Mintri Tea Co. (P) Ltd. vs Commissioner of Income Tax

Pinaki Chandra Ghose, J.—This appeal was admitted on the following substantial questions of law:

For the asst. yr. 1989-90:

(i) Whether the Tribunal was justified in law in holding that disallowance u/s 43B in respect of provident fund could be made in proceedings u/s 154 for rectification of intimation issued u/s 143(1)(a)?

(ii) Whether and in any event the Tribunal was justified in law in holding that opportunity was granted to the appellant before passing the order u/s 154 and issuing the revised intimation and its purported findings in that behalf are arbitrary, unreasonable and perverse?

(iii) Whether and in any event the order u/s 154 and revised intimation both bearing the dt. 6th Feb., 1995 served on the appellant on 11th Dec, 1996 were barred by limitation and the Tribunal was justified in law in not deciding the said contention and its purported findings in that behalf are arbitrary, unreasonable and perverse ?

(iv) Whether and in any event the Tribunal was justified in law in upholding the disallowance of provident fund contribution actually paid by the appellant on the ground that payment was not made within the statutory period ?

For the asst. yr. 1994-95 the appeal was also admitted on the following substantial questions of law:

(i) Whether the Tribunal was justified in law in holding that disallowance u/s 43B in respect of provident fund could be made as a prima facie adjustment u/s 143(1)(a)?

(ii) Whether and in any event the Tribunal was justified in law in upholding the disallowance of provident fund contribution of Rs. 10,78,236 relating to earlier year which was disallowed in that year and claimed by the appellant on the basis of actual payment in the asst. vr. 1994-95 ?

(iii) Whether and in any event the Tribunal was justified in law in upholding the disallowance of provident fund contribution of Rs. 3,43,053 relating to the asst. yr. 1994-95 paid by the appellant before the due date for filing of the return for the said assessment year ?

(iv) Whether and in any event the Tribunal was justified in law in not directing the AO to restrict the disallowance to Rs. 6,15,309.50 representing the amount unpaid as on 31st March, 1994 out of the total sum of Rs. 6,50,319 debited to the P&L a/c for the previous year ended 31st March, 1994 and its purported findings in that behalf are arbitrary, unreasonable and perverse?

The question which was raised before the Court in question No. (i) for the asst. yr. 1989-90 and for the asst. yr. 1994-95 relate to the jurisdiction of the AO to pass an order u/s 154 amending the intimation u/s 143(1)(a) and to make a prima facie adjustment in an intimation issued u/s 143(1)(a). It is submitted by the learned Counsel that if the said questions for the two assessment years are decided in favour of the assessee, it would not be necessary to decide the other questions.

The facts of the case briefly are as follows:

The assessee declared a loss for the previous year ended on 31st March, 1989 after debiting a sum of Rs. 4,03,321 as provident fund expenditure. After taking into account the said expenditure, the total loss incurred by the assessee for the said previous year is Rs. 16,98,549. Subsequent thereto on 30th June, 1990 an intimation was issued u/s 143(1)(a) of the IT Act, 1961 by the AO accepting the return showing such loss. Subsequent thereto on 11th Dec, 1996, the assessee received an order u/s 154 of the Act along with a revised intimation both dt. 6th Feb., 1995. By the said order the AO disallowed payment towards provident fund for a sum of Rs. 4,03,321 u/s 43B and reduced the return loss to Rs. 12,85,267.

Being aggrieved, the assessee preferred an appeal before Commissioner of Income Tax (Appeals) [hereinafter referred to as "the CIT(A)"]. Such appeal was filed on the question of the jurisdiction of the AO and it is admitted that the order and the revised intimation dt. 6th Feb., 1995 was duly served by registered post on 9th Dec, 1996 by the Department and received by the assessee on 11th Dec., 1996. According to the appellant the said revised (sic-intimation and) rectification order were time-barred. After hearing the parties the said appellant (sic) had rightly invoked Section 154 and disallowed the provident fund. The assessee preferred an appeal before the learned Tribunal since the question of limitation was not decided by the CIT(A) on the question that the said revised intimation and the order both were passed without service of notice u/s 154 and were time-barred. Such points were also canvassed before the learned Tribunal and on merits it was submitted that the contribution paid towards provident fund by the assessee in terms of the order passed by the Hon''ble Court and as such was required to be treated as having been paid within the due date and could not be disallowed u/s 43B.

