Income Tax Appellate Tribunal - Madras
Amber Electrical Conductors (P.) Ltd. vs Deputy Commissioner Of Income-Tax on 17 February, 1992
Equivalent citations: [1992]43ITD313(MAD)
ORDER
S. Kannan, Accountant Member
1. This appeal by the assessee is directed against the order dated 12-9-1990 of the CIT (Appeals)-V, Madras, relating to the assessment year 1989-90.
2. In its return of income for the assessment year 1989-90, the assessee had disclosed total income of Rs. 20,88,350. The assessee had computed its total income at the said figure, after claiming deduction in a sum of Rs. 6,52,550 under Section 32AB of the Act. It is a matter of record that along with the return of income the assessee had submitted, inter alia, two receipts for IDBI Deposits.
As may be seen from the 'Adjustment Explanatory Sheet' dated 8-3-1990, while computing the tax payable by the assessee, the assessing officer had disallowed the assessee's claim under Section 32AB of the Act, because audit report in Form No. 3AA contemplated by Section 32AB read with Rule 5AB of the Income-tax Rules, 1962, had not been filed along with the return.
3. Thereupon the assessee filed before the assessing officer a rectification petition under Section 154 of the Act. In the said application, the assessee had sought rectification of tax computation on more than one count. Of relevance to the purpose on hand is the fact that according to the assessee the adjustment made by the assessing officer in the said sum of Rs. 6,52,550 was a mistake apparent from record. The assessing officer dismissed the rectification petition on this issue, though he allowed the petition on some other issue.
4. The CIT(A) declined to interfere in the matter, observing:
The appellant's counsel has stated that the assessee-company has compulsory statutory audit and had got its accounts audited accordingly. While doing so, it is pointed out that an Audit Report under Section 32AB was also obtained from the Auditors for the purpose of claiming relief under Section 32AB in Form No. 3AA. It was only due to a mistake the appellant failed to file the Audit Report under Section 32AB in Form No. 3AA along with the Return of Income and that the same was filed along with the petition under Section 154. The appellant's counsel has also referred to the cases of Laxmi Rice Mills v. ITO [1982] 2 ITD 39 (Delhi) and Gujarat Oil and Allied Industries v. ITO [1982] 2 ITD 454 (And.). In the case reported in 2 ITD 39 the Delhi Bench 'B' of the ITAT came to the conclusion that the assessee had offered a valid explanation for the delay in filing the Audit Report by pointing out the non-availability of a Chartered Accountant at the place of business. Tla'is finding was given by the ITAT Delhi Bench while dealing with a case covered by Section 80J of the Act, 1961. In the case reported in 2 ITD 454 (Ahd.) the Ahmedabad ITAT 'C' Bench held while dealing with a case covered under Section 80J that purpose of Section 80J(6A) was to enable the ITO to make his assessment, on the basis of audited accounts. The words 'along with' mean that the audit report should also be furnished so that it is available to the ITO at the time of the assessment. Since audited accounts were filed in the said case before the completion of assessment, the ITAT remanded the matter to the Commissioner of Income-tax (Appeals) for re-consideration and disposal according to law.
5. Two other facts may here be recorded. First, the assessing officer on 31-5-1990 issued a notice under Section 143(2) calling upon the assessee to produce or cause to be produced any documents, accounts or other evidence on which the assessee might rely in support of the return filed by it for the assessment year 1989-90. Secondly, on 31-12-1990 the assessee filed what it had labelled "Revised Return". In the said revised return also, the total income disclosed by the assessee was same as that disclosed in the original return, namely, Rs. 20,88,350, the said figure having been arrived at after taking into reckoning deduction of Rs. 6,52,550 under Section 32AB of the Act. It is a matter of record that audit report in Form No. 3AA was attached to the said revised return.
6. Shri G.D. Gopal, the learned counsel for the assessee, took us through the facts and circumstances of the case and contended that under the new assessment procedure incorporated in Section 143(1)(a) of the Act, which came into force with effect from 1-4-1989, the assessing officer could not have lawfully rejected the assessee's claim for deduction under Section 32AB, by the simple expedient of bringing the rejection under the purview of 'prima facie adjustments'. According to Shri Gopal, only arithmetical and/or 'ministerial' (Shri Gopal has obviously used the latter expression as an euphemism for the expression 'clerical') mistakes can be brought under the pale of prima facie adjustments, and not matters which are quasi-judicial in nature and, which by the sake token could not be decided unilaterally by the assessing officer, and without hearing the assessee. Section 143(1)(a) has a limited role and purpose and that is to rectify mistakes apparent from record. Under the Scheme of the Act, the said section does not contemplate adjudication of complicated issues. Such matters naturally require further proof, arguments, evaluation of evidence etc., and Section 143(2) is designed to deal with such cases.
