Rc/70/2002 Of The Commissioner Of Income Tax v. K. Vijaya Bhaskara Reddy

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.70 OF 2002 Dated:29.12.2011 Between: Commissioner of Income Tax,Andhra Pradesh –II, Hyderabad .. Applicant And Sri K.Vijaya Bhaskara Reddy, Karimnagar .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.70 OF 2002 ORDER:(Per the Hon’ble Sri Justice V.V.S.Rao) The Income Tax Appellate Tribunal, Hyderabad Bench ‘B’referred the following question under Section 256(1) of the Income TaxAct, 1961 (the Act, for brevity) for the opinion of the Court at theinstance of the Revenue. Whether on the facts and in the circumstances of the case, theI.T.A.T. was correct in law in holding that the disallowance of 40% ofthe incentive bonus claimed by the assessee as a deduction whichhe was not entitled to as per the law laid down by this Court in 214ITR 368 cannot be disallowed under Clause (iii) of the first provisoto Section 143(1)(a) while finalizing the return under the saidSection for the year 1991-1992? The assessee is a Development Officer in Life InsuranceCorporation of India. In his return of income for the assessment year1991-1992, he claimed 40% of the incentive bonus as a revenuededuction. The return was processed under Section 143(1)(a) of theAct. In purported prima facie adjustments, 40% deduction claimed wasdisallowed. The Appellate Deputy Commissioner allowed the claimobserving that the issue is one which could not be disallowed as it wasa debatable one. The appeal by the Revenue was dismissedwhereupon they sought the reference. The question whether the assessing officer can makeadjustments which are debatable is no more res integra. In Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers P. Ltd.[[1]],it was held as under. What were permissible under the first proviso to section143(1)(a) to be adjusted were, (i) only apparent arithmetical errorsin the return, accounts or documents accompanying the return, (ii)loss carried forward, deduction, allowance of relief, which wasprima facie admissible on the basis of information available in thereturn but not claimed in the return and similarly (iii) those claimswhich were on the basis of the information available in the return,prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on thebasis of the documents accompanying the return. The AssessingOfficer had no authority to make adjustments or adjudicateupon any debatable issues. In other words, the Assessing Officerhad no power to go behind the return, accounts or documents,either in allowing or in disallowing deductions, allowance or relief. (emphasis supplied) The above view was reiterated in Kvaverner John Brown Engg. [2](India) P. Ltd. v Asst. CIT ,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 of cases of arithmetical errors or in cases where any losscarried forward or deduction or allowance 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 the appellant was notliable to pay additional tax under section 143 (1A) of the 1961 Act. In view of the above, the question 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) _____________________ (B.N.RAO NALLA, J) 29.12.2011 KH [1](2007) 291 ITR 500 (SC) [2](2008) 305 ITR 103 (SC)(2008) 305 ITR 103 (SC)