Income Tax Appellate Tribunal - Indore
Deputy Commissioner Of Income-Tax vs Nimar Kshitriya Gramin Bank on 21 May, 1997
Equivalent citations: [1998]64ITD190(INDORE)
ORDER
Shri S. K. Yadav Judicial Member
1. This appeal by the revenue is directed against the order of the CIT (Appeals) pertaining to assessment year 1990-91.
2. In ground No. 1, the order of the CIT (Appeals) was assailed on the ground that he has erred in deleting the addition of Rs. 2,91,256 and Rs. 62,976 made on account of disallowance of claim of bonus and the disallowance of interest payable to IDBI respectively whereas the full proof of payments was produced during the proceedings under section 154 of the Income-tax Act (hereinafter called 'the Act').
3. With regard to this ground, the learned DR has submitted that as per proviso to section 43B of the Act, all evidence relating to the claim of the assessee should be filed along with the return of income. Besides, he has relied upon the order of the Assessing Officer under section 154 of the Income-tax Act. On the other hand, the ld counsel for the assessee, Mr. Mehta has drawn our attention to the CBDT Circular No. 669, dated 25th October, 1993 reported at 204 ITR 105 (St.), whereby revenue authorities are directed to consider all evidences, placed in support of the deductions claimed, by the assessee during the course of rectification proceedings initiated under section 154 of the Income-tax Act, though these evidences were not filed along with the return and the deductions, claimed, were disallowed as prima facie inadmissible for want of evidence.
4. We have heard submissions of both the parties and have carefully perused the Board's Circular and we find that the evidence in support of the claim of the assessee was filed during the course of rectification proceedings. As per Board's Circular, the evidence in support of the claim should have been considered and accepted by the Assessing Officer. In the light of Board's Circular, we find ourselves in agreement with the observation of the CIT (Appeals) and, accordingly, we uphold the same.
5. In ground No. 2, the revenue has assailed the order of the CIT (Appeals) on the ground that he has erred in deleting additional tax charged, holding that the additional tax cannot be levied where loss continues after adjustment under section 143(1)(a) even when the same was correctly charged.
6. The learned DR has submitted, that after the amendment brought under section 143(1A) by the Finance Act, 1993 w.e.f. 1-4-1989, the additional tax is to be charged where the loss declared in the return is reduced, as a result of the adjustment made under first proviso to clause (a) of sub-section (1) of section 143 of the Act, and the net result remained to be in loss. He has also drawn our attention to the Tribunal's order in which the Tribunal has taken the similar view but copy of the Tribunal's order has not been placed on record by the revenue. The ld. DR has further submitted that even after allowing the claim of the assessee with regard to the bonus and interest payable to the IDBI, the loss declared by the assessee has been reduced and net resultant remained to be loss, as a result of the adjustment under the first proviso of clause (a) to sub-section (1) of section 143 of the Income-tax Act. Besides, the ld. DR relied upon the observations of the Assessing Officer.
7. The ld. counsel for the assessee, on the other hand, has submitted that at the time of filing of the return the amendment under section 143(1A) was not brought to the statute, as such it cannot be applicable to the assessee's case. Moreover, the assessee is a Co-operative Society engaged in carrying on the business of banking and providing credit facilities to its members. Therefore, its income is exempted from the income-tax as per section 80P of the Income-tax Act. Since its income is exempted from the Income-tax Act, by disallowing the claim of the assessee, the loss declared by it would not be effected. Therefore, the provisions of section 143(1A) cannot be invoked for charging additional tax. He has drawn our attention to the orders of the Assessing Officer passed under section 154 of the Income-tax Act in which he himself has observed that the assessee was a cooperative society and are exempted from payment of income-tax under section 80P of the IT Act. The annual report of the assessee was examined by the Assessing Officer in which it was shown that the main objectives of the assessee are to improve rural economy by developing agricultural, trade, commerce, industry and other productive activities in the rural area through provisions of credit and other facilities to small and marginal farmers, agricultural labourers, artisans and small entrepreneurs. But the claim of the assessee was rejected on the ground that the assessee has for the first time raised this issue, may be because of imposition of additional tax, which is debatable and cannot be decided in the proceedings under section 154 of the IT Act.
