Commissioner Of Income Tax-Viichennai v. For

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 05.03.2007 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN T.C. (Appeal) No.18 of 2004 Commissioner of Income Tax-VIIChennai. .. Appellant versus Smt.A.E.SarojiniChennai. .. Respondent PRAYER: Tax Case Appeal filed under Section 260A of the Income Tax Act,1961, against the order dated 23.5.2003 in ITA No.2312/Mds/94 for theAssesment year 1992-93 on the file of the Income Tax Appellate Tribunal,Madras 'C' Bench, against the order of the Commissioner of Income Tax(Appeals)-III Madras in ITA.No.27/93-94 dated 4.8.94 for the assessmentyear 1992-93, against the order of the Income Tax officer Ward I (1)Tambaram dated 8/12/93 and made in G.I.1707-S. For appellant : Mrs.Pushya Sitaraman Senior Standing Counsel for Income Tax For respondent : Mr.R.Kumar representing M/s.T.N.Seetharaman JUDGMENT (Judgment of the Court was delivered by CHITRA VENKATARAMAN,J.)This following are the questions of law raised in this case(i) Whether on the facts and in the circumstances of the case, the Tribunalwas right in dismissing the appeal without going to the merits of thecase? (ii) Whether on the facts and in the circumstances of the case theTribunal was right in holding that the assessee is entitled for thecapital gains exemption under Section 54 F?The appeal relates to the assessment year 1992-93. 2. The assessee herein is an individual. The assessment wasoriginally completed under Section 143(1)(a). While making a prima facieadjustment in computing the claim on capital gains, the Income Taxauthority rejected the claim on exemption under Section 54F of the IT Acton the ground that the assessee had a residential house at the time ofsale of the vacant side and that the sale proceeds were utilised for theextension of the existing building. The assessee preferred an applicationunder Section 154 of the Income Tax Act, 1961, contending that the benefitof Section 54 F should have been considered and the question which is anarguable issue, ought not to have been a matter for consideration underSection 143(1)(a). The assessing authority, however, rejected the petitionunder Section 154. An appeal was preferred against this order before theCommissioner of Income Tax (Appeals). The assessee contended that thedisallowance of the claim under Section 54 F could not be made under theprima facie adjustment under Section 143(1)(a), since the question was adebatable one. Taking the view that a disputed or a debatable issue couldnot be the basis for prima facie adjustment under Section 143(1)(a), theappellate authority accepted the plea of the assessee and allowed theappeal. The appellate authority went into the question on the merits ofthe claim to hold that the denial of deduction under Section 54 F as aprima facie adjustment and the computation of capital gains on the sale ofcapital asset were contrary to the provisions of the statute. 3. On appeal by the Revenue, the Tribunal found that the question ofbenefit available under Section 54 F as regards the utilisation for theexetension of the existing property was a debatable issue and hence, theAssessing Officer was not justified in making such adjustments through aprima facie adjustment under Section 143(1)(a) proceedings. Thus, theTribunal confirmed the order of the Commissioner of Income Tax (Appeals). 3. On appeal by the Revenue, the Tribunal found that the question ofbenefit available under Section 54 F as regards the utilisation for theexetension of the existing property was a debatable issue and hence, theAssessing Officer was not justified in making such adjustments through aprima facie adjustment under Section 143(1)(a) proceedings. Thus, theTribunal confirmed the order of the Commissioner of Income Tax (Appeals). 4. Aggrieved of this order of the Tribunal, the Revenue has preferredthis appeal before this Court, contending that when the assessee had aresidential house at the time of sale of a vacant site and that theproceeds were utilised for the extension of the existing property,the benefit claimed under Section 54 F was rightly disallowed in theproceedings under Section 143(1)(a). The Revenue further contended thatthe Tribunal erred in its view that such a disallowance, which is inaccordance with law, could not be a prima facie adjustment under Section143(1)(a). In the circumstances, the Revenue prayed for restoration ofthe order of assessment. 5. We do not agree with the submission made by the learned SeniorStanding Counsel appearing for the Revenue. It is an admitted propositionof law that the exercise of power under Section 143(1)(a) is limited notonly to the obvious but also to what is deductible from the return withoutany doubt or debate. A debatable issue as such does not so far consideredunder Section 143(1)(a) proceedings. In the decision reported in 286 ITR397 (CIT Vs. C.S.KOTHARI (MAD.), this Court considered the scope of theprovisions under Section 143 (1)(a). referring to the Section, this Courtheld: " A perusal of the above, clearly indicates that inmaking the adjustment of total income of the assessee,the Assessing Officer is entitled to make theadjustment of the income or loss declared in thereturn. The adjustments permissible have beenenumerated in the above clauses (i), (ii) and (iii) ofthe first proviso to Section 143(1)(a) of the Act.Clause (i) deals with correction of arithmeticalerrors. Clause (ii) relates to grant of relief to theassessee, which is found due, but not claimed in thereturn. Clause (iii) deals with disallowance of claimsof brought forward loss, deduction, allowance or anyother reliefs claimed in the return which are primafacie inadmissible. " 6. The reported decision relates to a case where the AssessingAuthority, in the course of the proceedings under Section 143(1)(a)excluded the interest payable under Section 234(a), (b) and (c) from thetotal tax payable by the firm for determining the profit apportionableamong the parties. Confirming the order of the Tribunal, this court heldthat if the Officer was of the opinion that the assessee claimed certainbenefit to which he was not entitled to, instead of making adjustmentunder Section 143(1)(a), it is for the Assessing Officer to initiateappropriate proceedings to assess the income in accordance with law.Touching on the jurisdiction of the Officer under Section 143(1)(a), thisCourt held that "it is a summary act on the basis of undisputed materialfurnished by the assessee, without factually disputing its correctness."In the light of the abovesaid view that a debatable issue can never be asubject matter for consideration while passing an order under Section 143(1)(a), we reject the Revenue's contention and dismiss the appeal.There will, however, be no order as to costs. ksv/bg Sd/- Asst.Registrar /true copy/ Sub Asst.Registrar To: 1. The Asst.Registrar,Income Tax Office, Sastri Bhavan,Rajaji Nagar, Chennai-34. 2. The Commissioner of Income Tax (Appeals-III) Chennai - 34. 3. The Income Tax Officer,Ward-I (1), Tambaram. 4. The Commissioner of Income Tax,Range-VII, Madras.+1 cc to M/s.Pushyasitaraman, SCGC, Sr.No.13800.+1 cc to Mr.T.N.Seetharaman, Advocate Sr.No.13913.GG(CO)dcp/5.9 T.C. (Appeal) No.18 of 2004