In this connection, Shri Gopal drew our pointed attention to paragraph 5.4 of the CBDT Circular No. 549 of October 31, 1989 (182 ITR St. 21), and emphasised the fact that none of the examples of prima facie adjustments given therein involve the collection of further evidence, hearing of arguments and the like. For a fact, even according to the Board, the prima facie adjustments are only those adjustments that can be made on the basis of the information available in-the return or the accompanying accounts or documents and not on the basis of past records of the assessee.
Again, Section 143(l)(a) a does not contemplate the making of any assessment; it talks of only intimation to the assessee regarding the tax payable by or the refund due to the assessee. Section 143(3) of the Act continues to govern the making of assessments. And matters which are quasi-judicial in nature in that they could be decided only after giving the assessee an opportunity of being heard can be dealt with not under Section 143(1) but under Section 143(3) of the Act. In this regard Shri Gopal cited paragraph 5.12 of the said Circular (page 24 of the Report) as supporting his case.
7. According to Shri Gopal, the foregoing will indicate that while invoking Section 143(1)(a) of the Act, the assessing officer cannot travel beyond what are in effect mistakes apparent from record and exercise uncontrolled powers.
8. Shri Gopal then contended that it was not as though the assessee's claim for deduction in a sum of Rs. 6,52,550 under Section 32AB was bereft of any proof. Drawing our attention in this connection to the fact that the assessee had enclosed two receipts evidencing two deposits with the IDBI along with the original return, Shri Gopal contended that the assessing officer could not have lawfully ignored the said proof. If the assessing officer had any doubt about the admissibility of the assessee's claim, he should have given the assessee an opportunity of being heard. By unilaterally rejecting the assessee's claim, the assessing officer had offended the principles of natural justice. In support of this argument, he referred to and relied upon the following cases :
161 ITR St. 1.
Institute of Chartered Accountants of lndia v. L.K. Ratna [1987] 164ITR 1986] 28Taxman 654 (SC) Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 (SC).
One of the points urged by Shri Gopal was that Section 143(1)(a) talks of prima facie adjustments being made "on the basis of the information available". The case before us, however, is one where information is not available, in that the report in Form No. 3AA was not attached to the return. Therefore, it was not open to the assessing officer to make the impugned prima facie adjustments.
9. Finally Shri Gopal drew our attention to Section 119(2)(c), recently inserted by the Finance (No. 2) Act, 1991, and contended that even according to the Department, a hyper-technical view should not be taken in matters relating to any requirement contained in any of the provisions of Chapter IV of Chapter VI-A of the Act.
10. In view of the foregoing, therefore, urged Shri Gopal, the assessee is entitled to succeed.
11. On his part, the learned Departmental Representative strongly supported the impugned orders of the lower authorities. He contended that the assessee's claim for deduction under Section 32AB of the Act was rightly brought under the purview of 'prima facie adjustments', because as is ex facie clear from the provisions of Section 32AB(5), the filing of an audit report in Form No. 3AA is a condition precedent to the grant of the allowance. In this case, it is a matter of record that the assessee failed to file Form No. 3AA along with the original return. Consequently, the assessing officer was justified in negativing the assessee's claim. In this view of the matter, therefore, the case before us is one in which there is no mistake, much less a mistake apparent from record. It should, therefore, follow that the application under Section 154 filed by the assessee was clearly unmaintainable. In any event, the disallowance of the assessee's claim is fully supported by the plain words of the Section 32AB.
In view of the foregoing, therefore, contended the learned Departmental Representative, the impugned order of the CIT(A) does not invite any interference on this issue.
12. We have looked into the facts of the case. We have considered the rival submissions.
13. Section 143 of the Act as it stood prior to its substitution by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, incorporated the concept of "assessment of income". That is to say, under the old section, after a return of income was filed the assessing officer may make an assessment under Sub-section (1) without requiring the presence of the assessee or production by him of any evidence in support of the return. Where the assessee objects to such an assessment, or where the Income-tax Officer is of the opinion that the assessment so made is incorrect or incomplete, or in a case where the assessing officer does not complete the assessment under Sub-section (1) but wants to make an inquiry, a notice under Sub-section (2) may be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced by the assessee and after making necessary inquiries, the assessing officer used to make assessments under Sub-section (3) of Section 143.
