Chandrakant N.tolia v. The Assistant Commissioner Of Income Tax, City Circle I(1),Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 11.09.2007 Coram : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN Tax Case (Appeal) No.244 of 2004 Chandrakant N.Tolia.. Appellant versus The Assistant Commissioner of Income Tax, City Circle I(1),Chennai. .. Respondent Tax Case Appeal preferred under section 260A of the Income taxAct, 1961 against the order dated 26.08.2002 made in ITA No.1352/Mds/98by the Income Tax Appellate Tribunal, 'D' Bench, Madras, against theorder dated 13.05.98 made in ITA.No.223/97-98 by the Commissioner ofIncome Tax (Appeals) IX, Chennai. For Appellant:Mr.VenkatanarayananFor Respondent:Mr.T.Ravikumar,Jr. Standing Counsel for Income Tax JUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN, J.) The assessee has filed this appeal framing the followingquestions of law : 1. Whether on the facts and in the circumstances of the case, theTribunal was correct in confirming the intimation issued in terms ofSection 143(1)(a) of the Act?Tribunal was correct in confirming the intimation issued in terms ofSection 143(1)(a) of the Act?2. Whether on the facts and in the circumstances of the case, theTribunal was correct in confirming the said intimation in spite ofthe Board circular reported in 209 ITR 75? Tribunal was correct in confirming the said intimation in spite ofthe Board circular reported in 209 ITR 75? 2. The assessee owns an immovable property at No.7, ArulambalStreet, T.Nagar, Chennai. It is stated that the same was used for self-occupation and hence, there was no income assessable under the headhttps://hcservices.ecourts.gov.in/hcservices/"income from house property". The assessee had taken the property at 532, Mount Road, Chennai, on rental basis. This had been sub-let to anumber of other concerns from whom rents were collected. In the returnfiled for the Assessment Year 1996-97, the assessee admitted a rentalincome of Rs.1,20,000/- and deducted therefrom Rs.1,08,000/- being rentpaid to the landlord thereby returning a balance of Rs.12,000/- underthe house property. In the return filed by the assessee, the same hadbeen shown as income from the property from No.7, Arulambal Street,which admittedly, was in self-occupation. As such, no income assessablefrom the house property was permitted. In the proceedings initiatedunder Section 143(1)(a), the Assessing Authority made a prima facieadjustment rejecting the said claim and granted deduction under Section24; thereby re-fixed the income from the property at Rs.96,000/-. 3. Aggrieved by the said order, the assessee preferred appealbefore the Commissioner of Income Tax (Appeals), who, by order dated13.05.1999, held that since the assessee had returned the income asincome from the house property, he could not claim deduction ofRs.1,08,000/- being the rent paid in respect of the said property. Onthe facts disclosed prima facie in the returns, the appellate authorityconfirmed the order of the Assessing Officer. 4. On further appeal by the assessee, the Tribunal rejected thesame on the ground that the provisions of law being clear on the pointof admissibility of deduction of rent received from the propertyspecially in a case where the assessee himself had shown the incomeunder the head "income from house property", the order of theCommissioner of Income Tax (Appeals) could not be faulted with. Theaggrieved assessee is on appeal before this Court. 4. On further appeal by the assessee, the Tribunal rejected thesame on the ground that the provisions of law being clear on the pointof admissibility of deduction of rent received from the propertyspecially in a case where the assessee himself had shown the incomeunder the head "income from house property", the order of theCommissioner of Income Tax (Appeals) could not be faulted with. Theaggrieved assessee is on appeal before this Court. 5. Learned counsel for the assessee pointed out that theproperty at Arulambal street was a self-occupied property owned by theassessee. The assessee claimed that he had paid Rs.1,08,000/- towardsrent for the property at Mount Road on lease and that he had receivedthe rent on sub lease at Rs.1,20,000/- and therefore, the assesseereturned the balance as income from the house property. Learned counselfor the assessee stated that in the return of income from the property,it had been wrongly stated by inadvertence that the same was from theproperty of the assessee at Arulambal Street which was under self-occupation. The details filed along with the return clearly showed thatthe said income was earned in respect of the Mount Road property takenon lease. 6. Learned counsel for the assessee pointed out that in thecontext of the facts disclosed in the statement accompanying the returnas to the income from the property taken on lease but sub-let, thereturn as regards the income ought to have been read together with theenclosure which disclosed the true state of affairs and there was noquestion of making prima facie adjustment; as such, the officer shouldhave accepted the return without any prima facie adjustment. He furtherplaced reliance on the circular of the Central Board of Direct Taxesdated 24.08.1994 and submitted that even though the scope of Section 143https://hcservices.ecourts.gov.in/hcservices/(1)(a) is limited, yet, on the strength of the circular explaining the provisions contained therein, the Income Tax Officer should haveaccepted the return without making any prima facie adjustment therein. 7. Learned standing counsel for the Revenue supported the ordersof the authorities below that given the scope of Section 143(1)(a), thereturn had been considered on the basis of what had been disclosedtherein. 8. We agree with the learned counsel for the assessee. 