Commissioner of Income Tax vs Redico Khaitan Ltd.

@DELETEUPPERDATA

Tarun Agarwala, J.—The assessee filed the return of income for the assessment year 1990-91, which was processed under section 143(1)(a) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The Assessing Officer, while processing the return of income, made various adjustments including computation of book profits under section 115J of the Act. The adjustment so made was as under:

As a result of the aforesaid adjustment, additional tax as well as a demand under section 115J of the Act was created. The assessee, being aggrieved, filed an application under section 154 of the Act for rectification objecting to the various adjustments made by the Assessing Officer and also against the tax demanded from the assessee. The Assessing Officer, by his order dated August 27, 1992, rejected the majority of the objections raised by the assessee. The income was revised on the total adjusted income of Rs. nil and tax was levied on an income of Rs. 18,26,602 as computed under section 115J of the Act. Additional tax under section 143(1A) of the Act was computed on the amount of Rs. 15,36,858 added by way of adjustment. The assessee, being aggrieved, filed an appeal, which was partly allowed.

The appellate authority on the merits found that the expenses made towards travelling, investment allowance on distillery unit, loss on sale of fixed assets and adjustments on account of depreciation claimed by the assessee on tube well was not incorrect and that there was no justification for the assessing authority to make any disallowance by way of adjustment while processing the return under section 143(1)(a) of the Act. The appellate authority, accordingly, held that the adjustment so made was liable to be rectified under section 154 of the Act. The appellate authority, however, found that the disallowance under section 43B of the Act was justifiable in view of the fact that the conditions laid down under section 43B of the Act was not satisfied by the appellant.

The appellate authority further found that the additional tax was incorrectly charged by the Assessing Officer holding that no additional tax was chargeable where the net result of adjustment was a negative figure. This view of the appellate authority was made by relying upon a judgment of the Allahabad High Court in Indo-Gulf Fertilizers and Chemicals Corporation Ltd. Vs. Union of India (UOI) and Another, . The Revenue, being aggrieved, by the order of the appellate authority filed an appeal before the Tribunal, which was dismissed. The Revenue, being aggrieved by the order of the Tribunal, has filed the present appeal under section 260A of the Income-tax Act, which was admitted on the following questions of law:

"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in confirming the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer. To modify the order under section 154 of the Act and to delete the additional tax in view of the jurisdictional High Court decision report in Indo-Gulf Fertilizers and Chemicals Corporation Ltd. Vs. Union of India (UOI) and Another, ?

(ii) Whether, on the facts and in the circumstances of the case, additional tax charged under section 143(1A) could be deleted in proceedings under section 154?"

We have heard Sri R.K. Upadhya, the learned counsel for the appellant and Sri R.S. Agrawal, the learned counsel for the assessee.

Section 143(1A) of the Act provides for imposition of additional income-tax, which is relevant for deciding the present controversy and is extracted hereunder:

"(1A) (a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,--

(i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent, of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);

(ii) where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (i).

(b) where as a result of an order under section 154 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which additional income-tax is payable under clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and,--

(i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under section 156;

(ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded.

Explanation.--For the purposes of this sub-section, ''tax payable on such excess amount'' means,--

(i) in any case where the amount of adjustments made under the proviso to clause (a) of sub-section (1) exceed the total income, the tax that would have been chargeable had the amount of the adjustments been the total income;

(ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments."

The Allahabad High Court in Indo-Gulf Fertilizers and Chemicals Corporation Ltd. (supra) held that the scope of section 143(1A) is limited and that the additional tax could not be levied where the losses continued after adjustment made under the first proviso to clause (a) of section 143(1) of the Act. The said decision was reversed by the Supreme Court in Assistant Commissioner of Income Tax Vs. J.K. Synthetics Ltd., wherein the Supreme Court held that even where the loss declared by the assessee had been reduced by reasons of adjustments even then additional tax could be imposed.

In the light of the aforesaid, the Commissioner of Income-tax (Appeals) was not justified in holding that no additional tax was chargeable where the net result of adjustment was a negative figure. The Tribunal also committed an error in affirming this finding in view of the decision of the Supreme Court in J.K. Synthetics Ltd. (supra).

However, the decision of the Tribunal on this limited ground cannot be set aside inasmuch as the appellant has nowhere indicated nor attacked the order of the Commissioner of Income-tax (Appeals) on the merits whereby the appellate authority held that the assessing authority was not justified in making the disallowance by way of adjustment while processing the returns under section 143(1)(a) of the Act. The appellant has not filed the memo of appeal to show that necessary grounds were taken but was not considered by the Tribunal nor any ground has been raised in the present appeal to indicate that the findings of the appellate authority was also challenged before the Tribunal other than the finding given by the appellate authority on the issue of additional tax chargeable where the net result of adjustment was a negative figure.

Section 143(1A) provides that where the total income as a result of adjustment made by the Assessing Officer exceeds the total income declared in the return, the Assessing Officer would be obliged to levy additional income-tax. The said provision makes it apparently clear that additional income-tax is payable only as a result of adjustment made by the Assessing Officer but where the adjustments so made has been deleted by the appellate authority on the merits, the question of payment of additional tax would not arise under section 143(1A). Consequently, even though the Tribunal has affirmed the finding of a particular issue of the Commissioner of Income-tax (Appeals) relying upon the decision of the Allahabad High Court in Indo-Gulf Fertilizers and Chemicals Corporation Ltd. (supra), which has been reversed by the Supreme Court, it could not have any bearing to the ultimate result in so far as the merit of the case is concerned. Consequently, questions Nos. 1 and 2 has now become academic and are answered accordingly.

Further, additional tax charged under section 143(1A) of the Act could be deleted under section 154 as is clear from a reading of section 143(1A)(b) of the Act. An order passed under section 250 or section 254 of the Act by which the disallowance has been deleted has to be given effect to by a consequential act to be done by the assessing authority under section 154 of the Act. The power exists with the assessing authority to delete the additional tax under section 154 of the Act if it is not found payable pursuant to the order passed by the appellate authority. For the reasons stated aforesaid, we do not find any merit in this appeal and is accordingly dismissed.