Rc/51/2002 Of The Commissioner Of Income Tax v. Shri G. Satyam Reddy

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.51 of 2002 Dated:20.12.2011 Between: Commissioner of Income Tax,AP-II, Hyderabad. …Applicant and Sri G.Satyam Reddy,Nizamabad. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.51 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 to thedirections of this Court dated 13.10.1999 in I.T.C.No.73 of 1999. The following question is referred. Whether on the facts and in the circumstances of the case, theITAT was correct in law in holding that the assessing officer whileprocessing the return under Section 143(1)(a) of the Income Tax Actwas incompetent to disallow 40% of the incentive bonus claimed asdeduction on the ground that on the relevant date, the question wasdebatable and therefore it does not amount to prima facie adjustment? The respondent/assessee who was a Development Officer in theLife Insurance Corporation of India filed his return of income. While processing the same under Section 143(1)(a) of the Act, the AssessingOfficer added back additional conveyance allowance and 40% of incentivebonus claimed as deductions by the assessee, and also rejected thepetition filed by the assessee under Section 154 of the Act. The samewas upheld by the Commissioner of Income Tax (Appeals). On furtherappeal by the assessee, the Appellate Tribunal followed the decision ofthis Court in Commissioner of Income Tax v B.Chinnaiah[[1]]and directedthe Assessing Officer to delete the disallowance. Aggrieved by the same,the reference was sought, which was denied, and thereafter, the Revenueapproached this Court under Section 256(2) of the Act. This Courtdirected that the above extracted question be referred to this 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[[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 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 in 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)