1. This is an appeal of the Revenue challenging the order dt. 29th May, 2003 of the CIT(A)-V, Hyderabad, as erroneous.
2.1 Facts of the case as gathered from the record are briefly these : Assessee is a closely held company. It filed return of income for the asst. yr. 1994-95 on 29th Nov., 1994, declaring a net loss of Rs. 3,45,985. The said return was processed under Section 143(1)(a), vide intimation dt. 30th March, 1995. While doing so, the AO, by way of prima facie adjustment, disallowed in terms of Section 43B an amount of Rs. 31,29,350 being sales-tax debited to P&L a/c but not paid, and consequently levied, in relation thereto, additional tax of Rs. 3,59,875 under Section 143(1A) of the Act.
2.2 Against the said intimation, assessee carried the matter in first appeal. It was the case of the assessee that as per the final eligibility certificate issued by the Addl. Director of Industries, Andhra Pradesh, Hyderabad, the sales-tax was deferred and should be repaid at the end of the 10th year without interest, out of the sanctioned amount of Rs. 43,65,520. During the financial year 1993-94, an amount of Rs. 31,09,656 has become payable, but the same has been deferred by the sales-tax authorities. It was, therefore, pleaded that there was no liability for payment of sales-tax during the year relevant for the asst. yr. 1994-95 and as such, no disallowance under Section 43B was called for. The CIT(A), by his order dt. 10th Oct., 1995, dismissed the appeal of the assessee. On further appeal, the Tribunal, vide its order dt. 23rd June, 2000, in ITA No. 1907/Hyd/1995, has set aside the said order, and restored the matter to the file of the CIT(A) for fresh examination in the light of the decision of the apex Court in CIT v. Hindustan Electro Graphites Ltd. .
2.3 Thereupon, the CIT(A) redecided this issue afresh, by his order dt.
19th April, 2002 impugned herein, whereby, after detailed consideration of the contentions of the assessee, concluding that the disallowance made while processing the return under Section 143(1)(a) was not correct. He accordingly deleted the same. Relevant findings of the CIT(A) in this behalf, are as under: 6. The basic question to be answered is whether the outstanding sales-tax liability could be disallowed as prima facie adjustment while processing the return under Section 143(1)(a) of the IT Act.
During the financial year relevant to asst. yr. 1994-95 an amount of Rs. 31,09,656 became payable to the sales-tax authorities but the same was deferred by the sales-tax authorities vide their letter dt.
28th June, 1995. According to the appellant since there was no liability for payment of sales-tax during the year relevant to the asst. yr. 1994-95 the same could not be disallowed under Section 43B of the IT Act. The claim for deferment was approved by the Government of Andhra Pradesh, while final eligibility certificate is dt. 1st March, 1994 i.e., before the date of the previous year 1993 relevant to asst. yr. 1994-95. The Supreme Court in the case CIT v. Hindustan Electro Graphites Ltd. (supra) has held that return filed by the assessee was correct as per law applicable on the date of which it was filed. In the instant case, the return for asst. yr.
1994-95 was filed on 25th Nov., 1994 declaring a loss of Rs. 3,45,985. An amount of Rs. 31,29,350 was shown as outstanding being sales-tax deferment and included among unsecured loans shown in the balance sheet. Therefore, in my opinion, the AO was not correct in disallowing the claim under Section 143(1)(a) of the IT Act. In this case, the deferred sales-tax liability has been converted into loan repayable after 10 years without interest of which necessary evidences are available on record. In such circumstances, I am of the opinion that disallowance made was not correct while processing the return under Section 143(1)(a) and the same is hereby deleted.
Aggrieved therefore, by the above order of the CIT(A), Revenue has preferred this appeal before us.
3. The learned representative for the Revenue submitted in brief that : the CBDT's Circular No. 674 dt. 29th Dec, 1993 (1994) 116 CTR (St) 9 is very clear in its wording that the sales-tax deferred payments converted into loans should be considered as deductions only in the previous year in which such conversion as loan is intimated by the sales-tax authorities. The CIT(A) has erred both on facts and in law in granting relief to the assessee by deleting the disallowance under Section 43B, being sales-tax deferred payment. Reliance is placed on the following decisions: (a) Prudential Construction Co. Ltd. us. Asstt. CIT (2001) 70 TTJ (Hud) 228 : (2000) 75 ITD 338 (Hyd); (b) Mold Tek Plastics Ltd. v. Dy. CIT (2002) 76 TTJ (Hyd) 85 : (2002) 81 ITD 251 (Hyd).
