1. The only issue arising out of this appeal is whether the CIT(A) was justified in confirming the action of the AO under Section 143(1)(a) of the Act.
2. The brief facts of the case are these : The assesses filed his income-tax return for asst, yr. 1997-98 declaring total income of Rs. 1,37,98.740 which included capital gains of Rs. 1,12,56,915 details of which were given in Annexure 'A' with the computation of income. The assessee had sold 3,069 shares of Hotel Amir (P) Ltd. to M/s Bhojwani Hotels (P) Ltd. against the total consideration of Rs, 4,59,76,689. He claimed deduction of Rs. 22,98,334 on account of service charges paid to Dr. Bhojwani. He also claimed deduction of Rs. 2.41 crores on account of liability of. Hotel Amir (P) Ltd. The cost of acquisition was taken at the fair market value as on 1st April, 1981 since the shares were purchased prior to such date. A note was appended below the computation of capital gains stating that the shares were sold under purchase agreement dt. 26th May, 1996. It was further stated that the assessee had entered into a family settlement agreement dt. 6th May.
1996 whereby the assessee was required to pay off the liability amounting to Rs. 2.41 crores of Hotel Amir (P) Ltd. on transfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. and was entitled for net consideration after such payment. It further stated that an opportunity be given to him to compute the capital gains based on the market value of the shares as on 1st April, 1981 as per the provisions of Section 55(2)(b) of the Act.
The AO while processing the return under Section 143(1)(a) made an adjustment by disallowing the claim of the assesses amounting to Rs. 2.41 crdres for the reasons given by him in para 2 of the separate sheet enclosed to the intimation sheet. The said para 2 is reproduced as under : "The mode of computation of capital gains is provided under Section 48 of the IT Act. Under Section 48 besides cost of acquisition of the asset and cost of improvement thereto, expenditure incurred wholly and exclusively' in connection with such transfer is allowable.
Admittedly liability of Hotel Amir, of Rs. 2.41 crores has been .assumed by the assessee due to family. settlement. This suo motu assumption of liability of Hotel Amir. (P). Ltd. is not an expenditure incurred and more so is not at all an expenditure incurred wholly and exclusively in connection with the transfer of the assets. Hence the expenditure incurred is not an allowable deduction under the law. The amount of Rs. 2.41 crores is therefore adjusted and added to the income of the assessee under Section 143(1)(a)." 3. On appeal, the CIT(A) upheld the action of the AO by holding that taking over the liability by the assessee of Amir Hotels (P) Ltd. did not amount to either cost of improvement to the shares or the expenditure incurred wholly and exclusively in connection with transfer of shares. On the contrary, he was of the view that if the appellant had not taken over the liability of Amir Hotels (P) Ltd. net consideration received by him from the sale of shares would have been much more than what he has received after taking over the liability. In coming to this conclusion, he took into consideration the total holding of the entire family and the total sale consideration received on the sale of entire holding of 12,000 shares amounting to Rs. 17,97,72.800.
Aggrieved by this order of the CIT(A), the assessee is in appeal before the Tribunal 4. The learned counsel for the assessee Dr. Sunil Pathak has seriously assailed the order of the CIT(A). At the outset, he took us through the relevant factual position by referring to the family settlement and the purchase agreement as well as the decision of the Company Law Board which had approved the family settlement. Such references were seriously objected to by the learned Senior Departmental Representative by contending that the assessee cannot enlarge the scope of Section 143(1)(a) by referring to such materials since such materials were not available along with the return. Then Dr. Pathak restricted his arguments to the statement of income, and the Annexure enclosed therewith. Firstly, he drew our attention to the reasoning given by the AOs who had held that the sum of Rs. 2.41 crores could not be considered as an expenditure incurred wholly and exclusively in connection with the transfer of the shares. He pointed out that this was the only reason for making adjustment while processing the return.
He then drew our attention to the Annexure to show that the assessee had never claimed deduction of Rs. 2.41 crores on account of expenditure incurred wholly and exclusively in connection with the.
transfer of shares. He drew our attention to the provisions of s, 48 to contend that the deduction is referable to, the cost of improvement.