It was submitted (sic-held) by the learned Tribunal that the Hon''ble Court by its order dt. 29th Jan., 2003 did not extend the time of the due date for payment of such provident fund dues and AO had rightly invoked Section 154 to disallow the said amount. It is also held that the opportunity was duly granted to the assessee before passing the order u/s 154. The assessee also filed a miscellaneous application on the question that the Revenue did not produce any evidence of service of notice u/s 154 on the assessee and on 4th Aug., 2003 the Tribunal held that the assessee had no grievance either before the CIT(A) or before the Tribunal regarding time-barred and that it was not open for it to raise a new ground which was not raised before the lower authority and as such there was no mistake apparent from the record.

Similarly for the asst. yr. 1994-95, a sum of Rs. 6,50,319 was debited as provident fund expenditure in the account of the assessee and the tax audit report was also filed and the assessee claimed deduction in respect of the unpaid provident fund amount, showing that the said amount was paid before the due date for filing of the IT return for the asst. yr. 1994-95 i.e., 30th Nov., 1994. The assessee also claimed deduction of Rs. 10,78,236 representing earlier year''s unpaid provident fund paid during the previous year ended on 31st March, 1994. In respect of the said return the intimation was issued by the AO u/s 143(1)(a) of the Act on 18th Sept., 1996 and the AO disallowed a sum of Rs. 14,21,289 on account of provident fund, being a sum of Rs. 3,43,053 relating to the previous years ended on 31st March, 1994 and a sum of Rs. 10,78,236 representing earlier year''s unpaid provident fund paid by the assessee during the previous year ended on 31st March, 1994.

The assessee preferred an appeal from such intimation before the CIT(A) with regard to the jurisdiction of the AO to make the disallowance of the said sum on account of the provident fund as a prima facie adjustment and on 3rd Nov., 1999, the CIT(A) dismissed the appeal holding that the AO was empowered to make the prima facie adjustment. The assessee filed appeal before the Tribunal and on 29th Jan., 2003 the Tribunal upheld the disallowance of Rs. 14,21,289. A miscellaneous application was also filed by the assessee before the Tribunal. It was also dismissed by the Tribunal. Hence this appeal has been filed.

Learned Counsel appearing on behalf of the appellant contended that the disallowance in both the years has been made with regard to the provision of Section 43B. Section 43B was inserted in the Act by the Finance Act, 1983 w.e.f. 1st April, 1984, providing for deduction of certain amounts only upon actual payment irrespective of the method of accounting employed by the assessee. The object of introduction of the said Section 43B was to disallow the claims for deduction of statutory liabilities which were being disputed by the assessee and not paid by them but nevertheless claimed as a deduction on the basis of mercantile system of accounting.

He also drew attention to the two provisos which were inserted u/s 43B w.e.f. 1st April, 1988. He also drew our attention to the Finance Act, of 2003 by which the said Section 43B was amended w.e.f. 1st April, 2004. In the instant case it would be evident from the tax audit report as well as the P&L a/c which was disclosed by the assessee that no additional information was contained in the computation of income for the asst. yr. 1989-90. With the computation of income for the asst. yr. 1994-95, the assessee enclosed challans in respect of the payments of Rs. 3,43,053 and Rs. 10,78,236 which gave the dates of payment in respect of the said two amounts. Thus from the return or the accounts and documents accompanying it, complete information for the purpose of applying Section 43B was not available. He also submitted that the "due date" within the meaning of the Explanation below Section 36(1)(va) of the Act was not available in respect of any amount for any year and payment dates were available only in respect of two amounts for one of the years. He further contended that the intimation was to be issued by the AO on the basis of the return filed and accounts and documents enclosed therewith. Therefore, without calling for any information from the assessee or granting any opportunity of being heard, the AO had no authority to disallow the loss declared by the assessee or relief claimed in the return.

