Rc/5/2004 Of Sanjeeva Rao v. The Income Tax Officer

THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.5 of 2004 Dated:20.12.2011 Between: Commissioner of Income Tax,Andhra Pradesh-I, Hyderabad. …Applicant and Sri P.Sanjeeva Rao,Medak. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.5 of 2004 ORDER:(Per Hon’ble Sri Justice V.V.S.Rao) The following question is referred to this Court underSection 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 thecase the ITAT was correct in law in holding that thedisallowance of 40% of the incentive bonus claimed by theassessee as a deduction was a debatable issue till 8.3.1995? To appreciate the issue, it is necessary to briefly notice thefact of the matter as summarized in the statement of case. Therespondent/assessee, who was the Development Officer in the Life Insurance Corporation of India, filed his returns for therelevant assessment year and claimed deduction of 40% of theincentive bonus received by him. The Assessing Officer whileprocessing the returns under Section 143(1) of the Act leviedadditional tax. The assessee unsuccessfully filed an appealbefore the Commissioner of Income Tax (Appeals). The assesseecarried the matter in further appeal before the Tribunal. TheTribunal allowed the appeal and held that prima facie adjustmentmade in respect of the claim of deduction of 40% of incentivebonus for the assessment year under consideration was cancelledand consequently deleted the addition in that regard. During the course of arguments the attention of this Court isinvited to the decision of the Supreme Court in Kvaverner JohnBrown 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 thefirst proviso to Section 143(1)(a), as it stood during therelevant time, referred to prima facie adjustments. The firstproviso permitted the Department to make adjustments in theincome or loss declared in the return in cases of arithmeticalerrors or in cases where any loss carried forward ordeduction or disallowance which on the basis of informationavailable in such return was prima facie admissible but whichwas not claimed in the return or in cases where any losscarried forward, or deduction or allowance claimed in thereturn which on the basis of information available in suchreturn was prima facie inadmissible. In the present case,therefore, when there were conflicting judgments oninterpretation of Section 80-O, in our view, prima facieadjustments contemplated under Section 143(1)(a) was notapplicable and, therefore, consequently appellant was notliable to pay additional tax under Section 143(1A) of the 1961Act. In view of the same, it may be taken as well settled thatwhile assessing the return of income under Section 143(1)(a) ofthe Act, the Income Tax Officer or any Assessing Officer of theDepartment is not entitled to make adjustments except in regard to arithmetical errors or matters which are prima facie adjustable. Following the above, the reference is answered in theaffirmative in favour of the assessee and against the Revenue.The Referred Case shall stand disposed of accordingly withoutany order as to costs. _______________ (V.V.S.RAO, J) 20.12.2011vs ____________________(R.KANTHA RAO, J) [1](2008) 305 ITR 103 (SC)