1. The Department is in appeal against order of CIT(A) dt. 28th August, 1992, mainly on the ground of deletion of additional tax amounting to Rs. 3,575 and direction issued to AO to accept the application under s.
2. The assessee filed return declaring loss of Rs. 29,40,402, including brought forward loss of Rs. 26,40,820. The case was processed under s.
143(1)(a) of the IT Act, whereby AO reduced the loss by Rs. 39,718 on account of depreciation claimed in excess of 75 per cent as admissible under rules. AO also imposed additional tax of Rs. 3,575. Application moved by the assessee under s. 154 was rejected by AO.3. On first appeal, learned counsel submitted that additional tax could not be levied as even after adjustment carried out by resorting to the provisions of first proviso to cl. (a) of s. 143(1), total income remained a loss. He relied on the case of Modi Cement Ltd. vs. Union of India & Ors. (1992) 193 ITR 91 (Del). CIT(A) relying upon the said decision held that AO was not justified in charging additional tax and rejecting the application under s. 154. He, therefore, directed AO to accept the application. He also deleted additional tax of Rs. 3,575.
4. Learned Departmental Representative submitted that the provisions of s. 143(1A) were amended by the Finance Act, 1993, w.e.f. 1st April, 1989, and that under the amended provisions even where loss is reduced as a result of adjustment made under s. 143(1)(a), additional tax would be attracted. He, therefore, urged that order of CIT(A), which is based on the case of Modi Cement Ltd. (supra) which was rendered before the retrospective amendment, may be set aside.
5. Learned counsel, however, relied on order of CIT(A) and referred to the following cases in support of the proposition that no additional tax could be levied with reference to aforesaid adjustment carried out under s. 143(1)(a): (i) CIT vs. Premier Industries (P) Ltd. (1997) 227 ITR 282 (MP) wherein it was held that s. 143(1A)(a) will not apply to cases where loss declared by the assessee is merely reduced as a result of adjustment under s. 143(1)(a) but does not result in income. The decision in the case of Modi Cement Ltd. (supra) was referred to.
(ii) Modern Fibotex India Ltd. & Anr. vs. Dy. CIT & Ors. (1995) 212 ITR 496 (Cal) wherein it was held that the AO must determine the question of adjustment under s. 143(1)(a) by applying the law prevailing when the return was filed. It was also observed that in view of the consequences of an adjustment made and the insistence upon the assessee filing a correct return, it would follow that the date for judging the question of adjustment must be the actual date of the return in the light of the law then prevailing.
(iii) Dy. CIT vs. Sri Gopala Krishna Jute Mills Ltd. (1996) 54 TTJ (Hyd) 673 : (1996) 57 ITD 160 (Hyd) wherein it was observed that the assessee filed return declaring an income of Rs. 6,09,004 being the deemed total income under s. 115J and that even after adjustment income of the assessee remained at Rs. 6,09,004. The Tribunal also observed that the adjustment made, therefore, did not increase the total income of the assessee. The Tribunal further observed that the amount on which additional tax was levied by virtue of adjustment under s. 143(1)(a) was with respect to two items, viz. current liabilities and expenditure of earlier years, and the same were found disallowable in the final assessment made by the AO under s.
143(3) and, therefore, even if additional tax was leviable with reference to those two amounts, it had to be reduced to nil by virtue of the provisions of s. 143(1A)(b). The Tribunal, therefore, held that additional tax levied on the assessee was rightly deleted by CIT(A).
(iv) CIT vs. Hindustan Electrographite Ltd. (1998) 96 Taxman 108 (MP).
6. Learned Departmental Representative in reply, submitted that the case law relied upon by learned counsel is distinguishable on facts. He submitted that the decision in (1997) 227 ITR 282 (MP) (supra), has not taken note of the retrospective amendment and is on lines of judgment in (1992) 193 ITR 91 (Del) (supra). Similarly, he submitted that the decision in (1996) 54 TTJ (Hyd) 673 : (1996) 57 ITD 160 (Hyd) (supra) is also not relevant as no additional tax would have been sustained under s. 143(1A)(b). He submitted that the decision in (1995) 212 ITR 496 (Cal) (supra) did not relate to reduction of loss. He submitted that the decision in (1998) 96 Taxman 108 (supra) was relatable to cash compensatory support and not relevant to the issue under consideration.
