Commissioner of Income Tax vs Hiltop Palace Hotel (P) Ltd.

This appeal has been filed by the revenue, against the order of the Tribunal, dated 25-11-2003, affirming the order of the Commissioner (Appeals), who had allowed the appeal of the assessee, and deleted the adjustment made by the assessing officer, while sending intimation u/s 143(1)(a).

The appeal was admitted on 20-3-2006, by framing following substantial question of law:

Whether on the facts and in the circumstances of the case and in law the learned Tribunal was justified in upholding the order the learned Commissioner (Appeals), deleting the adjustments made by the assessing officer in respect of deductions under Sections 80HHD and 80I of the Income Tax Act, by holding that the issue as to whether the interest income earned by the assessee was a ''business income'' or ''income from other sources'', was a debatable issue?

The matter was heard on 14-8-2008, then on 18-8-2008, and looking to the nature of controversy involved, we thought it proper to peruse the original ''Income Tax return, filed by the assessee, for the relevant assessment year 1994-95. For that purpose, the case was adjourned and ultimately it comes up today.

Today, learned Counsel made available, for our perusal the photocopy of the original return.

From perusal of the return, what we find is, that the assessee has declared his income from "profits and gains of business or profession", in the sum of Rs. 38,9.5,005, then in the sheet, in computation of income, again by giving various figures, including figure of net profit,, as per audited Profit and Loss Account, income of business has been shown to be Rs. 38,95,005 and thereon, the tax has been computed after claiming admissible deduction u/s 80I and u/s 80HHD.

As we find from the intimation, sent by the assessing officer Annex. 1, being intimation u/s 143(1)(a), that it contains adjustment explanatory sheet, and therein, out of the gross total income, as per revised computation being Rs. 38,80,106, income to the tune of Rs. 7,67,021 has been deducted for being considered separately, under the head, "Income from other sources", treating it to have been wrongly included by the assessee under the head "Income from business and profession", and then accordingly, calculation of leviable tax has been made, and a demand has been raised.

This was challenged by the assessee in appeal by contending that the assessee had shown interest as a part of business income, but the assessing officer transferred this income from the head "Income from business" to the head "Income from other sources", while it is a debatable issue, because it will depend on the facts of the case, as to whether, interest income is "income from business" or "income from other sources". Then, certain judgments were cited to show, where interest income is treated to be income from business and profession. On this basis, it was contended that the assessing officer has a very limited jurisdiction u/s 143(1)(a) to make adjustment, but he possesses no jurisdiction to make the adjustments of the above nature. Learned Commissioner (Appeals) found, that in the Profit and Loss Account, the receipts have been shown under different heads, but the said account does not contain any such head, like "Income from business and profession" or "Income from other sources". Then, it has also been noticed, that under the head "Other income" in the Profit and Loss Account, income received, in respect of various heads has been shown, but then all that has been considered to be income from business and profession. Thus, it was found that the question, in the circumstance of the case, moreso, in view of different judgments, rendered by different High Courts, is as to whether the interest income is to be treated as "income from business" or "income from other sources"; it was found to be debatable issue, and not capable of making adjustment u/s 143(1)(a). This has been affirmed in appeal.

We may, at this stage, gainfully quote the provisions of Section 143(1)(a), as they existed at the relevant time:

43(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) if any refund is due on the basis of such return, it shall be granted to the assess:

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.

Thus, from a bare look at the language of the provisions, it shows that the assessing officer was entitled to make adjustment in the declared income or loss, in the return, only to the extent as provided in three clauses, and to say the least, unless it could be said, that the allowance or relief claimed, on the basis of information available, in such return, accounts or documents, is prima facie inadmissible, it could not be disallowed. Obviously, meaning thereby, that if the inadmissibility is a debatable issue, the learned assessing officer did not possess any jurisdiction to make such adjustment.

Thus, in our view, it cannot be said that the learned Commissioner (Appeals), or the learned Tribunal committed any error in deleting adjustment and upholding the same. The question as framed, is thus answered against the revenue, and in favour of the assessee.

The appeal has no force, and the same is dismissed.