According to him, the value of shares in a private limited company would vary on the basis, of increase or decrease in the liability of the company. He also drew our attention to r. 1-D of the Wealth-tax Rules which provides the principle for valuing the unquoted shares on the basis of break-up method. According to this rule, the total liability of the company are deducted from the total value of the assets and the balance amount is divided by the total number of shares of the company. According to this formula, if the liability of the company is taken away, then definitely, the value of the shares would go up. Therefore, there was definitely improvement in the value of the shares by taking over the liability of the company. According to him, if the assessee had not taken over the liability, he would not have got such value of the shares. In other words, he would have got the consideration lesser by Rs. 2.41 crores. Therefore, according to him, it was not a case where the deduction was prima facie inadmissible. It was contended by him that prima facie means on the face of it. That means by no stretch of imagination a different view can be taken. If the issue is found to be debatable then it cannot be said that deduction was prima facie inadmissible. In support of his contention, he relied on the decision of the Bombay High Court in the case of Khatau Junkar Ltd. v. K.S. Pathania, Dy. CIT (1992) 196 ITR 55 (Bom). A particular attention was drawn to the proposition laid down by the Bombay High Court at pp. 69 and 73. In addition to it, he also referred to the decision of the Bombay High Court in the case of Bank of America N.T. & SA. v. Dy. CTT (1993) 200 ITR 739 (Bom), Delhi High Court in the case of S.R.F. Charitable Trust v. Union of India (1992) 193 ITR 95 (Del) and Calcutta High Court in the case of Modern Fibotex India Ltd. v. Dy. CIT (1995) 212 ITR 496 (Cal). He also referred to the decision of the Madras High Court in the case of CIT v. V. Ramaswamy Mudaliar (1992) 196 ITR 939 (Mad) wherein it was held that the training expenses on the mare, was allowable as admissible deduction on account of cost of improvement of the capital asset. On the basis of this judgment, it was contended by him that taking over the liability by the assessee should be held deductible as cost of improvement. It was also contended by him that the assessee could not have sold the shares unless the family settlement was arrived at between the members of family since there was a real dispute between the members which was finally approved by the Company Law Board.
5. On the other hand, the learned senior Departmental Representative has relied on the order of the CIT(A) by contending that the total liability of Amir Hotels could not be attributed to 3,069 shares alone but should have been spread over to the entire shareholding of 12,000 shares. It was further contended by him that the note given by the assessee in the annexure does not point out whether the liability was on account of cost of acquisition or cost of improvement. He also relied on the decision of the Bombay High Court in the case of Khatau Junkar Ltd. (supra) by submitting that the claim of the assessee cannot be accepted unless all the particulars of the claim are given by the assessee. He referred to Form No. 3, in which return is filed, which provides for various requirements in connection with the income arising as capital gains. According to him, the assessee must point out the details of deduction i.e. whether it is cost of acquisition or cost of improvement or the expenditure incurred wholly and exclusively in connection with such transfer of the asset. Lastly, he drew our attention to the revise return filed by the assessee withdrawing the deduction of Rs. 2.41 crores. It was pointed out by him that in the revised return this liability has been taken against the sale of shares belonging to his sons. According to him, the assessee made a false claim in the original return.
6. In reply, the learned counsel for the assessee seriously objected to the reference of the revised return filed much after the orders of the lower authorities, i.e., 31st March, 1999 and could not be taken into consideration as it was not a part of the return on the basis of which the adjustment was made by the AO. Alternatively, it was contended by him that in the revised return the assessee had not give up his original claim. In this connection, he drew our attention to the last sentence of the note given in the revised return to show that the revised stand taken by the assessee was without prejudice to the assessee's main stand in the original return. It was also submitted by him that no defect in the original return was pointed out by the AO as no notice under Section 139(9) was issued. The return was processed under Section 143(1)(a) by accepting the same as correct return. It was also submitted by him that in the revised return the income has not been increased even by Re. 1. Therefore, it cannot be said that the original claim was false.
7. Rival submissions of the parties, case law referred to and the relevant materials have been considered carefully. The short question to be considered is whether the AO could make adjustment under the proviso to Section 143(1)(a). We have gone through the provisions of Section 143{l)(a) proviso which empowers the AO to make adjustments while processing the return under three circumstances mentioned below: "(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 puma facie inadmissible, shall be disallowed." In the present case, we are concerned only with the third circumstance, since the dispute relates to the disallowance of deduction of Rs. 2.41 crores in computing the capital gains. In our opinion, the AO can make adjustment if the following conditions are fulfilled; (a) any loss, deduction, allowance or relief has been claimed by the assessee in the return; (b) such claim is prima facie inadmissible on the basis of the information available in such return.