With the passage of time, not only the workload increased but also the emphasis shifted to voluntary compliance on the part of the assessees, the principle of voluntary compliance being rooted in the Department's trust in the taxpayers. It was also felt that the movement away from the concept of assessment of income in all cases would enable the Department to concentrate on more important cases. It was with these ends in view that the Direct Tax Laws (Amendment) Act, 1987 shifted the emphasis from the concept of assessment of income to the concept of determination of additional tax or refund, as the case may be. Broadly stated, the scheme is that no assessment order will generally be required to be passed, once acknowledgment of the return of income is issued. Cases which warrant scrutiny will of course be identifie-d and taken up for assessment following the pre-existing procedure.
14. Sub-section (1) of the totally recast Section 143 provides that where a return is filed under Section 139 or under Section 142(1) of the Act, the tax or interest, or as the case may be, the refund found due on the basis of such return, an intimation shall be sent to the assessee specifying the sum payable or as the case may be refundable. There is a significant proviso which allows the Department to make certain adjustments in the income or loss as returned by the assessee. These adjustments which go by the name 'primafacie adjustments' falj under the following categories.:
(i) Rectification of any arithmetical errors In the return or in the accompanying accounts or documents;
(ii) allowance of any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in the record, accounts or documents, is prima facie admissible but it is not claimed in the return; and,
(iii) disallowance of 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.
In paragraph 5.4 of the Circular No. 549 dated October 31, 1989 (182ITR St. 1), the CBDT has given some examples of such primafacie admissibles or inadmlssibles in respect of which adjustments can be made to the returned income or loss. It will be ex facie clear from the list of examples contained in the said paragraph that prima facie adjustments are contemplated only in respect of what, in essence, are mistakes apparent from record.
15. Secondly, a common thread runs through the aforesaid three categories which fall under the pale of prima facie adjustments; and that is that there is an element of 'relativity' inherent in them. When we say that there is an arithmetical error, we naturally mean that the result of a particular process say an addition is not in accord with mathematical tables, which are axiomatic. Similarly, when we say that the assessee has not claimed an admissible deduction or relief we mean that the assessee is entitled to the deduction or relief concerned under the provisions of the Act. Similarly, a decision that the assessee is not entitled to a particular deduction or relief is, clearly, a decision against the backdrop of the statutory provisions.
16. Thirdly, the proviso to Section 143(1) does not take within its fold any claim in respect of which the statute does not require the assessee to produce proof along with the return. Thus, for example, there is nothing in the Act which requires the assessee to-attach to the return any proof in respect of, say, a claim for revenue deduction under the head 'Salaries and Wages'. True, the statute obligates the assessee to enclose a copy of the manufacturing/trading account; but such account by itself cannot be regarded as conclusive proof of the fact that the assessee had either incurred expenditure under the head 'Salaries and Wages' to the extent claimed or that the expenditure claimed to have been incurred under the said head was in fact incurred for the purposes of the business of the assessee. Should the assessing officer consider it necessary to inquire into the genuineness of the claim, then he will necessarily have to set in motion the other provisions of the section and make an assessment of the income as before.
17. As adumbrated earlier, a decision on the admissibility-inadmissibility issue is clearly a decision rendered against the back drop of the statutory provisions. Here we have basically two types of cases, namely, (i) cases in which ex facie indications of the admissibility/inadmissibility of a particular claim bring the case under the pale of 'prima facie adjustments', and (ii) cases in which, having regard to the nature of the claim, it is not possible to arrive at a conclusion, one way or the other, without inquiring into the matter in detail. The cases falling under the former category is typified by a case where the assessee who is in receipt of income chargeable under the head 'Salary' claims statutory deduction under Section 16(i) of the Act. The quantum of the deduction admissible is specified by and under that section; and all that the assessing officer has to do is to verify whether the assessee has properly quantified the deduction admissible to him. It may here be highlighted that a claim under Section 16(i) is one of the examples listed in paragraph 5.4 of the CBDT Circular No. 549 of October 31, 1989 (supra).
18. The second category aforesaid encompasses, inter alia the various incentives given to the assessees as a matter of State policy.
The Income-tax Act, 1961 is basically a fiscal statute; that is to say, its aim and objective is to collect tax. Even so, Parliament, in its wisdom, has incorporated certain provisions into the Act, with a view to achieving the objectives of State policy in diverse fields. In the field of industry, for example, the State policy is obviously to give a fillip to industrialisation of the country. It was, therefore, that Parliament has introduced many provisions into the Income-tax Act, 1961, giving various incentives to industry. Thus, even under the Income-tax Act, 1922, Section 15C provided incentive in the form of tax holiday. The same incentive was continued under the new Act also - See Section 80J and Section 80HH of the Act. The Act also provides incentives directed towards modernisation of plant and machinery - See Section 33 (Development Rebate), and Section 32A (Investment Allowance). We also have incentives in the form of accelerated rates of depreciation - See Section 32(1)(iv), (v) and (vi) (initial depreciation), and Section 32(1) (to) (additional depreciation).