He also relied upon the decision in Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others, the said decision of the learned Single Judge was also affirmed by the Hon''ble Division Bench of this High Court in APO No. 383 of 1995 decided on 23rd Nov., 2000 and the said decision of the learned Single Judge also approved by the Hon''ble Supreme Court in Commissioner of Income Tax Vs. Hindustan Electro Graphites Ltd., It appears that in Modern Fibotex'' case (supra) at pp. 507-8 it was held as follows:

The jurisdiction of the AO u/s 143(1)(a) to make an adjustment and to issue an intimation is, in my view, limited not only to the obvious but also to that which is deducible from the return as filed, without doubt or debate. This is clear form the language of the section and is supported by the authority as well as the circulars issued by the CBDT in this connection.

In the case of Khatau Junkar Ltd. and another Vs. K.S. Pathania and another, , a Division Bench of the Bombay High Court held that (at p. 71):

This is because the scope of the powers to make prima facie adjustments u/s 143(1)(a) is somewhat coterminous with the power to rectify a mistake apparent from the record u/s 154.... In its literal sense, ''prima facie'' means on the fact of it. Hence, on the face of the return and the documents and accounts accompanying it, the deduction claimed must be inadmissible. Only then can it be disallowed under the proviso to Section 143(1)(a). If any further enquiry is necessary, or if the ITO feels that further proof is required in connection with the claim for deduction, he will heave to issue a notice under Sub-section (2) of Section 143.

See also S.R.F. Charitable Trust Vs. Union of India and others, .

In Circular No. 581 [see (1990) 88 CTR (St) 5 : (1990) 186 ITR 2] dt. 28th Sept., 1990, issued by the CBDT it has been said that the scope of the powers to make prima facie adjustments u/s 143(1)(a) is ''somewhat coterminous with the power to rectify a mistake apparent from the record u/s 154''. The nature of the remedy, therefore, circumscribes the power u/s 143(1)(a).

In fact the nature of power u/s 143(1)(a) has been conceded by the respondent to be limited to those adjustments in respect of which Section 154 would provide an adequate remedy.

However, the similarity between the power u/s 143(1)(a) and Section 154 is to the extent stated, viz., the determination of liability as ascertainable from the return as filed. The likeness ended there. The differences are many.

The power u/s 143(1) may be exercised only in the circumstances mentioned in the proviso. Section 154 is not so limited.

Then again u/s 154 an opportunity is given to the assessee of being heard, there is no such opportunity provided u/s 143(1)(a) [see Kamal Textiles and Others Vs. Income Tax Officer and Others, .

Thirdly, the consequences of a rectification u/s 154 do not result in the payment of additional tax whereas an adjustment u/s 143(1)(a) does.

It was thus held by this Hon''ble Court that a prima facie adjustment u/s 143(1)(a) can be made only in respect of something obvious or deducible from the return as filed in respect of which there can be no doubt or debate. The deduction claimed must be inadmissible on the face of the return and the documents and accounts accompanying it. If any further enquiry is necessary or if the ITO feels that further proof is required in connection with the claim for deduction, he will have to issue a notice u/s 143(2). The power to make prima facie adjustments has been likened with the power to rectify a mistake apparent from the record u/s 154 but at the same time it has been noticed that Section 154 is not so limited as Section 143(1).

The question whether disallowance of account of provident fund contribution could be made in proceedings u/s 154 was also considered by this Hon''ble Court in Jagatdal Jute and Industries Ltd. Vs. Commissioner of Income Tax and Another, (p. 68 of compilation). At pp. 593-4 of the reports (pp. 74-75 of compilation) it was held by this Hon''ble Court reproduced as follows:

...It is apparent that for holding a prima facie finding out what is the due date and therefore, whether the contributions were really paid after the due dates. The documents available before the AO do not apparently disclose what were the due dates of the said contributions. Therefore, it does not appear that without holding further enquiry from the records, it was apparent on the face of it that the said contributions were paid after the due dates. In such circumstances on the said allegation, the notice u/s 154, could not have been issued and the proceedings following such notice is apparently bad. The law relied on by learned Counsel for the appellant in this connection also supports such view.

