Commissioner of Income Tax vs Eicher Goodearth Ltd.

Madan B. Lokur, J.—The Revenue is aggrieved by an order dated October 28, 2005, passed by the Income Tax Appellate Tribunal, Delhi Bench "B", in I.T.A. No. 84/Del/2002 relevant to the assessment year 1997-98.

The assessed filed its return of income in which it included a long-term capital gain of Rs. 6,63,746 as a part of the book profits calculated u/s 115JA of the Income Tax Act, 1961 ("the Act"). The assessed computed tax at 20 per cent, in respect of the long-term capital gain and at 40 per cent, in respect of the remaining income.

In an intimation u/s 143(1)(a) of the Act, the Assessing Officer noted that the returned total income u/s 115JA of the Act was Rs. 39,50,258 and he levied tax on this at 40 per cent. According to learned Counsel for the assessed this was incorrect and tax should have been levied on the long-term capital gain at 20 per cent, and at 40 per cent, on the rest of the income.

Feeling aggrieved, the assessed preferred an appeal before the Commissioner of Income Tax (Appeals) who noted that while computing the income u/s 115JA of the Act for the purposes of tax, whether the long-term capital gain is required to be taxed at 20 per cent, as provided in Section 112 of the Act or at 40 per cent, in view of the provisions of Section 115JA of the Act is a debatable issue. It was, Therefore, held that the issue being debatable, it was not permissible for the Assessing Officer to make an adjustment u/s 143(1)(a) of the Act.

Feeling aggrieved, the Revenue preferred an appeal before the Tribunal which noted the contention of the assessed to the effect that the issue was debatable and no adjustment was possible u/s 143(1)(a) of the Act. However, the Tribunal went into the merits of the controversy and gave its decision to the effect that the long-term capital gain is chargeable to a lower rate of tax as provided for in Section 112 of the Act.

Our attention has been drawn to Samtel Color Limited Vs. Union of India (UOI) and Others, where this Court had examined the meaning of the phrase "prima facie" as appearing in the proviso to Section 143(1)(a) of the Act. It was held that it is not open to the Assessing Officer to make any adjustment in the returned income unless the claim is inadmissible on the face of it and there is no possibility of any debate thereon. Unless this view is taken, it might render the provision wholly arbitrary and unreasonable. Moreover, such an interpretation will not cause any prejudice to the Revenue and, in a given case, it is open to the Assessing Officer to issue notice u/s 143(2) of the Act and have the evidence in support of the admissibility of the claim made by the assessed.

This is what this Court had to say in the matter (page 9):

We are, Therefore, of the considered opinion that u/s 143(1)(a) of the Act it is not open to the Assessing Officer to make any adjustment in the returned income by disallowing any claim for deduction, allowance or relief, unless he is satisfied on the basis of information available in the return, documents, and the accounts accompanying it that such a claim is inadmissible on the face of it and there is no possibility of any debate thereon on such claim, etc. If anything more is read into the power of the Assessing Officer to make unilateral adjustments, it would render the provision wholly arbitrary and unreasonable because: (a) a disallowance is made without giving an opportunity to the assessed to explain his view point in support of the deduction or allowance, and (b) additional tax on the increased amount is charged from him arbitrarily. This would not only be in total violation of the principles of natural justice, it will also be not in consonance with the spirit of the provision to cause minimum inconvenience to the assessed and at the same time put the assessed on guard against claiming inadmissible deductions and allowances. On the contrary, the above interpretation of Section 143(1)(a) of the Act will not cause any prejudice to the Revenue. In a given case where the Assessing Officer has any doubt about the allow ability of deduction or claim made by the assessed, it is open to him to issue a notice under Sub-section (2) of Section 143 and have the evidence in support thereof. Similar view have been expressed on the subject by the Bombay High Court in Khatau Junkar Ltd. and another Vs. K.S. Pathania and another, , the Calcutta High Court in Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others, , the Karnataka High Court in GOD GRANITES Vs. CENTRAL BOARD OF DIRECT TAXES and Others, and some other High Courts as well.

The question whether the long-term capital gain claimed by the assessed is liable to be taxed at a lower rate as provided u/s 112 of the Act or not is, admittedly, a debatable issue and that has also been held by the Commissioner of Income Tax (Appeals). Unfortunately, the Tribunal was called upon only to decide this limited controversy but it has gone on the merits of the dispute and has come to the conclusion that the lower rate of tax was applicable. We are of the view that this finding of the Tribunal is per incuriam and did not arise from the order passed by the Commissioner of Income Tax (Appeals).

After having heard learned Counsel for the parties and having gone through the records, we do not see any reason to differ with the view taken by the Commissioner of Income Tax (Appeals) that the issue is debatable. Though the Tribunal has dismissed the appeal filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals) on different grounds, we are of the view that the reasons given by the Commissioner of Income Tax (Appeals) hold good nevertheless.

In view of the fact that the issue with regard to the interpretation of Section 143(1)(a) and the meaning of the phrase prima facie occurring therein is no longer rest integra, we do not think that any substantial question of law arises for consideration. Under the circumstances, we dismiss the appeal, and confirm the order of the Commissioner of Income Tax (Appeals) making it clear that the observations made by the Tribunal on the merits of the controversy about the rate of tax are per incuriam.