In these matters, the scheme of the Act is first to identify the areas in which it is necessary to give incentives; secondly, to lay down the pre-conditions which must be satisfied before the benefit of the incentives could be claimed; and thirdly, to lay down the mode and mechanics of quantifying the incentives. Having regard to the significant and indeed salutary roles which the incentives are designed to play, Parliament has taken care to ensure that the benefit of the incentives is not lost merely because the assessee did not have adequate taxable income. It was, therefore, that the concept of carry forward and unabsorbed development rebate, investment allowance and the like was incorporated into the Act.
Certain incidental conditions have also been prescribed. Section 32AB of the Act for example, envisages the grant of a deduction in the manner and in the circumstances set out in that section. But Sub-section (5) of that section stipulates that the deduction under sub-Section (1) shall not be admissible unless an audit report in Form No. 3AA is furnished along with the return of income. Similar provisions are contained in Sections 35D(4), 35E(6), 80HH(5), 80HHA(4), 80HHB(3), 80HHC(4) and 80-1(7). We also have Sections 54(2), 54D(2), 54F(2) and 54G(2) which stipulate that the deduction or relief in question will not be available unless the proof of the deposit or investment is furnished along with the return of income.
A couple of points may here be made. The right to get the benefit of a particular incentive is to be distinguished from the amount or the quantum of the incentive in question. In order to acquire the right to get the benefit of an incentive, the assessee must first establish that it is entitled to the incentive in question. This the assessee will be able to do, only if it satisfies the pre-conditions, -- 'threshold conditions' -- prescribed by the statute. Once the 'threshold conditions' are satisfied - there can be no compromise on them - the other provisions of the Act relating to a particular incentive must be so construed as to ensure that the benefit of the incentive reaches the assessee and is not denied on flimsy, technical grounds. In other words, those provisions which confer on the assessee the right to a particular incentive will have to be construed strictly. The other incidental provisions must be so construed as to ensure that the benefit reaches the assessee.
19. Clearly matters relating to the issue whether the assessee had satisfied the 'threshold conditions' cannot be regarded as matters of 'prima facie adjustments'. They are matters that require inquiry. It should, therefore, follow that they can be inquired into only after setting in motion the provisions of Section 143(2) of the Act. This will be particularly true in cases where the claim for deduction/relief is made by the assessee for the first time.
20. As respects other conditions, that is to say, conditions that are incidental to the grant of a particular deduction/relief, the position is that the assessing officer cannot, purporting to make 'primafacie adjustments', negative the assessee's claim merely because the assessee has not satisfied the incidental conditions.
21. We may now examine the facts of the case before us in the light of the foregoing principles. Here, the assessee deposited certain sums with the IDBI and claimed deduction under Section 32AB. It is a matter of record that along with its original return of income, it filed two receipts issued by the IDBI evidencing the factum of the deposits having been made with the IDBI. The assessing officer negatived the assessee's claim because the assessee had not enclosed to the return a certificate in Form No. 3AA. The assessing officer rejected the assessee's application under Section 154 in this regard; and the CIT(A) declined to interfere in the matter. The question that arises for consideration is whether the lower authorities were justified in negativing the assessee's claim. As we see it, they were not justified in doing so. Reasons :
(i) As already pointed out the true rationale behind Section 143(1) is to make primafacie adjustments in the form of rectifying mistakes apparent from record. This view is clearly supported by the list of examples given under paragraph 5.4 of the CBDT Circular referred to supra. True, the said list is not exhaustive. Even so, the list can be lengthened only by adding to it examples of the same genre.
(ii) The true purpose behind the insistence on the furnishing by the assessee of audit report, or proof of payment of tax, or proof of having made a stipulated deposit is to save time and shorten the process of assessment. Even so if, in a particular case, the assessee has attached say, not the audit report in Form Wo. 3AA as required under Section 32AB(5) but receipts issued by the IDBI evidencing the factum of the assessee's having made the deposits, we fail to see how the assessee's claim could be denied on the technical ground that the assessee had failed to furnish Form No. 3AA along with the return. To deny the assessee the benefit of deduction in such cases is to insist on a pound of flesh and to convert the well-meaning provisions of Section 143(1) into an instrument of oppression.
