Chandrakant N. Tolia vs The Assistant Commissioner of Income Tax

Chitra Venkataraman, J.—The assessee has filed this appeal framing the following questions of law:

Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the intimation issued in terms of Section 143(1)

(a) of the Act?

Whether on the facts and in the circumstances of the case, the Tribunal was correct in confirming the said intimation in spite of the Board circular

reported in 209 ITR 75?

The assessee owns an immovable property at No. 7, Arulambal Street, T. Nagar, Chennai. It is stated that the same was used for self-

occupation and hence, there was no income assessable under the head ""income from house property"". The assessee had taken the property at

532, Mount Road, Chennai, on rental basis. This had been sub-let to a number of other concerns from whom rents were collected. In the return

filed for the Assessment Year 1996-97, the assessee admitted a rental income of Rs. 1,20,000/- and deducted therefrom Rs. 1,08,000/- being

rent paid to the landlord thereby returning a balance of Rs. 12,000/- under the house property. In the return filed by the assessee, the same had

been shown as income from the property from No. 7, Arulambal Street, which admittedly, was in self-occupation. As such, no income assessable

from the house property was permitted. In the proceedings initiated u/s 143(1)(a), the Assessing Authority made a prima facie adjustment rejecting

the said claim and granted deduction u/s 24; thereby re-fixed the income from the property at Rs. 96,000/-.

Aggrieved by the said order, the assessee preferred appeal before the Commissioner of Income Tax (Appeals), who, by order dated

13.05.1999, held that since the assessee had returned the income as income from the house property, he could not claim deduction of Rs.

1,08,000/- being the rent paid in respect of the said property. On the facts disclosed prima facie in the returns, the appellate authority confirmed

the order of the Assessing Officer.

On further appeal by the assessee, the Tribunal rejected the same on the ground that the provisions of law being clear on the point of

admissibility of deduction of rent received from the property specially in a case where the assessee himself had shown the income under the head

income from house property"", the order of the Commissioner of Income Tax (Appeals) could not be faulted with. The aggrieved assessee is on

appeal before this Court.

Learned Counsel for the assessee pointed out that the property at Arulambal street was a self-occupied property owned by the assessee. The

assessee claimed that he had paid Rs. 1,08,000/- towards rent for the property at Mount Road on lease and that he had received the rent on sub

lease at Rs. 1,20,000/- and therefore, the assessee returned the balance as income from the house property. Learned Counsel for the assessee

stated that in the return of income from the property, it had been wrongly stated by inadvertence that the same was from the property of the

assessee at Arulambal Street which was under self-occupation. The details filed along with the return clearly showed that the said income was

earned in respect of the Mount Road property taken on lease.

Learned Counsel for the assessee pointed out that in the context of the facts disclosed in the statement accompanying the return as to the income

from the property taken on lease but sub-let, the return as regards the income ought to have been read together with the enclosure which disclosed

the true state of affairs and there was no question of making prima facie adjustment; as such, the officer should have accepted the return without

any prima facie adjustment. He further placed reliance on the circular of the Central Board of Direct Taxes dated 24.08.1994 and submitted that

even though the scope of Section 143(1)(a) is limited, yet, on the strength of the circular explaining the provisions contained therein, the Income

Tax Officer should have accepted the return without making any prima facie adjustment therein.

Learned standing counsel for the Revenue supported the orders of the authorities below that given the scope of Section 143(1)(a), the return

had been considered on the basis of what had been disclosed therein.

We agree with the learned Counsel for the assessee.

The relevant provisions of Section 143(1)(a), as it then stood prior to the substitution by the Finance Act, 1999 with effect from 1.6.1999,

reads as follows:

143(1)(a). Where a return has been made u/s 139, or in response to a notice under Sub-section (1) of Section 142, --

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any

amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of Sub-section (2), an intimation shall be sent to the

assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued u/s 156 and all the provisions of this

Act shall apply accordingly; and

(ii) ...

provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or

loss declared in the return, namely:

(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;

(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents,

is prima facie admissible but which is not claimed in the return, shall be allowed;

(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return,

accounts or documents, is prima facie inadmissible, shall be disallowed....

A reading of the provisions show that when a note is annexed to the return filed, the contents of the statement or the note need to be

considered as part and parcel of the return filed before making any adjustment in the liability. Hence, when the Income Tax Officer proceeded with

the return, fairness requires that the Assessing authority should have considered the statement filed along with the return before proceeding further

u/s 143(1)(a).

In the background of the statement filed disclosing the facts as regards the leasing of the property, it goes without saying that the Assessing

Authority should have considered the return along with the statement in proper perspective before proceeding with the prima facie adjustment in

this case. A reading of the provisions u/s 143(1)(a) leaves no room for doubt that the return filed along with the documents or accounts merit

consideration and prima facie adjustment must be with reference to a claim which is clearly and patently inadmissible on the very face of things

disclosed in the return along with the documents.

The Central Board of Direct Taxes issued a circular elaborating the scope of a prima facie disallowances u/s 143(1)(a) in Circular No. 689

dated 24.8.1994 209 ITR 75. The circular touches on the scope of prima facie disallowance u/s 143(1)(a) and has given types of claims in respect

of which prima facie disallowances shall be made. The circular gives the guidelines as to the matters which call for prima facie disallowance. A

perusal of the examples given clearly show that if the information available in the return of income or accounts or documents clearly show the

correct facts, then the claim of the assessee should not be rejected. However, where a claim is made for deduction and the information available in

the return of income or accompanying accounts or document shows that the claim could not be sustained under any of the provisions of the Act,

then the claim merits to be disallowed as prima facie adjustment.

Going by the facts stated in the Tribunal''s order, it is clear that the assessee had returned Rs. 12,000/- as income from the property at

Arulambal Street; yet, the details filed along with the return clearly showed that the assessee was in self-occupation of the property owned by him

situate at Arulambal Street. Hence, there was nil income. If at all any income is received from the property, it is only from the one taken on lease at

Mount Road. Hence, in the background of the circular of the Central Board of Direct Taxes and the provisions of Section 143(1)(a) itself

providing for taking note of the documents/ statements, the statement accompanying the return thus disclosing the facts fully, the income shown

could only relate to the one from the property taken on lease, the documents accompanying the return ought to have been adverted to by the

Income Tax Officer before passing any order u/s 143(1)(a) to make prima facie adjustment.

Going by the circular dated 24.8.1994 209 ITR 75 and Section 143(1)(a), we accept the stand of the assessee and allow the Tax Case

Appeal and thereby set aside the order of the Tribunal.