Nahar Spg. Mills Ltd. vs Assistant Commissioner of Income Tax

N.K. Agrawal, J.—This is a petition under articles 226 and 227 of the Constitution, seeking the quashing of intimation/order dated 20-5-1994 passed and issued by the Assistant Commissioner u/s 143(1)(a) of the income tax Act, 1961 (''the Act''). A sum of Rs. 1,35,59,265 by way of income tax and a sum of Rs. 18,01,469 by way of additional income tax u/s 143(1A) of the Act, totalling Rs. 1,53,60,734, were imposed on the petitioner-company for the assessment year 1993-94. The said amount of tax and additional tax was imposed by the Assessing Officer after making certain adjustments under first proviso to section 143(1)(a), which are said to be not permissible in law. The petitioner is a public limited company incorporated under the Companies Act, 1956, with its registered office at Ludhiana. The petitioner is engaged in the business of manufacturing and exporting woollen yarn, hosiery and cotton garments. Return of income was filed by the petitioner u/s 139(1) of the Act before the due date (31-12-1993) for the assessment year 1993-94 relevant to the accounting year ending 31-3-1993. Taxable income was declared at Rs. 16,36,98,920 after claiming various allowances, deductions, depreciation, etc., under various provisions of the Act. Tax as due, as per the return, was paid on 31-12-1993. Copy of the balance-sheet along with the report of the Chartered Accountant certifying the deduction admissible u/s 80HHC of the Act was also filed along with the return.

The Assessing Officer, while making prima facie adjustments under the first proviso to section 143(1)(a), raised the taxable income from Rs. 16,36,98,920 (as claimed by the petitioner) to Rs. 18,11,04,420. Deduction claimed by the assessee u/s 80HHC in respect of the profits from export business was reduced from Rs. 11,00,97,292 (as claimed) to Rs. 9,29,16,897.

The Assessing Officer, while reducing the deduction u/s 80HHC, looked into certain income shown by the assessee in its balance-sheet under the head ''Other income''. Deduction u/s 80HHC was reduced on account of exclusion of income from investments amounting to Rs. 2,30,76,352 and portfolio income amounting to Rs. 49,83,195 from business profits on which deduction u/s 80HHC had been calculated. Certain other disallowances were also made.

Shri B.S. Gupta, the learned Senior Advocate appearing for the assessee, has argued that no substantial adjustments, which required investigation or evidence, are contemplated when such power is exercised u/s 143(1)(a) without hearing the assessee. Prima facie adjustments, if any, contemplated only those mistakes which were not required to be established by any process of investigation. The plea put forward by Shri Gupta is that the term '' prima facie '' meant ''on the face of it'' or "apparent from record". He has also drawn our attention to Circular No. 689, dated 24-8-1994 issued by the Central Board of Direct Taxes (reproduced in 209 ITR (St.) 75] whereby it has been clarified by the Board that prima facie disallowance may be made only in case of an incorrect claim if such incorrect claim is apparent from the existence of other information in the return or the accompanying accounts or documents. Shri Gupta has contended that the Assessing Officer could not go behind the return or the documents annexed to it while disallowing a deduction. The Assessing Officer was required to follow the procedure prescribed in section 143(2) and to issue a notice to an assessee for regular assessment u/s 143(3) in a case where he wanted to seek certain clarification or to make an investigation.

Shri B.S. Gupta, the learned senior counsel for the assessee, has challenged the adjustment made by the Assessing Officer primarily with the plea that the Assessing Officer had no power to disallow a claim on the ground that there was no proof in support of the claim made by the assessee. Reliance has been placed on a decision of the Delhi High Court in S.R.F. Charitable Trust v. Union of India [1992] 193 ITR 95; a decision of the Rajasthan High Court in JKS Employees'' Welfare Fund v. ITO [1993] 199 ITR 765; and a decision of the Karnataka High Court in God Granites v. Under Secretary, CBDT [1996] 218 ITR 298 : 85 Taxman 536. Two decisions of the Bombay High Court in Tanna Exports v. M.G. Kamat [1993] 202 ITR 219 and the other in Mahalakshmi Glass Works Ltd. v. Sunil Gupta, Asstt. CIT [1993] 203 ITR 658, have also been referred to in support of the plea that the Assessing Officer had no jurisdiction to reopen the account of the assessee to re-calculate the book profits or to re-calculate the deduction u/s 80HHC.

Shri R.P. Sawhney, the learned senior counsel for the respondents, has in reply asserted that the Assessing Officer has the powers to make any adjustments of the nature specified in any of the three clauses of the first Proviso to section 143(1)(a). No opportunity of hearing is required to be given to the assessee while making such adjustments. Clause (iii) of the Proviso permitted the Assessing Officer to make any adjustment in respect 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". Shri Sawhney has vehemently argued that the deduction, which had been claimed by the assessee in his return u/s 80HHC, was actually not available to that extent on the basis of the information available from the balance sheet of the company which had been annexed to the return.

It has been pointed out by Shri Sawhney, the learned Senior Counsel for the respondents, that the assessee had shown certain income under the head ''Other income'' in its balance-sheet as under:

(1) Income from trade investments

(Dividend income)

Rs. 14,58,966

(2) Income from non-trade investments:

(i) Investment income

=

Rs.

2,30,76,352

(ii) Portfolio income

=

Rs.

49,83,195

Rs.

