii) provides whatever is not to be allowed is to be disallowed on the same lines as set out in proviso (ii). Considering the matter from the aforesaid aspect, we are of the view that this was a fit case in which the assessing officer should have accepted the assessee's application under section 154 and modified the intimation under section 143(1)(a). The confirmation of his order by the Commissioner (Appeals) is accordingly not correct.
In the light of aforesaid discussion and taking into account the peculiar facts of the present case, we direct the assessing officer to modify the intimation under section 143(1)(a) by excluding the three items in question after verification and, in our opinion, there is no debate on the subject, there can be no two interpretations as the provisions of section 115J are absolutely clear insofar as the working of book profits is concerned
8. In the result, the appeal is allowed.