Prima facie means on the face of it. That means there is no scope of any debate or enquiry, whether the claim is prima facie inadmissible has to be decided on the basis of information available in the return.
Both the parties have rightly objected to the admission of additional information. Therefore, we have to restrict ourselves to the information available before the AO. In these premises, it is not permissible for us to consider either the material produced before us for the first time by the learned counsel for the assessee or revised return filed by the assessee recently on 31st March, 1999 to which our attention was invited by the learned Departmental Representative since all these materials were not available in the original return.
Therefore, we will restrict ourselves to the statement of the income along with the annexure filed by the assessee along with the return as held by the Bombay High Court in the case of Khatau Junkar Ltd. (supra).
8. In the present case, the return was accompanied by all papers which included seven TDS certificates, two advance-tax challans and two papers relating to computation of total income as mentioned above. The statement of the total income refers to the computation of various incomes under various heads. We are only concerned with the income falling under the head 'Capital gains'. Under this head, the assessee has computed the capital gains at Rs. 1,12,56,915 the details of which are given in annexure 'A'. For the benefit of our order, we would like to reproduce the relevant portion: Note: During the year your assessee has sold 3,069 shares of Hotel Amir (P) Ltd, vide share purchase agreement dt. 26th May, 1996 to M/s Bhojwani Hotels (P) Ltd. Your assessee has also entered into family settlement agreement dt. 6th May, 1996 whereby your assessee is requested to pay off the liability amounting to Rs. 2,41,00,000 of Hotel Amir (P) Ltd. on transfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. and is entitled for net consideration after such payment of Hotel Amir (P) Ltd.'s liability. Hence, the deduction of Rs. 2,41,00,000 has been taken while calculating capital gains on sale/transfer of shares.
This assessee wishes to state that an opportunity be kindly given to him to compute the capital gains based on the market value of the shares as on 17th April, 1981 as per the provisions of Section 55(2)(b). As if the shares of the company were for sale on that date.
9. While computing the capital gains, the assessee can claim deduction under Section 48 either if it is (1) cost of acquisition; (2) cost of improvement; or (3) expenditure incurred wholly and exclusively in connection with the transfer of assets. It has never been the claim of the assessee that the liability taken over by the assessee was the expenditure incurred wholly and exclusively in connection with the transfer of shares. If that is so, then the AO was not justified in making the adjustment since the only reason given by him was that taking over of the liability could not be considered as expenditure incurred wholly and exclusively in connection with the transfer of shares. No other reason has been given by him. He has not considered the claim of the assessee, vis-a-vis the cost of improvement.
Therefore, the adjustment made by him for the reasons given by him in his order cannot be upheld. 10. As far as the order of the CIT(A) is concerned, he has rejected the claim of the assessee vis-a-vis the cost of improvement by holding that the assessee would have received more consideration if he had not taken the liability of Amir Hotels (P) Ltd. In coming to this conclusion, he has taken into consideration the entire shareholding of Amir Hotels (P) Ltd., i.e.; 12,000 shares held by the entire family of the assessee as well as entire sale consideration of 12,000 shares. He has also assumed that if the liability of Amir Hotels (P) Ltd. had not been taken by the assessee, the entire holding of the shares would have been sold at Rs. 15,56,07,200. In our opinion, the CIT(A) has travelled beyond the scope of his jurisdiction. It is well-settled law that powers of the appellate authority are coterminous with that of the AO as held by the Hon'ble Supreme Court in the case of CIT v. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). The information regarding the total number of shares of Amir Hotels (P), Ltd., shareholding, of family members of the assessee, balance-sheets of Amir Hotels (P) Ltd. and the total sale consideration of the shares etc. were not available in the return. Such information could not have been obtained on the basis of. material enclosed with the return. He has done what the AO could do under Section 143(3) after obtaining such information from the assessee.