7. We have carefully considered the submissions made by both the parties and have also perused orders of the Departmental authorities.
We have also seen the case law relied upon by learned counsel. It is observed that in the case of Premier Industries (P) Ltd. (supra), AO made disallowance of Rs. 1,69,87,115 claimed by the assessee on account of cash compensatory support and computed total income in accordance with s. 115J at Rs. 53,69,186, being 30 per cent of the total amount of Rs. 1,78,79,288. With reference to computation of loss in accordance with ss. 28 to 44D, an addition of Rs. 2,93,767 on account of adjustment under s. 143(1)(a) was made. The tax on the adjusted amount was levied as additional tax under s. 143(1A) at Rs. 30,850. The assessee filed an application under s. 154 for rectification and pointed out that the amount of CCS was, though treated by the assessee as capital receipt, credited to the sales account and, therefore, was already included in net profit shown in the P&L a/c. AO accepted this stand of the assessee and deleted the addition of the impugned amount and accepted returned income at Rs. 2,73,051 under s. 115J. AO was, however, of the view that the said amount was required to be added in the computation of income made in accordance with ss. 28 to 44D. He, therefore, computed the loss at Rs. 5,47,84,918. As a result of the order under s. 154, AO recomputed additional tax and total tax payable by the assessee. On appeal, CIT(A) partly allowed the claim of the assessee. On further appeal, the Tribunal allowed the appeal and held that adjustments made were not proper and s. 143(1A)(a) did not apply to cases where loss declared by the assessee was merely reduced as a result of assessment under s. 143(1)(a). On a reference, High Court held that the order of the Tribunal was based on proper appreciation of facts and law applicable to the case on hand and the Tribunal was right in holding that the action of AO in making various adjustments under s.
143(1)(a) of the Act was patently erroneous and that s. 143(1A)(a) will not apply to cases where loss declared is merely reduced as a result of adjustment under s. 143(1)(a) but does not result in income. It is obvious from the above decision that the retrospective amendment made in s. 143(1A) has not been taken into account while rendering the judgment. We may refer, to p. 283 of the report, where it is observed that 'the following questions said to be of law for the opinion of this Court arising out of the order dt. 30th December, 1991, passed by the Tribunal in ITA No. 823/Ind/1991 for the asst. yr. 1989-90'. It will be seen that the decision has been rendered in the context of order of the Tribunal passed on 30th December, 1991, i.e., much before the law was amended by the Finance Act, 1993. It is also observed from the case of Modern Fibotex India Ltd. (supra) that the main decision is on two issues, i.e., the date for judging the question of adjustment must be the actual date of return in the light of the law then prevailing and that no intimation could be issued after issue of a notice under s.
143(2). It is observed that even in the said case, the assessee-company received cash compensatory support amounting to Rs. 7,99,144 from the government and it claimed in its return for asst. yr. 1989-90 that the said amount received was not taxable. The company also stated in the return that in case the amount was considered taxable, it may be assessed subject to the company's right of appeal or other remedy available under the law. Subsequent to filing of return by the assessee-company, the Finance Act, 1990, amended s. 28 w.e.f. 1st April, 1967, making CCS taxable. AO issued notice under s. 143(2) on 22nd June, 1990, and on 31st July, 1990, AO issued an intimation to the company under s. 143(1)(a) recomputing loss suffered by the company on the basis of amended provisions of s. 28. Although total income for asst. yr. 1989-90 continued to remain a loss figure, additional tax was levied. The company filed applications under ss. 154 and 264, which were rejected. On a writ petition against the said orders, High Court held as above and concluded that the impugned adjustment and intimation were ultra vires the section and were liable to be set aside. It is also observed from the decision in the case of Sri Gopala Krishna Jute Mills Ltd. (supra) that the amount of Rs. 7,86,766 represented liability outstanding on the last date of the accounting year and an amount of Rs. 7,47,376 out of that was paid before filing of the return. The balance amount of Rs. 39,390 was disallowed by the assessee itself in the computation of total income and no further disallowance was called for. The second item was of Rs. 3,44,048, which represented expenses of earlier years by way of bonus, salary, wages and bank charges and electricity charges. The Tribunal observed that it was prima facie a disallowable item as while computing the income of a year, last year's expenses could not be allowed or deducted, as the assessee admittedly followed mercantile system of accounting. The amount of Rs. 3,44,048 was, therefore, subject to adjustment under s.