Further, in respect of payment of such contributions, the due date has to be ascertained and a finding has to be arrived at as to whether such due date is the one referred to u/s 139 of the Act or its due date under the relevant Act which provides for the payment of contributions and provident fund and employees'' state insurance contributions. As apparently no opinion could be formed from the records available on the face of it for deciding such due date, the power u/s 154 could not have been exercised for rectification of the order earlier passed.

In the instant case also, the ''due date'' for payment of the provident fund contribution within the meaning of the Explanation below Section 36(1)(va) was not available in the return or the accounts or documents accompanying it and could not be ascertained without calling the assessee and making further enquiry. The AO could not have made any prima facie adjustment u/s 143(1)(a) or passed any order u/s 154 amending the intimation u/s 143(1)(a) on the basis of the return and the accounts and documents accompanying it. In view of the clear authorities of this Hon''ble Court in Jagatdal Jute case (supra) and Modern Fibotex'' case (supra), there can be no manner of doubt that in the instant case also the AO could not make a disallowance in respect of provident fund contribution in proceedings u/s 143(1)(a) or 154 of the Act. What could not be done in proceedings u/s 154 of the Act could not at all be done as a prima facie adjustment u/s 143(1)(a) of the Act."

The learned Counsel also took the point with regard to the non-service of notice u/s 154 and limitation. It is submitted that CIT(A) wrongly treated the grounds raising the said issues as infructuous after holding that the AO had jurisdiction to pass the order u/s 154 amending the intimation u/s 143(1)(a). It is submitted that even assuming that the AO had the jurisdiction, he was required to act in accordance with and within the time specified by the statute and it was incumbent upon the CIT(A) to decide whether the AO had so acted. He further drew our attention to Section 154 of the said Act which reads as follows:

Rectification of mistake-(1) With a view to rectifying any mistake apparent from the record an IT authority referred to in Section 116 may,:

(a) amend any order passed by it under the provisions of this Act;

(b) amend any intimation sent by it under Sub-section (1) of Section 143, or enhance or reduce the amount of refund granted by it under that sub-section.

(1A) Where any matter has been considered ;and decided in any proceedings by way of appeal or revision relating to an order referred to in Sub-section (1), the authority passing such order may, notwithstanding anything contained in any law for the time being in force, amend the order under that sub-section in relation to any matter other than the matter which has been so considered and decided.

(2) Subject to the other provisions of this section, the authority concerned:

(a) may make an amendment under Sub-section (1) of its own notice, and

(b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee, and where the authority concerned is the Dy. CIT(A) or the CIT(A), by the AO also:

From 14th May, 1992 : Finance Act, 1992 : A proviso to Sub-section (2) was inserted with effect from the date on which the Finance Act, 1992, received the assent of the President, i.e., 14th May, 1992. As per the existing provisions, an assessee can file an application for rectifying any mistake in the intimation referred to in Clause (a) of Section 143(1). However, he has no right of appeal against such intimation. The above insertion provides the AO is required to take action on such application for rectification within a period of 3 months from the end of the month in which the application is filed. The assessee has the right to appeal to the Dy. CIT(A), if no action has been taken by the AO within the aforesaid period.

Appeal from failure to rectify intimation : For the purpose of Section 249(2)(c) which provides that an appeal has to be presented within 30 days from the date of service of the order sought to be appealed against, the intimation u/s 143(1) should be deemed to have been served on the assessee (for this limited purpose) on the date following the expiry of the period of three months mentioned in the proviso u/s 154 and hence the limitation period of 30 days will start from that date : see Circular No. 668, dt. 20th Oct., 1993, (1993) 115 CTR (St) 1 : (1993) 204 ITR 104.

From 1st June, 1994 : Finance Act, 1994 : The proviso to Sub-section (2) has been omitted with effect from 1st June, 1994; because w.e.f. that date, intimations u/s 143(1) and Section 143(1B) are deemed to be orders for the purpose of Section 246 (first appeals) by an amendment to the Explanation to Section 143.

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(4) Where an amendment is made under this section, an order shall be passed in writing by the IT authority concerned.

(5) Subject to the provisions of Section 241, where any such amendment has the effect of reducing the assessment, the AO shall make any refund which may be due to such assessee.

(6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued u/s 156 and the provisions of this Act shall apply accordingly.