Therefore, the reasoning given by the CIT(A) for holding the adjustments made by the AO cannot be upheld. 11. Now, the only consideration before us is whether the claim of the assessee can be said to be inadmissible on the face of it. As held earlier, the claim of. the assessee cannot be held to be inadmissible if there is any scope of any debate or enquiry. The issue regarding the cost of improvement is always highly debatable issue as can be seen from the decision of the Madras High Court in the case of V. Ramaswamy Mudaliar (supra) wherein it has been held that the expenditure on training the mare was deductible as cost of improvement. The values of the shares of a private limited company are determined on the basis of break-up, method as was provided by the statute under r. ID of the WT Rules and r. 11 of the Sch; III of the Wealth-tax. The principle as laid down by this Rule is quoted below : "(2). The value of all the liabilities as shown in the balance-sheet of such company shall be deducted from the value of all its assets shown in that balance-sheet; the net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance-sheet; the result multiplied by the paid-up value of each equity share shall be the breakup value of each unquoted equity share, and an amount equal to eight per cent of the break-up value so determined shall be the value of the unquoted equity share for the purposes of this Act." In view of the above principle, the value of shares would vary according to the quantum of assets and liabilities. Lesser the liabilities more the value of shares is the principle in short. This is also the criteria in the commercial world for valuing the unquoted shares. Therefore, the contention of the learned counsel for the assessee that by taking over the liability of Amir Hotel, the value of shares improved cannot be brushed aside. If such liability had not been taken the shares could not have been sold at a higher price. In other words, it can be said that if such liability had not been taken over then the consideration would have been received lesser at least by Rs. 2.41 crores. It is also apparent from the note in Annexure 'A' that there was a dispute between the family members which was resolved on 6th May, 1996 and under the settlement the assessee was compelled to takeover such liability. That means the shares could not have been sold unless the family dispute was settled. It was a case of a change of management which could not have been affected unless the family disputes were settled. Therefore, on the face of it, it cannot be said that taking over such liability by the assessee did not improve the value of shares. The claim of the assessee may not be sustainable on merits but such rejection could be possible only after making due enquiry into the facts of the case by resorting to procedure prescribed under Section 143(2) and 143(3) of the Act and not otherwise.
Therefore, it is our view that it was not a case of prims facie adjustment under Section 143(1)(a).
12. The contention of the learned senior Departmental Representative that the claim of the assessee was inadmissible for want of particulars as required in Form No. 3 cannot be accepted. The learned Senior Departmental Representative had referred to the judgment of the Bombay High Court in the case of Khatau Junkat Ltd. (supra), for the submission that where the necessary particulars are not furnished along with the return, the claim of the assessee for investment allowance could not be allowed. In our opinion, the reliance placed by him on this judgment appears to be misplaced. In that case, the Bombay High Court on p. 75 of the report had considered the provisions of Section 32A(4) which specifically provided that the claim of investment allowance would not be allowed unless particulars prescribed in this behalf were furnished by the assessee. But in respect of the capital gains there is no such specific requirement under any of the provisions pertaining to capital gains. Besides this, all the necessary particulars were available before the AO i.e. number of shareholding, consideration received against such sale, the name of purchasing company, the year of sale, the amount of deduction claimed and the method of computing the fair market value as on 1st April, 1981. The year of acquisition was not required since the assessee had an option to substitute the cost of acquisition by fair market value as on 1st April, 1981. The claim of deduction has to be seen with reference to the provisions of Section 48 and if the same is allowable either as cost of acquisition or the cost of improvement or as. an expenditure incurred wholly and exclusively in connection with such transfer, then it cannot be disallowed merely on the ground that the assessee had not specifically stated the head under which the deduction was covered.
Therefore, in our opinion, the said decision of the Bombay High Court is distinguishable on facts.
13. In view of the above discussion, it is held that the claim of the assessee was not prima facie inadmissible. The order of the CIT(A) is therefore, set aside and the adjustment made by the AO and sustained by the CIT(A) is hereby deleted. Consequently, the levy of additional tax is also cancelled.
15. Regretting my inability to persuade myself to the view taken in the order of my learned Brother, I proceed to write a dissenting order.
16. The vital issue before this Tribunal is whether the sum of Rs. 2.41 crores claimed by the assessee as liability of M/s Hotel Amir (P) Ltd. is prima facie disallowable under Section 143(1)(a) of the Act. It is settled position that under Section 143(1)(a) only those sums can be disallowed, which on the basis of information available in the return or in the accounts' are prima facie inadmissible. The assessee was one of the shareholders of M/s Hotel Amir (P) Ltd.-a closely-held company.