4. The learned Counsel for the assessee on the other hand, countered, to say in brief, by defending the order impugned, besides submitting that : The issue before us relates to permissibility or otherwise of the disallowance in terms of Section 43B made by the AO, by way of a prima facie adjustment while processing the return under Section 143(1)(a). That being so, in view of the decision of the Supreme Court in the case of Hindustan Electro Graphites Ltd. (supra), it is the correctness of the factual and legal position with regard to the claim made by the assessee at the time of filing of the return, that is material. If the matter is viewed from that angle, the disallowance made by the AO by way of prima facie adjustment, cannot be sustained, and as such the same was correctly deleted by the CIT(A). Besides distinguishing the case law relied upon by the learned Departmental Representative, cited supra, reliance is placed on the following decisions: (a) Khatau Junkar Ltd. and Anr. v. K.S. Pathania, Dy. CIT and Anr.
; 5.1 Rival submissions heard and relevant papers read including the orders impugned herein and the case law relied upon by both the parties before us. After doing so, we find that there is substantial force in the defence of the assessee, unlike the stand of the Revenue for the reasons following: 5.2 The substantial issue for consideration before us is not with regard to the correctness of the disallowance on account of deferment of sales-tax liability, made under Section 43B on merits, but the dispute is more or less confined to permissibility of such disallowance by way of adjustment while processing the return under Section 143(1)(a), as directed by the Tribunal in its earlier order dt. 23rd June, 2000, wherein the CIT(A) was directed to re-examine this aspect in the light of the decision of the Supreme Court in the case of CAT v.Hindustan Electro Graphites Ltd. (supra).
5.3 It is an undisputed fact that during the previous year relevant to asst. yr. 1994-95, an amount of Rs. 31,09,656 became payable to the sales-tax authorities, but the same was deferred by the sales-tax authorities vide their letter dt. 28th June, 1995. According to the assessee the claim for deferment was approved by the Government of Andhra Pradesh, while final eligibility certificate is dt. 1st March, 1994, which falls within the previous year relevant to the asst. yr.
1994-95. An amount of Rs. 31,29,350 was shown as outstanding being sales-tax deferment and included among unsecured loans in the balance sheet as at the end of the previous year viz. 31st March, 1994. Since the deferred sales-tax liability has been converted into loan repayable after 10 years without interest, of which necessary evidences are available on record, the CIT(A) concluded that there was no justification for any disallowance under Section 43B. As it is evident from the order of the CIT(A) impugned herein that the final eligibility certificate issued by the Government of Andhra Pradesh with reference to the claim of the assessee for deferment of sales-tax liability is dt. 1st March, 1994, which falls within the previous year relevant to asst. yr. 1994-95, even as per the circular of the CBDT No. 674 dt.
29th Dec, 1993, sales-tax deferred payments converted into loans should be considered for deduction only in the asst. yr. 1994-95. The decision of the Hon'ble Madhya Pradesh High Court in the case of CIT v. K.N. Oil Industries (supra), relied upon by the learned Counsel for the assessee and cited supra, clearly supports the action of the CIT(A). We find no infirmity in the view taken by the CIT(A).
5.4 In any event, it is beyond the scope of prima facie adjustments permissible while processing the return under Section 143(1)(a) of the Act. We are fortified in this behalf by the decision of the Bombay High Court in the case of Khatau Junkar Ltd. v. K.S. Pathania, Dy. CIT cited supra, wherein it is held as follows: In the absence of any specific provision in the IT Act which disallows a deduction because 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. He can disallow a claim for deduction only if he is satisfied, on the basis of the material which is before him, that the assessee is not entitled to such a deduction. The use of the phrase 'prima facie admissible' in Clause (ii) to the proviso and 'prima facie inadmissible' in Clause (iii) to the proviso, also lend support to this interpretation. If anything more is read into the power to make adjustments under Section 143(1)(a), such power would be grossly arbitrary and unreasonable and in total violation of the principles of natural justice, because Section 143(1)(a) does not provide for any notice being given to the assessee, nor does it provide for any hearing being given to the assessee before disallowing the claim made by him.
