Commissioner of Income Tax vs Smt. A.E. Sarojini

Chitra Venkataraman, J.—The following are the questions of law raised in this case

(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in dismissing the appeal without going to the merits of the case ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled for the capital gains exemption u/s 54F?

The appeal relates to the assessment year 1992-93.

The assessee herein is an individual. The assessment was originally completed u/s 143(1)(a). While making a prima facie adjustment in computing the claim on capital gains, the Income Tax authority rejected the claim on exemption u/s 54F of the Income Tax Act on the ground that the assessee had a residential house at the time of sale of the vacant site and that the sale proceeds were utilised for the extension of the existing building. The assessee preferred an application u/s 154 of the Income Tax Act, 1961, contending that the benefit of Section 54F should have been considered and the question which is an arguable issue, ought not to have been a matter for consideration u/s 143(1)(a). The assessing authority, however, rejected the petition u/s 154. An appeal was preferred against this order before the Commissioner (Appeals). The assessee contended that the disallowance of the claim u/s 54F could not be made under the prima facie adjustment u/s 143(1) (a), since the question was a debatable one. Taking the view that a disputed or a debatable issue could not be the basis for prima facie adjustment u/s 143(1) (a), the appellate authority accepted the plea of the assessee and allowed the appeal. The appellate authority went into the question on the merits of the claim to hold that the denial of deduction u/s 54F as a prima facie adjustment and the computation of capital gains on the sale of capital asset were contrary to the provisions of the statute.

On appeal by the revenue , the Tribunal found that the question of benefit available u/s 54F as regards the utilisation for the extension of the existing property was a debatable issue and hence, the assessing officer was not justified in making such adjustments through a prima facie adjustment u/s 143(1)(a) proceedings. Thus, the Tribunal confirmed the order of the Commissioner (Appeals).

Aggrieved of this order of the Tribunal, the revenue has preferred this appeal before this Court, contending that when the assessee had a residential house at the time of sale of a vacant site and that the proceeds were utilised for the extension of the existing property, the benefit claimed u/s 54F was rightly disallowed in the proceedings u/s 143(1)(a). The revenue further contended that the Tribunal erred in its view that such a disallowance, which is in accordance with law, could not be a prima facie adjustment u/s 143(1)(a). In the circumstances, the revenue prayed for restoration of the order of assessment.

We do not agree with the submission made by learned senior standing counsel appearing for the revenue. It is an admitted proposition of law that the exercise of power u/s 143(1) (a) is limited not only to the obvious but also to what is deducible from the return without any doubt or debate. A debatable issue as such does not so far considered (sic) u/s 143(1)(a) proceedings. In the decision reported in Commissioner of Income Tax Vs. C.S. Kothari, , this Court considered the scope of the provisions u/s 143(1)(a). Referring to the section, this Court held (page 401):

A perusal of the above, clearly indicates that in making the adjustment of total income of the assessee, the assessing officer is entitled to make the adjustment of the income or loss declared in the return. The adjustments permissible have been enumerated in the above Clauses (i), (ii) and (iii) of the first proviso to Section 143(1) (a) of the Act. Clause (i) deals with correction of arithmetical errors. Clause (ii) relates to grant of relief to the assessee, which is found due, but not claimed in the return. Clause (iii) deals with disallowance of claims of brought forward loss, deduction, allowance or any other reliefs claimed in the return which are prima facie inadmissible.

The reported decision relates to a case where the assessing authority, in the course of the proceedings u/s 143(1)(a) excluded the interest payable under Sections 234A, 234B and 234C from the total tax payable by the firm for determining the profit apportionable among the parties. Confirming the order of the Tribunal, this Court held that if the Officer was of the opinion that the assessee claimed certain benefit to which he was not entitled to, instead of making adjustment u/s 143(1)(a), it is for the assessing officer to initiate appropriate proceedings to assess the income in accordance with law. Touching on the jurisdiction of the officer u/s 143(1) (a), this Court held that "it is a summary act on the basis of undisputed material furnished by the assessee, without factually disputing its correctness." In the light of the abovesaid view that a debatable issue can never be a subject-matter for consideration while passing an order u/s 143(1)(a), we reject the revenue ''s contention and dismiss the appeal. There will, however, be no order as to costs.