He was holding 3,069 shares of the said company. However, other shares of the said company were held by two sons of the assessee and other relatives. According to the assessee, there was a dispute in the family and the dispute was resolved by a settlement on 6th May, 1996. As per the said settlement except the shares of M/s Hotel Amir which are individually owned by the assessee as a family member and the properties were mainly divided between the two sons of the assessee.
The assessee as per the terms of family settlement got right to stay in bungalow at Koregaon Park till life-time. According to the assessee, it was provided in the settlement that the assessee shall take over the liability of M/s Hotel Amir (P) Ltd. which was estimated to be Rs. 2.41 crores. In the computation of capital gains attached with'the return, the assessee deducted a sum of Rs. 2.41 crores from the sale proceeds of 3,069 shares of Hotel Amir (P) Ltd: at Rs. 14,981 at Rs. 4,59,76,689 on account of 'liability of Hotel Amir (P) Ltd.' In the note appended to the above calculation, which has been reproduced by my learned Brother at p. 7 of his order, the assessee simply informed that "the assessee has also entered into family settlement agreement dt. 6th May, 1996 whereby your assessee is required to pay off the liability amounting to Rs. 2.41 crores of Hotel Amir (P) Ltd. on transfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. and is entitled for net consideration after such payment'of Hotel Amir (P) Ltd.'s liability.
Hence the deduction of Rs. 2.41 crores has been taken while calculating capital gains on sale/transfer of shares".
17. A plain reading of this note reveals that the assessee neither claimed Rs. 2.41 crores as cost of improvement of the asset or expenditure incurred wholly and exclusively in connection with transfer of the asset. Thus it is a vague/dubious note a note to mislead the AO.The CIT(A) has rightly brought out this aspect in para 9 of his order which reads as under : "9. It seems that the appellant himself is not sure as to whether the aforesaid sum of Rs. 2.41 crores is an expenditure incurred in connection with the transfer of shares or is an expenditure incurred for the improvement of shares The above is apparent from the fact that first contention of the appellant is that it is an expenditure incurred in connection with the transfer of shares and then in the very second paragraph, it is claimed to cost of improvement of shares. This shows that there is a desperate attempt on the part of the appellant to try to fit the sum of Rs. 2.41 crores either in Clause (i) or (ii) of Section 48 of the IT Act. The facts of the case thus reveal that the appellant in the guise of family settlement has claimed unjustified deduction for a non-tax deductive item that too not of his own, but of a company of which he was one of the shareholders." 18. It is an admitted fact that the assessee did not file a copy of the settlement deed dt. 6th May, 1996 along with the return before the AO. It has also not been filed before this Tribunal.
Before this Tribunal, the assessee has filed a copy of application for recording a settlement reached between the parties and disposal of the Company Petition (pp. 31 to 38 of the paper book). From the perusal of these documents, it is noted that it was signed by the parties to the settlement on 26th May, 1996 i.e., on the very date of sale of shares of M/s Amir Hotels (P) Ltd. to M/s Bhojwani Hotels (P) Ltd, It is also an admitted fact that a copy of this application was also not filed along with the return of income and accordingly it was not before the AO at the time of passing the order under Section 143(1)(a) of the Act.
The Company Law Board approved the above application on 10th June, 1996. It is also an admitted fact, the copy of this approval by the Company Law Board was not filed before the AO along with the return of income and accordingly it was not before the AO at the time of passing the order under Section 143(1)(a) of the Act. Thus, the assessee had made a claim of Rs. 2.41. crores but it was a bald claim without any supporting evidence. Even the basis on which the amount of Rs.: 2.41 crores was calculated was not given. It is also not clear whether it is ascertained liability or estimated liability. Simply because there was a family settlement and as per this settlement the assessee assumed some liability is no ground for allowing such liability. In the qase of Kale and Ors. v. Dy, Director of Consolidation AIR 1976 SC 807, it has been held that a family settlement must be a bona fide one so as to resolve family disputes and, rival claims by a fair and equitable division or allotment of property between the members of the family.