2,80,59,547

The assessee had shown income from trade investments (dividend income) amounting to Rs. 14,58,966 under the head ''Income from other sources'' in the statement of taxable income also filed along with the return. Income from non-trade investments and portfolio income were, however, not shown as ''income from other sources'' in the said statement. Shri Sawhney argued that if the income from trade investments was treated by the assessee himself as ''income from other sources'' in the computation of income, it was only natural that income from non-trade investments and portfolio income should have been similarly shown and treated as ''income from other sources'' and not as business income. The Assessing Officer, on the basis of these entries available in the balance-sheet and in the computation of income, made prima facie adjustments.

Shri R.P. Sawhney, the learned senior counsel for the respondents, has challenged the contention of the assessee against the powers of the Assessing Officer u/s 143(1)(a), relying on a decision of the Madhya Pradesh High Court in Kamal Textiles v. ITO [1991] 189 ITR 339 : 59 Taxman 555, that of the Kerala High Court in Kerala State Coir Corpn. Ltd. v. Union of India [1994] 210 ITR 121; and that of the Calcutta High Court in Modern Fibotex India Ltd. v. Dy. CIT [1995] 212 ITR 496. It has been argued by Shri Sawhney that the jurisdiction of the Assessing Officer u/s 143(1)(a) is limited not only to the obvious but also to that which is deducible from the return as filed without doubt or debate. This is clear from the language of the section and is supported by the authority as well as the circulars issued by the Board in this connection.

Shri Sawhney has also argued that an alternative remedy was available to the assessee and, therefore, there is no justification to invoke the jurisdiction of this Court under articles 226 and 227. In the preceding assessment year also, a similar adjustment was made and the assessee in that year moved an application u/s 154 of the Act. That application was rejected by the Assessing Officer but, in appeal, the assessee succeeded in getting the required relief from the Tribunal. It is, therefore, argued that the assessee can approach the Assessing Officer u/s 154, seeking rectification of the disallowance made u/s 80HHC. It is also pointed out that the assessment u/s 143(3) has subsequently been made for the assessment year 1993-94 after issuing notice to the assessee u/s 143(2) on 12-7-1994. Though the notice was issued on 12-7-1994, the assessee filed the present writ petition on 16-7-1994. It is, therefore, contended by Shri Sawhney that the assessee cannot only move an application u/s 154 but could also point out the mistakes, allegedly committed by the Assessing Officer while making adjustments u/s 143(1)(a) of the Act, during the regular assessment proceeding.

In Jindal Strips Ltd. v. State of Haryana [1996] (1) ILR Punj. & Har. 323, a matter had arisen before this Court in a writ petition in a case where assessment order in a sales tax matter had been assailed. The question of alternative remedy was examined and, after quashing the assessment order, the matter was referred back for rehearing. Shri Sawhney has argued that, here also, even though the assessee might defend his right to invoke the jurisdiction of this Court under article 226 of the Constitution, he may be asked to clarify the position before the Assessing Officer by moving a rectification application.

A similar matter was earlier examined by this Court in Swaraj Mazda Ltd. v. Dy. CIT [Civil Writ Petition No. 3525 of 1990, dated 4-6-1990] and, vide order, the assessee was directed to seek the alternative remedy by moving a rectification application u/s 154. In that case, the provisions of section 143(1)(a) were challenged on the ground that those were ultra vires the constitution inasmuch as no notice was required to be issued before adjustments were made by the Assessing Officer in the allowances and deductions claimed by the assessee. The plea of the assessee was rejected.

Shri B.S. Gupta, the learned senior counsel for the assessee, has, in rejoinder, urged that even if an alternative remedy was available, the assessee was not debarred from invoking the jurisdiction of this Court under article 226 inasmuch as the applicability of section 143(1)(a) in the given situation has been challenged and thereby the jurisdiction of the Assessing Officer is under attack. Reliance has been placed on a decision of the Allahabad High Court in Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. v. Union of India [1992] 195 ITR 485 : 64 Taxman 96; on a decision of the Bombay High Court in Khatau Junkar Ltd. v. K.S. Pathania [1992] 196 ITR 55 : 61 Taxman 157, and on a decision of the Karnataka High Court in S. Mageshwari v. Asstt. CIT [1993] 201 ITR 472 : 67 Taxman 497.

Looking to the nature of the controversy, the plea of the respondents regarding the availability of the alternative remedy is accepted inasmuch as it is found to be appropriate, on the facts and in the circumstances of the case, that the assessee may explain the nature of deduction and the nature of the profits under controversy by moving a rectification application u/s 154. In the preceding assessment year, similar remedy was availed of and the assessee, after explaining the nature of the profits, succeeded in appeal before the Tribunal. It has also to be noticed that a notice u/s 143(2) has already been issued to the assessee for the assessment year 1993-94 and it appears that assessment u/s 143(3) has thereafter been made. If that was so, the assessee can challenge the order, if any, made in the regular assessment, reducing the claim u/s 80HHC of the Act. The view taken by this Court in Swaraj Mazda Ltd.''s (supra), in similar circumstances, supports it. We, therefore, do not think appropriate to enter into a discussion on merits on the applicability of section 143(1)(a) and the jurisdiction of the Assessing Officer to make adjustments thereunder. The assessee is advised to seek alternative remedy available under the Act. In the result, the writ petition is dismissed. No costs.