When the receipts evidencing the factum of the assessee's having made the stipulated deposits with the IDBI are before him, the assessing officer, as we see it, cannot turn a Nelson's eye to them, and reject the assessee's claim. When faced with such primafacie evidence of basic compliance with the provisions of Section 32AB, the assessing officer, should either trust the assessee and allow the claim or take the first step in scrutinizing the case, namely, issue a notice under Section 143(2). For a fact, the assessing officer had in fact issued a notice under Section 143(2) with a view to subjecting the case to scrutiny. More about this later.
(iii) There is a line of cases in which it has been held that the failure on the part of the assessee to comply with the conditions of the type under consideration will not prove fatal to the assessee's claim for deduction/ relief because such conditions are directory and not mandatory. Reference in this connection may be made to the following cases :
(1) CIT v. Malayalam Plantations Ltd. [1976] 103 ITR 835 (Ker.), (2) CIT v. J.H. Gotla [1985] 156 ITR 323 23 Taxman 14J (SC) (3) Badri Prasad Jagan Prasad v. CIT [1985] 156 ITR 430 (SC) Reference may also be made to 179 ITR - St. 61. In the case bearing ITA No. 56 of 1985, the Gujarat High Court declined to call for a reference on the question whether the Tribunal correctly directed registration of the assessee-trust under Section 11 of the Income-tax Act, 1961, even though the Auditor's report in Form No. 10B as required by Section 12A(b) of the Act was not filed along with the return but was filed only later. The Supreme Court dismissed the Special Leave Petition filed by the Department against the order and judgment of the Gujarat High Court dated 11-9-1985 in that case.
22. The true ratio of the aforesaid decisions is that, as pointed out earlier, while a strict construction is necessary while deciding whether the assessee had acquired the right to a particular deduction or relief, a liberal construction is indicated in other incidental matters.
23. There is yet another aspect of the matter that is noteworthy. The following chronology of events is borne out by the records of the assessee:
18-12-1989 - Original Return of income filed.
8-3-1990 - Adjustment Explanatory Sheet issued, disallowing
the assessee's claim for deduction in a sum of
Rs. 6,52,550 under Section 32AB of the Act.
31-5-1990 - Notice under Section 143(2) issued.
19-6-1990 - Assessee's application under Section 154 rejected
as regards Section 32AB matter.
31-12-1990 - Revised return filed enclosing audit report in
Form No. 3AA.
30-12-1991 - Assessment order passed, rejecting once again
the assessee's claim under Section 32AB.
Two facts stand out. First, even though he had issued a notice under Section 143(2) on31-5-1990, the assessing officer, on 19-6-1990, rejected the assessee's application under Section 154 as regards Section 32AB matter. Secondly, in the assessment made on 30-12-1991, the assessing officer once again rejected the assessee's claim for deduction under Section 32AB merely because the assessee's application under Section 154 against the 'primafacie adjustments' had been rejected earlier. In the process, the assessing officer not only did not understand the significance of an assessment made after issuing a notice under Section 143(2), but also ignored the revised return validly filed by the assesee on 31-12-1990, a return to which audit report in Form No. 3AA was enclosed.
24. Clearly, the assessing officer had converted Section 143(1) into an instrument of operation.
25. In view of the foregoing, therefore, we hold that the assessing officer was not justified in negativing the assessee's claim for deduction under Section 32AB in the guise of making 'prima facie adjustments' under Section 143(1), particularly when the assessee had appended to the original return proof of the factum of its having made deposits with the IDBI. It is significant to note that as respects the assessee's claim for deduction under Section 32AB, the only 'threshold condition' incorporated in Section 32AB(1)(a) is that the assessee should have "deposited any amount" in a deposit account maintained by the assessee with the IDBI before the expiry of the six months from the end of the previous year or before furnishing the return of its income, whichever is earlier. And the assessee did not only satisfy the threshold condition, but had also appended to the original return filed by it proof of the factum of its having satisfied the aforesaid threshold condition. In the circumstances, therefore, to deny the assessee the benefit of deduction under the said section on the ground that audit report in Form No. 3AA was not enclosed to the original return, is, as we see it, to demand a "pound of flesh". We have already shown that the requirement of filing an audit report along with the return is merely directory and not mandatory. Therefore, the assessing officer could not have lawfully rejected the assessee's claim under the pretext of making 'prima facie adjustments' under Section 143(1).
26. In view of the foregoing, therefore, we direct the assessing officer to allow the assessee the benefit of deduction under the said section.
27. In the result, the assessee's appeal is allowed.