Rc/102/1996 Of The Commissioner Of Income Tax v. Sri C.v. Ramana Rao

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.102 of 1996 Dated:20.12.2011 Between: Commissioner of Income Tax,Visakhapatnam. …Applicant and Sri C.V.Ramana Rao,Rajahmundry. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.102 of 1996 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The following question is referred to this Court under Section 256(1) of the Income Tax Act, 1961 (the Act), at the instance of the Revenue. Whether on the facts and in the circumstances of the case, theTribunal was justified in holding that the prima facie adjustments inrespect of disallowance of expenditure on incentive bonus cannot bedone u/s.143(1)(a)? The brief fact of the matter is as follows. Therespondent/assessee, who was a Development Officer in the LifeInsurance Corporation of India, filed his returns for the assessment year1990-1991, which was processed under Section 143(1)(a) of the Act, inter alia, making adjustments on account of 40% of incentive bonus. Theassessee’s application under Section 154 of the Act for deletion of thesame was rejected by the Assessing Officer. The appeal before theCommissioner of Income Tax (Appeals) was also dismissed. Aggrievedby the same, the assessee filed further appeal before the Tribunal. TheTribunal upheld the plea of the assessee and held that issue in question isa highly debatable issue and cannot be the subject matter of prima facieadjustment under Section 143(1)(a) of the Act, and as such, theAssessing Officer could not have made the impugned addition bydisallowing the claim of the assessee for deduction of 40% of incentivebonus while processing the return under Section 143(1)(a) of the Act. Aggrieved by the same, the Revenue sought reference of the question tothis Court. During the course of arguments the attention of this Court is invitedto the decision of the Supreme Court in Kvaverner John Brown Engg. (India) P.Ltd v Assistant Commissioner of Income Tax[[1]], wherein it was held as under. …One of the main conditions stipulated by way of the firstproviso to Section 143(1)(a), as it stood during the relevant time,referred to prima facie adjustments. The first proviso permitted theDepartment to make adjustments in the income or loss declared in thereturn in cases of arithmetical errors or in cases where any losscarried forward or deduction or disallowance which on the basis ofinformation available in such return was prima facie admissible butwhich was not claimed in the return or in cases where any loss carriedforward, or deduction or allowance claimed in the return which on thebasis of information available in such return was prima facieinadmissible. In the present case, therefore, when there wereconflicting judgments on interpretation of Section 80-O, in our view,prima facie adjustments contemplated under Section 143(1)(a) wasnot applicable and, therefore, consequently appellant was not liable topay additional tax under Section 143(1A) of the 1961 Act. In view of the same, it may be taken as well settled that whileassessing the return of income under Section 143(1)(a) of the Act, theIncome Tax Officer or any Assessing Officer of the Department is notentitled to make adjustments except in regard to arithmetical errors ormatters which are prima facie adjustable. Following the above, the reference is answered in the affirmative infavour of the assessee and against the Revenue. The Referred Caseshall stand disposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) 20.12.2011vs ____________________(R.KANTHA RAO, J) [1](2008) 305 ITR 103 (SC)