5.5 It is evident from the impugned orders of the lower authorities that the basis for the disallowance made under Section 43B of the Act is the entries as to sales-tax liability in the P&L a/c and as to loan on account of conversion of such sales-tax liability into loan in the balance sheet as at the end of the previous year relevant to the asst.
yr. 1994-95. Merely on the basis of those entries, and in the absence of any other material forming part of the return on record before the AO, it cannot be said in the light of the ratio decidendi of the Hon'ble Bombay High Court extracted above that the claim of the assessee for deduction on account of sales-tax is prima facie inadmissible within the scope of the provisions of Section 143(1)(a).
5.6 As for the decisions of the Hyderabad Bench decisions of the Tribunal relied upon by the Revenue and cited supra, though the ultimate conclusions, based on the facts and circumstances of those cases, were against the assessees therein, the ratios laid down therein explaining the scope of the provisions of Section 143(1)(a) and the prima facie adjustments permissible thereunder, rather support the case of the assessee herein. In the case of Prudential Construction Co.
Ltd., cited supra, it has been held as follows: The scope of adjustments to be made under Section 143(1)(a) is limited only to the specified items mentioned therein. Only such errors, which are prima facie found from the return, documents, accompanying the return can be adjusted as per the provisions of Section 143(1)(a} and all those issues which involve prolonged arguments or are debatable in nature fall outside the scope of prima facie adjustments mentioned under Section 143(1)(a).
5.7 In the case of Mold Tek Plastics Ltd., cited supra, explaining the scope of Section 143(1)(a) (Tribunal)/observed, as per the relevant portion of the headnote as under: ...The assessee did not make any alternate claim to write off the three items in question, as revenue expenditure. While processing the return under Section 143(1)(a), the AO has not been empowered to go beyond the return and the statements accompanying the return. In the statement accompanying the return, the assessee claimed depreciation on the three items in question at specified rates. So, while processing the return, the AO could go into the question relating to the claim for depreciation, considering (a) whether the asset in question was depreciable; (b) if so, the block in which the particular asset fell; and (c) the rate of depreciation applicable and if the said rate had to be restricted in terms of proviso to Section 32(1) for use for less than 180 days. Only these questions could be gone into for making any adjustments, while processing the return under Section 143(1)(a), provided it was not of a debatable nature. It is too much to expect the AO to consider whether the claim of the assessee could be allowed under Section 37 as revenue expenditure, if he came to the conclusion that the depreciation as claimed was not allowable. The provisions of Clause (ii) of proviso to Section 143(1)(a), on which the assessee relied, did not cast any such obligation or duty on the AO.5.8 In the facts and circumstances of the case, on the basis of return or documents accompanying thereto, it cannot be said that deduction in respect of sales-tax liability converted by the State Government as loan, is prima facie inadmissible. In that view of the matter, the adjustment made by the AO cannot be sustained.
5.9 In the light of the foregoing discussion, the order of the CIT(A) impugned herein is upheld, rejecting the contentions of the Revenue in this appeal.
1. I have gone through the order of the Hon'ble Vice President wherein it was held by him that on the basis of return and the documents accompanying thereto, it cannot be said that deduction in respect of sales-tax liability converted by the State Government as loan is prime facie inadmissible under Section 143(1)(a) of the Act.
2.1 It is clear from Section 43B of the IT Act, 1961 that the above section does not permit any deduction unless the tax, duty etc. have been paid within the specified period mentioned therein. Thus, deduction, if any, allowable in the present case is allowed as per CBDT Circular No. 674, dt. 29th Dec, 1993. The last four lines of para 3 of the above circular are as under: Accordingly, the Board has decided that the amount of sales-tax liability converted into loan may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders.
Therefore, what is material is the date when such conversion has been permitted and not the date of Government order by which general permission was granted to all such conversions. The learned CIT(A) whose order dt. 10th Oct., 1995 was set aside by the Hon'ble Tribunal vide its order dt. 23rd June, 2000 in ITA No. 1907/Hyd/1995 with the direction that the issue be decided by the learned CIT(A) afresh by considering the Hon'ble Supreme Court's case in CIT v. Hindustan Electro Graphites Ltd. (supra) clearly mentioned in para 3 of the order and I quote: In the instant case, the return of income was filed on 29th Nov., 1994. Processing was done on 30th March, 1995 and the Government order has been communicated on 28th June, 1995. If the date of letter by the Government dt. 28th June, 1995 is the date of permission by the Government, the assessee's claim of deduction of the amount converted can be entertained for the accounting year 1995-96 relevant to asst. yr. 1996-97. This is not entertainable for the asst. yr. 1994-95 under our consideration.