9. The relevant provisions of Section 143(1)(a), as it thenstood prior to the substitution by the Finance Act, 1999 with effectfrom 1.6.1999, reads as follows: "143(1)(a). Where a return has been made under section139, or in response to a notice under sub-section (1) of section 142, -- (i) if any tax or interest is found due on thebasis of such return, after adjustment ofany tax deducted at source, any advance taxpaid and any amount paid otherwise by wayof tax or interest, then, without prejudiceto the provisions of sub-section (2), anintimation shall be sent to the assesseespecifying the sum so payable, and suchintimation shall be deemed to be a noticeof demand issued under section 156 and allthe provisions of this Act shall applyaccordingly; and (ii) ...provided that in computing the tax or interestpayable by, or refundable to, the assessee, thefollowing adjustments shall be made in theincome or loss declared in the return, namely:-(i) any arithmetical errors in the return, accounts or documents accompanying it shallbe rectified;(ii)anylosscarriedforward, deduction, allowance or relief, which, onthe basis of the information available insuch return, accounts or documents, isprima facie admissible but which is notclaimed in the return, shall be allowed;(iii)anylosscarriedforward,deduction, allowance or relief claimed inthe return, which, on the basis of theinformation available in such return,accounts or documents, is prima facieinadmissible, shall be disallowed ......" (ii) ...provided that in computing the tax or interestpayable by, or refundable to, the assessee, thefollowing adjustments shall be made in theincome or loss declared in the return, namely:-(i) any arithmetical errors in the return, accounts or documents accompanying it shallbe rectified;(ii)anylosscarriedforward, deduction, allowance or relief, which, onthe basis of the information available insuch return, accounts or documents, isprima facie admissible but which is notclaimed in the return, shall be allowed;(iii)anylosscarriedforward,deduction, allowance or relief claimed inthe return, which, on the basis of theinformation available in such return,accounts or documents, is prima facieinadmissible, shall be disallowed ......" 10. A reading of the provisions show that when a note isannexed to the return filed, the contents of the statement or the noteneed to be considered as part and parcel of the return filed beforemaking any adjustment in the liability. Hence, when the Income TaxOfficer proceeded with the return, fairness requires that the Assessingauthority should have considered the statement filed along with thereturn before proceeding further under Section 143 (1)(a). 11. In the background of the statement filed disclosing thefacts as regards the leasing of the property, it goes without sayingthat the Assessing Authority should have considered the return alongwith the statement in proper perspective before proceeding with theprima facie adjustment in this case. A reading of the provisions underSection 143(1)(a) leaves no room for doubt that the return filed alongwith the documents or accounts merit consideration and prima facieadjustment must be with reference to a claim which is clearly andpatently inadmissible on the very face of things disclosed in the returnalong with the documents. 12. The Central Board of Direct Taxes issued a circularelaborating the scope of a prima facie disallowances under Section 143(1)(a) in Circular No.689 dated 24.8.1994 (209 ITR Statute 75). Thecircular touches on the scope of prima facie disallowance under Section143(1)(a) and has given types of claims in respect of which prima faciedisallowances shall be made. The circular gives the guidelines as tothe matters which call for prima facie disallowance. A perusal of theexamples given clearly show that if the information available in thereturn of income or accounts or documents clearly show the correctfacts, then the claim of the assessee should not be rejected. However,where a claim is made for deduction and the information available in thereturn of income or accompanying accounts or document shows that theclaim could not be sustained under any of the provisions of the Act,then the claim merits to be disallowed as prima facie adjustment. 13. Going by the facts stated in the Tribunal's order, it isclear that the assessee had returned Rs.12,000/- as income from theproperty at Arulambal Street; yet, the details filed along with thereturn clearly showed that the assessee was in self-occupation of theproperty owned by him situate at Arulambal Street. Hence, there was nilincome. If at all any income is received from the property, it is onlyfrom the one taken on lease at Mount Road. Hence, in the backgroundof the circular of the Central Board of Direct Taxes and the provisionsof Section 143(1)(a) itself providing for taking note of the documents/statements, the statement accompanying the return thus disclosing thefacts fully, the income shown could only relate to the one from theproperty taken on lease, the documents accompanying the return ought tohave been adverted to by the Income Tax Officer before passing any orderunder Section 143(1)(a) to make prima facie adjustment. 14. Going by the circular dated 24.8.1994 (209 ITR Statute 75)and Section 143(1)(a), we accept the stand of the assessee and allowthe Tax Case Appeal and thereby set aside the order of the Tribunal. 14. Going by the circular dated 24.8.1994 (209 ITR Statute 75)and Section 143(1)(a), we accept the stand of the assessee and allowthe Tax Case Appeal and thereby set aside the order of the Tribunal. Sd/Asst.Registrar/true copy/Sub Asst.Registrarmf/ksvTo1. The Assistant Commissioner of Income Tax,City Circle (I), Chennai - 34.2. The Commissioner of Income Tax (Appeals) IX,Chennai.3. The Assistant Registrar,'D' Bench, Sastri Bhavan,Rajaji Bhavan, Chenani.1 cc To Mr.N.Muralikumaran, Advocate, SR.56986.T.C. (A) No.244 of 2004 GG(CO)RVL 17.10.2007