143(1)(a). The Tribunal further observed that additional tax under s.
143(1A) could not be levied in respect of the said amount. It referred to the provisions of s. 143(1A) and noted that it was a case of loss return and that the assessee had filed return declaring an income of Rs. 6,09,000, being the deemed total income under s. 115J and even after adjustments, the income of the assessee remained at Rs. 6,09,000.
The Tribunal, therefore, held that the adjustments made did not increase the total income of the assessee. It also observed that though valid adjustment was made to the extent of Rs. 3,44,035, even thereafter income of the assessee was nil because of the availability of carried forward losses of a much higher figure and held that, in these circumstances, no additional tax could be levied. It further referred to the provisions of s. 143(1A)(b) and held that neither of the two amounts was found disallowable in the final assessment made by AO under s. 143(3) and, therefore, even if additional tax was leviable with reference to those two amounts, it had to be reduced to nil by virtue of the provisions of s. 143(1A)(b). It, therefore, upheld the order of CIT(A) in deleting additional tax. In the case of Hindustan Electrographite Ltd. (supra), it was held that where an assessee has filed return and the AO has not found it wanting in anyway and meanwhile law is amended retrospectively attracting levy of tax, it would be unfair and unjust to hold the assessee guilty and to subject him to the additional tax on account of the fiscal statutes being given retrospective effect. It may be mentioned that in the said case also, the assessee filed return but did not include CCS received from government as the same was found not taxable. Later, by retrospective amendment in s. 28, cash assistance was made subject to tax and AO passed order under s. 143(1)(a) and made additions of the impugned amounts as an adjustment and also imposed additional tax under s.
143(1A). The above decision was rendered in this context.
7.1. It would be clear from the above decisions that the same are based primarily on the fact as to whether adjustment could be made under s.
143(1)(a) with reference to the state of law as then prevailing or in the context of the amended law whereby fresh items of income are included and made liable to tax as in the case of cash compensatory support. The underlying principle evolved by the said decisions is that adjustments to be made under s. 143(1)(a) have to be examined with reference to law as prevailing on the date of filing of the return and, if the claim was supported by law as then prevailing, including the decisions of the High Courts (though reversed subsequently by the apex Court), then the claim of the assessee so supported by law then prevailing had to be accepted and no prima facie adjustment could be made under s. 143(1)(a). As a natural consequence to this proposition, no additional tax could be levied with reference to such adjustment made under s. 143(1)(a), since the claim was properly made in accordance with law at the time of filing of the return. However, none of the aforesaid decisions have actually discussed the retrospective amendment made in s. 143(1A) and thus the same are distinguishable and not relevant for deciding the issue before us. We feel that once prima facie adjustments are held to be correctly made and applications moved by the assessee under s. 154 are held to be correctly decided, additional tax cannot be deleted merely on the basis that even after making adjustment the resultant figure still remains a loss. We feel that the retrospective amendment made in law has to prevail in such circumstances and additional tax would be attracted and levied in cases where claim of the assessee has been considered on merit and rejected under s. 154, thereby upholding prima facie adjustments made under s.
143(1)(a). When considered in the light of these observations, it is found that in the present case the assessee had claimed excess depreciation by an amount of Rs. 39,718 and that the same was disallowed under s. 154 and additional tax of Rs. 3,575 imposed. CIT(A) has deleted additional tax merely relying on the case of Modi Cement Ltd. (supra), which, we feel, is no longer a good law after retrospective amendment made in s. 143(1A). The disallowance has been made validly and the assessee is not in appeal before us on the said issue. Thus, we feel that CIT(A) has wrongly deleted additional tax of Rs. 3,575, which is leviable in this case. The order of CIT(A) is, therefore, set aside and that of the AO is restored.