The said settlement must be voluntary and should npt be induced by fraud, coercion or undue influence. The members who may, be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which acknowledged by the parties to the settlement. Viewed in the light of the aboye ratio of the Hon'ble Supreme Court, it may be noted that nothing was available on record along with the return whether the family settlement during the course of which the assessee had assumed a huge liability of Rs. 2.41 crores was bona fide settlement and accordingly, prima facie such a claim was not allowable and as such the case of the assessee squarely falls under Clause (iii) of provision of Section 143(1)(a) which reads as under : "(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." 19. Though the learned counsel Dr. Pathak, has relied upon the decision of the Bombay High Court in the case of Khatau Junkar Ltd. v. K.S. Pathania, Dy. CIT (1992) 196 ITR 55 (Bom) in support of the claim of the assessee, in my opinion, the said decision rather supports the case of the Revenue. The jurisdictional High Court in the case of Khatau Junkar Ltd. (supra) at the end of para on p. 71 of the report has held that the AO can disallow a claim for deduction if he is satisfied, on the basis of the material which is before him, that the assessee is not entitled to such a deduction. In the instant case, the only material before the AO Was a note given by the assessee reproduced by my learned Brother as already pointed out above. It was a vague/dubious note and it was made for hoodwinking the Department. In fact, in this case, the AO has been vigilant enough in not taking the said note on its face value and rightly saw through the .game of the assessee to hoodwink the Department. The fact that the claim was a bogus one is further established by assessee's conduct in filing the revised return on 31st March, 1999 (i.e. after the intimation was sent to him) withdrawing the deduction, of Rs, 2.41 crores. This vital fact cannot be ignored .and this clearly shows that in the note appended to the return of income a patently inadmissible claim had been,made. In the case of Singarani Collieries Co. Ltd v. Dy. CIT (1995) 52 TTJ (Hyd) 311, the Hon'ble Hyderabad Bench 'B' of Tribunal have held that the claim, which is patently inadmissible, can be disallowed by way of prima facie adjustment under Section 143(1)(a) of the Act. In this case, the Hon'ble Tribunal has also considered and distinguished, the judgment of the Bombay High Court in the case of Khatau Junkar Ltd. (supra). Again, the Bombay Bench 'D' of Tribunal in the case of Mrs. Pushpa B. Sheth v.Asstt. OT (1994) 50 JTD 314 (Bom) has held that where the computation of deduction under ss. 53 and 54 i.e. income from capital gain, is contrary to law, the AO can make prima facie adjustment. In the present case, while computing the income from capital gains, the assessee has sought deduction of a huge amount of Rs. 2.41 crores which on the face of it was a bogus assumed liability and accordingly was contrary to the law. Hence, the AO was well within his rights to make prima facie adjustment by disallowing the amount of Rs. 2.41 crores. Similarly, the Delhi Tribunal in the case of Ramchandra v. Asst. CIT (1996). 58 ITD 131 (Del) has held that where the assesses made claim of deduction, under Section 80L in respect of the delayed compensation from local authority, which was in admissible in law, the same can be added under Section 143(1)(a). Similarly, the Pune Tribunal in the case of Bajaj Auto Finance Ltd- v. Dy. CIT (1995) 53 ITD 275 (Pune) has upheld the prima fade disallowance of provisions for: doubtful debts as the claim, was prima facie inadmissible. From the above, it is evident that Section .143(1)(a) envisages prima facie adjustments and that would take into its ambit, correction of computation as per law. It may be emphasised that legally incorrect computations made by the assessee would not be regarded as untouchable for the adjustments ".to be made under Section 143(1)(a).
20. Coming to the case of CIT v. Ramaswamy Mudaliai (1992) 196 ITR 939 (Mad) 36 relied upon by the learned counsel for the assessee, it is noted that the issue was whether expenditure inquired by the assessee for the training of mare to be used for racing is allowable as cost of improvement. In that case, keeping in view the peculiar nature of the asset, it was held that at least in the case of a mare, the expenditure incurred for training has to be allowed as cost of improvement. Thus the facts of the case are totally different. In the case referred to by the learned counsel, the asset was mare and not shares of a company.
Further in that case, the assessee had actually incurred expenses for training of the mare, whereas no expenditure had been actually incurred by the assessee, the assessee had merely takeover the liability of Hotel Amir (P). Ltd. It is also pertinent to note that the assessee assumed the entire liability of Rs. .2,41 crores while his holding was only of 3,069 shares out of the total family holding of 12,000 shares of Hotel Amir (P) Ltd. 21. I do agree with the arguments of the learned counsel Shri Pathak and the observations of my learned Brother that a debatable issue cannot be the subject-matter of prima facie adjustment under Section 143(1)(a) but in this case, where is the debatable issue The only issue before this Tribunal is whether the deduction, the nature of which is not even clear to the assessee and which deduction on the face of it was contrary to the provisions of law; :as the same was not supported by any evidence-documentary or otherwise and which deduction later on was withdrawn by the assessee by way of a revised return could be allowed while finalising intimation under Section 143(1)(a). In my considered opinion, the claim of Rs. 2,41 crores was a dubious claim made to hoodwink the AO and the AO while framing the assessment, under Section 143(1)(a) rightly disallowed the same. Under the circumstances, I uphold the findings of the learned AO and of the learned CIT(A) and dismiss the assessee's appeal.
