Commissioner of Income Tax vs Saurabh Kulshreshtha

G.S. Singhvi, J.—In this petition filed u/s 256(2) of the Income Tax Act, 1961 (for short, "the Act"), the petitioner has prayed for issuance of a direction to the Income Tax Appellate Tribunal, Delhi Bench "C", New Delhi (for short "the Tribunal"), to draw up a statement of the case and refer the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that adjustment made in respect of incentive bonus on the basis of documents accompanying the return was outside the scope of Section 143(l)(a) of the Income Tax Act, 1961, and should have been made only after issue of notice u/s 143(2) ?"

The facts of the case are that while working as a Development Officer in the Life Insurance Corporation of India, the respondent-assessee filed a return on August 16, 1994 for the assessment year 1994-95 declaring an income of Rs. 54,710. During the relevant year, he had received incentive bonus amounting to Rs. 46,012 out of which he claimed deduction at 40 per cent. as expenses besides deduction u/s 16(i) of the Act. The Assessing Officer processed the return u/s 143(l)(a) of the Act and disallowed the claim of deduction on incentive bonus by making the following observations :

"The incentive bonus claimed as deduction is disallowed as incentive bonus received by the Development Officer forms part of salary in terms of the provision of Section 17(l)(iv) as clarified in the Central Board of Direct Taxes Instruction No. 1768/1774 of October, 1987. No further deduction except standard deduction is admissible''. Hence, Rs. 46,012-27,602 = 18,410 is disallowed."

The Deputy Commissioner of Income Tax (Appeals), Faridabad [DCIT(A)], allowed the appeal of the assessee and held that the provisions of Section 143(l)(a) of the Act could not have been invoked by the Assessing Officer for disallowing the deductions. Paragraph 5 of the order dated January 31, 1995, passed by the Deputy Commissioner of Income Tax (Appeals) reads as under :

"I have considered the facts of the ease, the appellant who is a Development Officer in OIC/LIC had received incentive bonus of Rs. 36,012. He had claimed deduction of Rs. 18,410 on account of expenses incurred by him for earning the incentive bonus. In the statement of facts and grounds of appeal it has been contended that the disallowance made by the Income Tax Officer was beyond the scope of Section 143(l)(a). The circular of the Board bearing No. 689, dated August 24, 1994 (see [1994] 209 ITR 75), supports the case of the appellant. The issue whether incentive bonus forms part of salary income or not is a debatable one. In these circumstances the provisions of Section 143(l)(a) for making the said disallowance were not liable to be attracted. The Assessing Officer is, therefore, directed to delete the disallowance of Rs. 18,410."

The Tribunal confirmed the order dated January 31, 1995, with the following observations :

"We have considered the material available on record. u/s 143(l)(a) prima facie adjustment can only be made. The assessee has claimed incentive bonus on which there are divergent views of different High Courts/different Benches of the Tribunal. Therefore, this issue is a highly debatable one. So the adjustment cannot be made while processing the return u/s 143(l)(a) of the Act. We feel that the Deputy Commissioner of Income Tax (Appeals) has rightly deleted this addition holding that no such adjustment can be made u/s 143(l)(a) of the Act. Therefore, we agree with the view taken by the Deputy Commissioner of Income Tax (Appeals)."

In our opinion, the Deputy Commissioner of Income Tax (Appeals) and the Tribunal have correctly interpreted the provision of Section 143(l)(a) of the Act for holding that the Assessing Officer could not have invoked that provision for disallowing deductions claimed by the assessee in respect of incentive bonus.

We are further of the view that the Assessing Officer could not have passed an order of adjustment of Rs. 18,140 without giving notice to the assessee and the conclusion recorded by the Deputy Commissioner of Income Tax (Appeals) and the Tribunal on this aspect of the matter does not suffer from any legal error giving rise to a referable question of law.

Hence, the petition is dismissed.