8. The ld. counsel for the assessee has further submitted that since the assessee is exempted from payment of income-tax as per section 80P of the Act, the additional tax cannot be levied on it. While bringing this amendment, the Legislature was intended to make law more deterrent so that assessee may not furnish incorrect particulars in the original return of income. But in the instant case, when the assessee is not at all liable to pay the income-tax, this amendment is not at all applicable to him as his liability to pay income-tax is not going to be affected at any time to come, by making the incorrect particulars in the original return of income. The ld. counsel further argued that since the issue is debatable one as per observation of the Assessing Officer how a prima facie adjustment can be made under section 143(1)(a) of the Act, whereby the loss declared by the assessee has been reduced. It was further argued on behalf of the assessee that the additional tax was not computed in accordance with the existing provisions of law. Therefore, no additional tax is called for.
9. We have heard the rival submissions of both the parties and carefully examined the order of the authorities below, and the documents placed on record. The amendment under section 143(1A) of the Act was brought to the statute by the Finance Act, 1993 w.e.f. 1-4-1989. As per this amended sub-section, if the income declared by any person in the return is increased or loss declared by him in the return is reduced or is converted into income as a result of the adjustments made under the first proviso to clause (a) of sub-section (1) of section 143 of the Income-tax Act, the additional tax would be exigible in accordance with the clauses A, B, C, of the aforesaid sub-section (1A). In the instant, case, the assessee has declared the loss in its return which was reduced by the revenue after making the prima facie adjustment under section 143(1)(a) of the Act. Since we have to adjudicate the issue about the exigibility of the additional tax in the assessee's case when he has declared the loss in its return, we feel it proper to reproduce provisions of section 143(1A) for our ready reference, which are as under :-
"143(1A)(a) Whereas as a result of the adjustments made under the first proviso to clause (a) of sub-section (1) -
(i) the income declared by any person is increased; or
(ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall :-
(A) in a case where the increase in income under sub-clause (i) of this clause has increased the total income of such person further increase the amount of tax payable under subsection (1) by an additional income-tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-clause (1) of clause (a) of sub-section (1);
(B) in a case where the loss so declared under sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income calculate a sum (hereinafter 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 and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);
(C) where any refund is due under sub-section (1) reduce the amount of such refund by any amount equivalent to the additional income-tax calculated under sub-clause (A) or sub-clause (B), as the case may be".
From bare reading of the section, it appears to us that the additional tax is leviable only in case if the declared income is increased or loss declared in the return is reduced or converted into income. If the loss is not reduced making adjustment under section 143(1A) of the Act, no additional tax is leviable. In the instant case, it is not disputed by the revenue that the assessee is a co-operative society and is entitled for the protection given under section 80P of the Income-tax Act. It is obvious from the order of the Assessing Officer that the assessee is a co-operative credit agricultural bank and are exempted from payment of income-tax under section 80P of the Income-tax Act. For making the proper application of this amended provision, we should examine the intentions of the Legislature, since beginning when this provision was brought to the statute and an amendment was made therein by the Finance Act, 1993, with retrospective effect from 1-4-1989. When the new scheme of accepting the return and dispensing with the requirement of passing of assessment order in all cases was introduced by the Amendment Act, 1987, there was no provision for charge of additional tax. The Legislature felt it in necessary to introduce sub-section (1A) to section 143 to make the law deterrent so that all taxpayers should file return of their income carefully. The justification for the levy of additional tax is given in Circular No. 549, dated 31st October, 1989, reported at 182 ITR (St.) 1. The relevant portion is reproduced hereunder :-
"The new section 143, as substituted by the Amendment Act, 1987, while dispensing with the necessity of passing assessment orders in all cases did not contain any deterrent provision against filing of incorrect return to show lesser tax liabilities. Consequently, the new scheme of assessment was liable to be misused by unscrupulous taxpayers, who might return lesser income by making obvious mistakes or by claiming obviously incorrect deduction and taking a chance that if the same are detected by the Department, they would have to pay the correct tax only. Besides, the deterred effect, the purpose of this levy is also to persuade all taxpayers to file their returns of income carefully to avoid mistakes. It is, thus, a sort of negligence tax on the assessee and compensates the Department for the effort involved in detecting obvious mistake committed by the taxpayers on their returns of income or loss."
The relevant provisions of section 143(1A), prior to the amendment, available in the statute are as under :-
"(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)."