As there is a difference of opinion between the JM and the AM, the matter is being referred to the President of the Tribunal with a request that the following question may be referred to a Third Member or to pass such orders as the President may desire : "Whether, on the facts and in the circumstances of the case and in law, the adjustment of Rs. 2.41 crores claimed by the assessee as liability of Hotel Amir (P) Ltd. on transfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. could be made by the AO while processing the return under Section 143(1)(a) of the IT Act, 1961?" Under Section 255(4) of the IT Act (hereinafter called the Act), the following question was referred for my opinion: "Whether, on the facts and in the circumstances of the case and in law, the adjustment of Rs. 2.41 crores claimed by the assessee as liability of Hotel Amir (P) Ltd. on transfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. could be made by the AO while processing the return under Section 143(1)(a) of the IT Act. 1961?" 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. Dr. Pathak explained the ambit and scope of Section 143(1)(a). Under Section 143(1) of the Act, the AO may make a regular assessment without requiring the, presence of the assessee or the production by him of any evidence in support of the return, and without being satisfied that the return was correct and complete in all respects, In making such a summary assessment, the AO could disallow any deduction, allowance or relief claimed in the return which, on the basis,of the information available in such return, accounts and. documents is prims facie, inadmissible. Stress was put on the word "puma facie".
Describing the factual details of the case, it was submitted that the claim of Rs. 2.41 crores made by the assessee in the return was prima facie not inadmissible.
3. Adverting to the provision of Section 48 of the Act, Dr. Pathak described that there is no mandate in the section to furnish all the relevant informations connected with the claim along with the return of income. Reference was made to the decision of the jurisdictional High Court rendered in the case of Khatau Junkar Ltd. v. K.S. Pathania, Dy.
CIT (1992) 196 ITR 55 (Bom). The Hon'ble High Court has held at page 59 as under: "In the absence of any specific provision in the IT Act which disallows a deduction because a specific document specified in that section is not annexed to the return, the ITO cannot, under Clause (iii) of the proviso to Section 143(1)(a), disallow a claim or a deduction merely because, in his view adequate evidence in support of such a claim or deduction is not before him." The aforesaid remark was made by the Hon'ble High Court in the context of claim in regard to which it is not obligatory oh the part of assessee to furnish the evidence, and document along with the return.
However, where the statute or rules requires furnishing of certain details and documents, the non-furnishing of such details or documents would disentitle the assessee to make the claim and it would be open for the AO to disallow such claims as prima facie adjustments while making assessment under Section 143(1). It is not open for the AO to prima facie disallow a claim without giving a hearing to the assessee if the issue is debatable. If the AO is not satisfied with the claim for deduction, or if he requires any further information or any further evidence in that connection, he is bound to follow the procedure prescribed under Section 143(2) of giving a notice to the assessee. It is not open to him to disallow such a claim under Section 143(1)(a). In its literal sense, 'prima facie means on the face of it. Hence before making such an adjustment, the AO' must satisfy himself that on the basis of the return and documents accompanying it, the deduction claimed cannot be admitted. Only then, it can be disallowed under the proviso to Section 143(1)(a). If any further enquiry is necessary, or if the AO feels that further proof is required apropos the claim for deduction, he will have to issue a notice under Sub-section (2) of Section 143.
4. The law does not require the assessee to furnish with his return all documents to prove every single claim made in the return. The Hon'ble jurisdictional High Court in the case of Khatau Junkar Ltd (supra) has held that if unilateral adjustments are permitted on the ground of absence of proof in the return, several genuine claims will be disallowed. The assessee will not be able to produce documents even in a rectification application under Section 154. Such interpretation of Section 143(1)(a) may violate Art. 14 of the Constitution. Therefore, Section 143(1)(a) should not be read more than what is provided.
