Kvaverner John Brown Engineering (India) P. Ltd. vs Assistant Commissioner of Income Tax

H.L. Dattu, J.—The assessee''s appeals before us, inter alia, questioning the findings and the conclusion reached by the Income Tax Appellate Tribunal in Appeal Nos. 163/Bang/1999 dated January 31, 2003 and 750/Bang/ 1997, dated December 5, 2002.

The facts in a nutshell are:

The assessee is a private limited company. It is involved in design engineering. The company had filed its returns of income for the assessment years 1996-97 and 1997-98 on November 29, 1996, and November 29, 1997, respectively. After receipt of such returns by the assessee, the assessing authority for the aforesaid assessment years, had issued an intimation u/s 143(1)(a) of the Income Tax Act, 1961 ("the Act" for short) and in that, had disallowed the claim of the assessee under the provisions of Section 80-O of the Act, being of the view, that the allowance can only be on the net income and not on the gross income. Aggrieved by the aforesaid order, the assessee had carried the matter unsuccessfully before the first appellate authority as well as before the Income Tax Appellate Tribunal ("the Tribunal" for short). The assessee being aggrieved by the order passed by the Tribunal in I.T.A. Nos. 163/Bang/1999 and 705/Bang/1997 is before us in the present appeals.

The questions of law raised by the assessee for our consideration and decision are as under:

Whether, on the facts and circumstances of the appellant''s case, was the Tribunal right in law in holding that the claim made on account of deduction on gross receipts u/s 80-O is not a debatable issue and consequently the Assessing Officer was entitled to carry out the adjustments u/s 143(1)(a) of the Income Tax Act.

Whether, on the facts and circumstances of the appellant''s case, was the Tribunal right in law in holding that though there is no direct decision of the hon''ble Supreme Court in respect of Section 80-O still that the decisions on the other sections would be binding on the appellant even in a proceeding u/s 143(1)(a).

Whether the Tribunal is correct in law in holding that though the appellant has followed the principles laid down in the Tribunal decisions and supported subsequently by the decisions of High Courts still the issue is not one of debatable and thus the Assessing Officer was entitled to make adjustments u/s 143(1)(a) of the Income Tax Act?

Whether the Tribunal was justified in law in holding that the additional tax levied is in accordance with the scheme of Act when the assessee had denied itself liable to be charged to such tax.

Whether the Tribunal is correct in law in holding that the deduction u/s 80-O of the Income Tax Act is on the net income and not on the gross receipts?

Sri A. Shankar, learned Counsel for the appellant would submit that while making prima facie adjustments u/s 143(1)(a) of the Act, the assessing authority is disentitled from making prima facie adjustments, if the claim made is debatable. According to learned Counsel, the claim made by the assessee for deduction u/s 80-O of the Act is highly debatable and, therefore, the assessing authority was not justified in disallowing the claim of the assessee while issuing the intimation u/s 143(1)(a) of the Act. In aid of his submission, learned Counsel has taken us through the circulars/instructions issued by the Department as well as the order passed by this Court in the case of GOD GRANITES Vs. CENTRAL BOARD OF DIRECT TAXES and Others, .

Per contra, Sri M.V. Seshachala, learned Counsel appearing for the Revenue sought to justify the intimation issued by the assessing authority and also the orders passed by the first appellate authority as well as the Tribunal. In support of his submission, learned Counsel has relied on the observations made by the apex court in the case of Assistant Commissioner of Income Tax Vs. J.K. Synthetics Ltd., and also the observations made by this Court in the case of Commissioner of Income Tax Vs. Mc. Dowell and Co. Ltd., .

The only question that would arise for our consideration and decision in these appeals after hearing learned Counsel for the parties to the lis is, whether the assessing authority is justified in disallowing the claim of the assessee u/s 80-O of the Act while issuing the intimation u/s 143(1)(a) of the Act?

The circulars/instructions issued by the Department would indicate that if the claim made is highly debatable issue, in such cases the assessing authority is not authorized to make prima facie adjustments and then issue an intimation u/s 143(1)(a) of the Act. The same is reiterated by this Court in the case of GOD GRANITES Vs. CENTRAL BOARD OF DIRECT TAXES and Others, . Sri A. Shankar, learned Counsel for the appellant, would submit that the Special Bench of the Tribunal while considering the aforesaid issue has come to the conclusion that the deduction u/s 80-O of the Act can only be on the net income and not on the gross income. If the Special Bench of the Tribunal could think in that way, the assessing authority in its best wisdom has come to the conclusion that the deduction u/s 80-O of the Act can only be on the net income and not on the gross income. In our view, the assessing authority is justified in coming to the said conclusion, since the issue that was posed before it was not that debatable. In that view of the matter, in our opinion, we cannot accept the submissions made by Sri Shankar, learned Counsel for the assessee.

In view of the above, the questions of law raised by the assessee is answered in the negative, i.e., against the assessee and in favour of the Revenue.

Accordingly, the appeals are rejected. Ordered accordingly?