Under the said Section 154 it appears that the AO has an obligation to grant a reasonable opportunity of being heard to the assessee if the AO thinks that an amendment has the effect of answering or refusing a revenue (sic-enhancing an assessment or reducing a refund) or otherwise increasing the liability of the assessee shall not be made without granting such opportunity. It has also specifically stated that no amendment shall be made after expiry of four years from the end of the financial year in which the order sought to be amended was passed. In the instant case the original intimation u/s 143(1)(a) was issued on 30th June, 1990. Therefore, an order u/s 154 could have been passed within four years from the end of the financial year 1990-91 i.e. by 31st March, 1995 and further prior to passing of the order, notice and opportunity of being heard was required to be given. It is submitted that the CIT(A) did not decide the said question and from the fact it appears that the CIT(A) dismissed the assessee''s ground as infructuous on the ground that the AO had jurisdiction to act u/s 154. It further appears from the fact as pointed out by the learned Counsel appearing on behalf of the assessee that the Tribunal held contrary to the records that the assessee had not raised the question either before the CIT(A) although it is submitted that the assessee has specifically pleaded the fact relating to the question of limitation in the appeals filed before the CIT(A) and also argued the same at the hearing before both the said appellate authorities.

It is further submitted that the finding of the Tribunal as regards the service of notice u/s 154 and refusing to decide the question of limitation are contrary to the record and perverse. Accordingly, it is submitted that the question No. 1 relating to the jurisdiction if it is answered in favour of the assessee it would not be necessary to decide the question Nos. (ii) and (iii). On the contrary it was submitted on behalf of the respondent that on 6th of Feb., 1995 the assessment order was passed by the AO and on 1st Dec., 1996, the rectification order u/s 143(1)(a) (sic-154) of the IT Act was issued for disallowing the provident fund payment u/s 43B(b) of the IT Act and the rectification order was passed on 1st Dec., 1996 within four years.

It is further submitted that a glaring and obvious mistake of law can be rectified u/s 35 of the IT Act of 1922. Not at present u/s 154 of the IT Act. With regard to the asst. yr. 1994-95 it is submitted on behalf of the Department that a tax return was filed on 19th Oct., 1994 and the order was passed u/s 143(1)(a) which was received by the appellant on 18th of Sept., 1996.

According to the learned Counsel appearing on behalf of the Department, the intimation was issued on 18th Sept., 1996 within two years of completion of the assessment order. Therefore, he submitted that the instant appeal is not maintainable and liable to be dismissed. But, after considering the chronological facts in this matter we cannot brush aside the question as put forward before us by the learned Counsel appearing on behalf of the appellant that whether the said action on the part of the authority is hit by the violation of the principles of natural justice as contemplated u/s 154 and also the limitation to carry out the same in terms of the Section 154(7) of the said Act.

It is admitted that on 11th Dec., 1996, the assessee received an order u/s 154 along with a revised intimation both dt. 6th Feb., 1995 but the same was dispatched by registered post on 9th Dec, 1996 as it would be evident from the records placed before us and appearing at pp. 43 and 44 of the paper book. Therefore, it is acceptable from the facts and the materials placed before us that no notice u/s 154 was served and that the order and revised notice bearing the date on 6th Feb., 1995 which was sent by registered post on 9th Dec., 1996 and received by the assessee on 11th Dec., 1996. Therefore, it clearly comes within the purview of Section 154 of the said Act.

It further appears that from the decision of the Tribunal, it appears that although the Tribunal has decided the question by its order dt. 4th Aug., 2003 and held that the assessee had not mentioned either before the CIT(A) or before the Tribunal regarding time-barred and that it was not the new ground which was not raised before lower authority. From the pleadings and from the submission as made it appears that the said point was duly placed before the CIT(A) as well as before the Tribunal not only that the assessee has filed a miscellaneous application before the Tribunal and the Department/revenue did not produce any evidence before the said authority on the question of service of notice u/s 154.

Hence, after analyzing the facts and the decisions cited before us, we do not have any hesitation to hold that the question No. (i) in each of the years should be answered in the negative and in favour of assessee. Since we have answered the question in favour of the assessee, in our considered opinion, it would not be necessary to us to decide the other question.

For the reasons stated hereinabove, this appeal is allowed.