2.2 Annexure 4 of the tax audit report mentions the following remark against sales-tax of Rs. 31,29,350: On account of sales-tax deferment vide GO Ms 117 (IFR) Department dt. 17th March, 1993, the sales-tax collected during the year is not payable.
Thus, the date 17th March, 1993 is the date of GO Ms and not the date of permission. There was no evidence accompanying the return which showed that permission under the above GO Ms was allowed by Government during the financial year 1993-94. In this view of the matter, the condition laid down in Board's Circular No. 674 supra has clearly not been fulfilled by the assessee. Also the GO Ms does not have the same effect as that of amendment of Sales-tax Act which clearly provides that such sales-tax is not payable. Thus, the appellant can neither claim the above deduction as per the provisions of Section 43B nor as per the Board Circular mentioned supra. The assessee is only entitled to claim such amount as a deduction under Section 43B only in the financial year when such permission was granted by the Government in terms of the Board Circular supra. In this view of the matter, 1 am of the considered opinion that the assessee is not entitled to deduction of Rs. 31,29,350 being sales-tax debited to P&L a/c but not paid under Section 43B of the Act read with Board Circular No. 674, dt. 29th Dec, 1993.
3. In the result, appeal of the Revenue is allowed.
REFERENCE UNDER Section 255(4) OF THE IT ACT, 1961 8 We, having differed in our opinion on the issue involved in the above appeal filed by the Department, refer the following point of difference to the Hon'ble President under Section 255(4) of the IT Act, 1961, for hearing on such point by one or more of the other Members of the Tribunal as the President may nominate: Whether on the facts and in the circumstances of the case, the claim of the assessee for deduction of Rs. 31,29,350 representing sales-tax liability of the assessee converted into sales-tax loan, is clearly inadmissible under Section 43B, and the disallowance made by way of prima facie adjustment while processing the return for the asst. yr. 1994-95 under Section 143(1)(a) of the Act is just and proper? 1. On account of difference between the learned JM and learned AM of the Hyderabad Bench of the Tribunal, this matter has been referred to me under Section 255(4) of the IT Act, 1961 (the Act): Whether on the facts and in the circumstances of the case, the claim of the assessee for deduction of Rs. 31,29,350 representing sales-tax liability of the assessee converted into sales-tax loan, is clearly inadmissible under Section 43B and the disallowance made by way of prima facie adjustment while processing the return for the asst. yr. 1991-95 under Section 143(1)(a) of the Act is just and proper? This is second innings of the parties before the Tribunal, as the earlier order of the learned CIT(A) in this case was set aside by the 'B' Bench of the Tribunal, vide order dt. 23rd June, 2000, directing as under: This appeal is filed by the assessee. Relevant assessment year is 1994-95. The assessee has raised the following grounds in this appeal: 1. The learned CIT(A) ought not to have confirmed the disallowance of sales-tax payment deferred under the provisions of Section 43B of the IT Act.
2. The learned CIT(A) ought to have noted that the liability for payment of sales-tax during the year relevant to the asst. yr.
1994-95 existed in view of the deferment by the sales-tax authorities.
3. We considered the matter. In view of the decision of the Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. , we find that the matter has to be considered afresh by the learned CIT(A). In view of this matter, we set aside his order and send back the file to him to dispose the appeal afresh in view of the judgment and after giving the assessee opportunity of being heard. For statistical purposes, the appeal is n treated as allowed.(H.S. Sidhu) (Dr. O.K. Narayanan) 2. The matter was taken up by the learned CIT(A) as per directions of the Tribunal and arguments of both the parties were heard. The learned CIT(A) noted that the short question in dispute was whether the sales-tax liability of Rs. 31,29,350 for the period ending 31st March, 1994 could be disallowed under Section 43B of the Act when the above amount was shown as a loan under the deferment scheme of Sales-tax Department promulgated vide GO Ms No. 117 (IFR) Dept. dt. 17th March, 1993. The AO, while making adjustments under Section 143(1)(a) of the Act, disallowed the above amount, as according to him, sales-tax liability was not converted into loan in the year under consideration as required by the scheme of the Government. The deferred sales-tax liability, according to the AO was converted into loan by the sales-tax authorities, vide their letter dt. 28th June, 1995, a date which fell beyond the accounting year, the provisions of Section 43B were applicable and sales-tax claim was to be disallowed. However, no tax on sum of Rs. 31,29,350 was raised and only additional tax was demanded from the assessee under Section 143(1A).