Otherwise, it would result in the section becoming arbitrary or unreasonable. The CBDT vide Circular No. 689, dt. 24th Aug., 1994 elaborated the scope of prime facie disallowance under Section 143(1)(a) of the Act ((1994) 209 ITR (St) 75). The matter was considered in the light of the recommendations of the Raja J. Ghelliah, Tax Reforms Committee. It was decided that prima facie disallowances shall be made only in respect of certain types of claims. It was stated in the said circular that such adjustment is possible in respect of an incorrect claim. An incorrect claim must be apparent from the existence of other information in the return or the accompanying accounts or documents. It is exemplified. If a deduction has been claimed under the head 'capital gains' under Section 54F, and if there is information in the return of income or the accompanying accounts or documents to show that the unutilised net consideration had not been deposited in an account specified in the notified scheme as stipulated under Section 54F(4), prima facie adjustment is possible for making the disallowance.
5. In the present case, the assessee made the claim under Section 48.
Originally, it was said to be under Section 48(ii). Alternately it was stated that it could be allowed under Section 48(i) also.
6. Stating compendiously the requirement for filing the revised return, Dr. Pathak submitted that it was filed Ex Abundanti Cautela, the assessee alternatively claimed that in this deal he incurred a short-term capital loss of Rs. 2.41 crores. This was without prejudice to the assessee's main stand in the original return. The note appended along with the revised return was placed before me. On that basis, it was submitted that the observation of the learned AM that the assessee withdrawn the deduction by way of revised return was not correct.
7. I have also examined the note which the assessee appended along with the return. The learned JM narrated the text of the note in his order at p. 7.
8. Reference was made to the decision of the Hon'ble Bombay High Court rendered in the case of Bank of America N.T. & S.A. v, Dy. CIT (1993) 200 ITR 739 (Bom). In this case, the Hon'ble High Court found that a note explaining why the amount was not included in the return was also attached to the return.
The AO added the amount to the total income of the assessee under Section 143(1)(a). The Hon'ble High Court has held that Section 143(1)(a) provides for issuance of an intimation and the first proviso thereto specifically enumerates the circumstances under which such adjustments are permissible, The amount of claim must be prima facie inadmissible on the basis of the information available in such return.
Only then, disallowance is possible. Otherwise, the amount cannot be added to the income of the assessee under Section 143(1).
9. Reference was made to the decision of the Hon'ble Karnataka High Court rendered in the case of God Granites v. Under Secretary, CBDT (1996) 218 ITR 298 (Kar). The Hon'ble High Court at p. 308 has held as under: "The fact that on ultimate analysis, the petitioner may not be entitled for the deduction claimed from the total income does not mean that recourse can be had to disallowance under, Section 143(1)(a), dispensing with hearing and denying opportunity to the petitioner to challenge the assessment. Under the guise of effecting an adjustment under Section 143(1)(a), the AO cannot decide debatable issues." 10. Indisputably the issue involved in the present appeal is a debatable issue. The cleavage of judicial opinion expressed by the two learned Members buttress the point that the issue involved was a debatable issue. Once this finding is reached, the conclusion is irresistible that the case falls beyond the ken of prima facie adjustment. I have taken into consideration the entire conspectus of the case. In my opinion, in the circumstances of the case, the adjustment of Rs. 2.41 crores claimed by the assessee as liability of Hotel Amir (P) Ltd. on tfansfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. could not be made by the AO while processing the return under Section 143(1)(a) of the Act. I am inclined to agree with the view taken by the learned JM.11. I now direct the Registry to place the appeal before the Bench for consequential order in accordance with the majority view.
As there was a difference of opinion between the AM and the JM, the following question was referred to a Third Member : "Whether, on the facts and in the circumstances of the case and in law, the adjustment of Rs. 2.41 crores claimed by the assessee as liability of Hotel Amir (P) Ltd. on transfer/sale of shares to M/s Bhojwani Hotels (P) Ltd. could be made by the AO while processing the return under Section 143(1)(a) of the IT Act, 1961 ?" 2. The learned Vice-President (JM) Shri M.K. Chaturvedi, sitting as Third Member, vide his opinion dt. 7th Dec., 2001 has concurred with the views of the JM and has answered the question in the negative. In accordance with the majority view, the issue stands decided in favour of the assessee and against the Revenue.