Rc/40/2002 Of The Commissioner Of Income-Tax v. Shri K. Jarome Reddy

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.40 of 2002 Dated:20.12.2011 Between: Commissioner of Income Tax,AP-I, Hyderabad. …Applicant and Sri K.Jarome Reddy,Hyderabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.40 of 2002 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The reference is by the Income Tax Appellate Tribunal underSection 256(2) of the Income Tax Act, 1961 (the Act), in obedience tothe directions of this Court dated 09.02.1999 in I.T.C.No.118 of 1998. The following question is referred. Whether in the facts and circumstances of the case, theITAT is justified in holding that Clause (iii) of the proviso to section143(1)(a) of the I.T.Act is not attracted inasmuch as the question ofdeductibility of incentive bonus raised a debatable issue? The respondent/assessee who was a Development Officer in theLife Insurance Corporation of India filed his return of income for the assessment year 1994-1995. Therein he claimed 40% of incentivebonus as deduction towards expenditure. While processing the returnunder Section 143(1)(a) of the Act, the Assessing Officer disallowedthe claim and made prima facie adjustment in that behalf. The samewas affirmed by the Commissioner of Income Tax (Appeals). Onfurther appeal by the assessee, the Appellate Tribunal followed thedecision of this Court in Commissioner of Income Tax v B.Chinnaiah[[1]]and directed the Assessing Officer to allow the deduction. Aggrievedby the same, the reference was sought, which was denied, andthereafter, the Revenue approached this Court under Section 256(2) ofthe Act. This Court directed that the above extracted question bereferred to this Court. During the course of arguments the attention of this Court isinvited to the decision of the Supreme Court in Kvaverner John Brown Engg. (India) P.Ltd v Assistant Commissioner of Income Tax[[2]], 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 inthe return 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 losscarried forward, or deduction or allowance claimed in the returnwhich on the basis of information available in such return was primafacie inadmissible. 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 liableto pay 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 affirmativein favour 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](1995) 214 ITR 368(1995) 214 ITR 368 [2](2008) 305 ITR 103 (SC)(2008) 305 ITR 103 (SC)