3. In the fresh hearing, the appellant assessee contended before the learned CIT(A) that the issue involved was highly debatable and therefore did not fall within the scope of prima facie adjustments permissible under Section 143(1)(a) of the Act. In the above circumstances, the Tribunal had set aside the order of his predecessor and directed reexamination of the matter in the light of the decision of the Hon'ble Supreme Court in the case of CIT v. Hindustan Electro Graphites Ltd. . As per the above decision, the question of imposition of additional tax was required to be seen as per law on the date of filing of the return. The Revenue cannot impose additional tax, which had the imprint of penalty, when there was no default at the time of filing of the return. Accordingly, the learned CIT(A) noted the submission of the assessee that the assessee became entitled for sales-tax deferment under the order of the Government of Andhra Pradesh and sales-tax payable became converted into loan payable after ten years from the year of first loan as per the terms of the deferment scheme. The eligibility under above scheme was allowed to the assessee w.e.f. 1st March, 1994. The learned CIT(A) accepted the contention advanced on behalf of the assessee. As per the law prevailing on 25th Nov., 1994, he held that the amount of Rs. 31,29,350 could not have been disallowed. He deleted the addition in dispute.
4. On further appeal before the Tribunal, the Hon'ble Vice President (JM) agreed with the reasoning given by the learned CIT(A). In his view, the substantial issue arising for consideration was not with regard to the correctness of the disallowance on account of deferment of sales-tax liability made under Section 43B but more or less confined to permissibility of such disallowance by way of adjustment while processing the return under Section 143(1)(a) of the Act in the light of the directions of the Tribunal dt. 23rd June, 2000. The learned Vice President also referred to eligibility certificate issued to the assessee under the deferment scheme dt. 1st March, 1994. He also referred to circulars of CBDT which were duly considered by the Hon'ble Madhya Pradesh High Court in the case of CIT v. K.N. Oil Industries and the issue decided in favour of the assessee.
5. On the question that issue involved was a debatable point and beyond the scope of prima facie adjustments permissible under Section 143(1)(a) of the Act, the learned JM relied upon the decision of the Bombay High Court in the case of Khatau Junkar Ltd. and Anr. v. K.S.Pathania, Dy. CIT and Anr. . He also considered the decision of the Hyderabad Benches relied upon by the Revenue. After considering all the decisions, the learned JM agreed with the view taken in the impugned order.
6. The learned AM did not agree with the above view. He was of the view that deduction was to be allowed in the light of Circular of the CBDT No. 674 1(1994) 116 CTR (St) 9] dt. 29th Dec, 1993. The last four lines of the said circular are reproduced hereunder for a ready reference: Accordingly, the Board has decided that the amount of sales-tax liability converted into loan may be allowed as deduction in the assessment for the previous year in which such conversion has been permitted by or under the Government orders.
The learned AM was of the view that in the earlier order dt. 10th Oct., 1995, (which was set aside by the Tribunal subsequently on 23rd June, 2000) the CIT(A) had recorded the facts correctly. A part of the said order has been reproduced by the learned AM at the end of para 2.1 of his order. He has observed that the Government order [GO Ms No. 117 (IFR) dt. 17th March, 1993] did not provide that sales-tax collected during the year was not payable in the said year. The above order, according to learned AM did not show the date on which the permission referred to in the circular of CBDT was granted to the assessee. In the light of documents accompanying the return, the AO, according to the learned AM, was justified in holding that assessee was not entitled to deduction of sales-tax amounting to Rs. 31,29,350 under Section 43B of the Act. In view of above dissenting proposed orders, the matter has been referred to me under Section 255(4) of the Act.