These provisions, however, authorised the charge of additional tax only in those cases where a positive income is returned and it is increased as a result of adjustments or a loss is returned but it is converted into a positive income as a result of adjustment. Hence, in a number of cases it was held that 'where the assessee files a return declaring loss and after the adjustments under section 143(1) are carried out, the resultant figure is still a loss, the question of application of section 143(1A) does not arise. As a result of adjustments carried out, no tax is payable if the resultant figure is a loss'.
This observation was made by various High Courts in the following cases :
(i) Saiko Matek Engg. (P.) Ltd. v. D. C. Pant, Dy. CIT [1993] 204 ITR 839 (Bom.);
(ii) J. K. Synthetics Ltd. v. Asstt. CIT [1993] 200 ITR 584 (Delhi);
(iii) Rajasthan State Electricity Board v. Dy. CIT [1993] 200 ITR 434 (Raj.); and
(iv) Indo-Gulf Fertilizers & Chemicals Corpn. Ltd v. Union of India [1992] 195 ITR 485/64 Taxman 96 (All.).
The Legislature again realised lacunae's under sub-section (1A) of section 143 and made further amendment by Finance Act, 1993 w.e.f. 1-4-1989, whereby additional tax is leviable to those cases in which loss declared in the return is reduced and the net resultant remained to be at loss, after the adjustments made under section 143(1)(a) of the Act. The Kerala High Court has given a justification for levy of additional tax in such circumstances in the case of Kerala State Coir Corpn. Ltd. v. Union of India [1994] 210 ITR 121 and made an observation as under :-
"The object of section 143(1A) is prevention of tax evasion. Its purpose is to see that the assessee makes a true and correct disclosure of his income and expenditure. A true picture of the loss has also to be made, inasmuch as the loss is liable to be carried forward to the succeeding years. The provisions of additional tax is thus intended to prevent evasion of tax, and such a legislation intended for purposes ancillary to the correct assessment of the income or the loss and to prevent evasion of tax, cannot be branded as arbitrary or struck down as such. This section is invoked only when the return filed does not accord with the realities."
If both these provisions, for levy of additional tax are compared together, we will be able to find the intentions of the Legislature while bringing the aforesaid amendment.
10. After careful reading of the relevant provisions for levy of additional tax and judicial pronouncements, we find that prior to the amendment, the additional tax was leviable only in those cases in which total income declared in the return was increased as a result of the adjustments made in first proviso of clause (a) to sub-section (1) of section 143 of the Income-tax Act. But after the amendment, the chargeability of the additional tax are made applicable to those cases in which the loss declared in the return to, reduced or is converted into a income as a result of the adjustments made under section 143(1)(a) of the Income-tax Act. It means the Legislature intended to bring those assessees, who have declared the loss in the original return and the loss declared was reduced as a result of prima facie adjustments done under section 143(1)(a) of the Income-tax Act within the four corner of the provisions of charging additional tax. By declaring the loss in the original return, the assessee may get benefit in the payment of the income-tax in the years to come. To meet this situation the Legislature brought this amendment in section 143(1A) so that the assessee, who are the income-tax payee, should not furnish the inaccurate particulars in the original return, though he has declared the loss in it. Under these circumstances, we are of the view that this amendment was brought by the Legislature to cover up those assessees who are genuine Income-tax payee but declared the loss in the return and the loss declared was reduced or converted into income as a result of the prima facie adjustments done under section 143(1)(a) of the Act. In the instant case, the assessee is exempted from payment of income-tax by virtue of section 80P of the Income-tax Act. Since the assessee is not going to take any benefit in the payment of income-tax from revenue authorities by declaring the loss in, its return in the years to come, he should not to be chargeable to additional tax, though his declared loss is reduced as a result of adjustments made under section 143(1)(a) of the Act.
11. The other argument of the assessee is that if the Assessing Officer has considered the issue regarding chargeability of the additional tax in the case of the assessee when he is exempted from payment of income-tax, as debatable one, he should not make the prima facie adjustment under section 143(1)(a) of the Income-tax Act. It is not for the assessee to disclose that the issue is debatable or not. It is always for the Assessing Officer to apply his mind while making an adjustment under section 143(1)(a) of the Income-tax Act and if he feels that the issue is debatable, he should not make such an adjustment and should issue the notice to the assessee and make the regular assessment after taking his views on the debatable issue.
12. For the reasons discussed above, we are of the view that assessee is not chargeable to additional tax. As such, we confirm the order of the CIT (Appeals) and decide the ground of appeal in favour of the assessee.
13. In the result, the appeal of the revenue is dismissed.