7. I have heard both the parties in this appeal. The learned Counsel for the assessee again drew my attention to the approval i.e.
eligibility certificate granted to the assessee on 1st March, 1994 relating to application of deferment scheme of the Sales-tax Department. He argued that the said date was the crucial date for the determination of the year for which the scheme of deferred sales-tax of the Government was made applicable in this case. Alternatively, he contended that deferment scheme was modified from time to time and even CBDT has issued more than one circular. Consideration of the above circulars involved debatable points which cannot be considered in proceedings under Section 143(1)(a) of the Act. The learned Counsel accordingly relied upon and supported the order of the learned JM.8. The learned Departmental Representative fully supported the order of the learned AM. He pointed out that only additional tax of Rs. 3,59,875 was levied in this case by invoking the provisions of Section 143(1A) of the Act. No tax has been levied on the amount of Rs. 31,29,350 representing sales-tax liability. Therefore, the question before the Third Member was a limited one. However, having regard to the documents available on record and filed with the return, the assessee was not able to establish that the amount of Rs. 31,29,350 was not sales-tax liability and became a deferred loan as per the scheme of the Sales-tax Department. He again drew my attention to Circular of the CBDT No. 674, dt. 29th Dec, 1993 and emphasized that deduction was to be allowed in the assessment of the previous year in which conversion of sales-tax liability was permitted to be converted into a loan. No such permission for the year ending 31st March, 2004 was available and permission was received much after the close of the year. In these circumstances, the deduction of the liability having regard to the scheme under question could not be allowed. But why above amount was not charged to tax and only additional tax was imposed was not clear from the record. He also referred to the decisions of the jurisdictional High Court in the case of Gopi Krishna Granites India Ltd. v. Dy. CIT as also of the Hon'ble Gujarat High Court in the case of Shree Diguijay Cement Co. Ltd. v. CIT . In both the above cases, it was held that Section 43B could be applied in proceedings under Section 143(1)(a) of the Act. The learned Departmental Representative, Tribunal, Hyderabad, accordingly supported the order of the learned AM.9. I have given careful thought to the rival submissions of the parties and examined them in the light of the material available on record. The learned Departmental Representative, Tribunal, Hyderabad is right that in the present case, only additional tax has been levied by the AO. No tax has been levied on amount of Rs. 31,29,350, claimed to be added in prima facie adjustments. The learned CIT(A) having regard to the earlier decision of the Tribunal dt. 23rd June, 2000, has held that the matter was required to be seen on the date on which the return was filed and whether on the said date, the assessee acted in accordance with law or not. In the case Hindustan Electro Graphites Ltd. (supra), their Lordships held as under: Held, dismissing the appeal, that where a return is filed the law applicable would be the law as it stood on the date of filing of the return. In the instant case, there was not even a bona fide mistake and in fact it was not a case where under some mistaken belief the assessee did not disclose the cash compensatory support received by it. It is true that income by way of cash compensatory support became taxable retrospectively w.e.f. 1st April, 1967, but that was by an amendment of Section 28 by the Finance Act of 1990, which amendment could not have been known before the Finance Act came into force. Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. After the assessee had filed its return of income, which was correct as per law on the date of filing of the return, the cash compensatory support also came within the sway of Section 28. When additional tax has the imprint of penalty the Revenue cannot say that levy of additional tax is automatic under Section 143(1A) of the Act. If additional tax could be levied in such circumstances it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. In the circumstances of the present case, levy of additional tax taking into account the income by way of cash compensatory support was not warranted.
Decision of the Madhya Pradesh High Court in CIT v. Hindustan Electro Graphites Ltd. affirmed.
Applying ratio of above case, I find that no material has been brought on record to show that the assessee did not act in accordance with law and therefore was liable to pay additional tax. Even otherwise, after considering the facts and circumstances of the case, I do not see any merit in this appeal of the Revenue. There is no dispute that assessee became eligible under the deferred scheme w.e.f. 1st March, 1994 i.e.
the date on which eligibility certificate was admittedly issued to the assessee. After the above date, sales-tax payable by the assessee was shown as converted into loan under the scheme of the State Government in the books. The scheme admittedly was applicable for a period of ten years. The aforesaid conversion into loans as per the scheme needed approval. It is possible that the entries relating to conversion into loan under the scheme were accepted and permission as envisaged in the scheme granted after the end of the relevant previous year. But from the above it cannot follow that the loan was permitted to be converted only on the date on which permission letter was issued. The permission letter whenever issued, would relate back to the date on which liability was converted into loan by the assessee. This is more than evident from the ultimate agreement entered into by the assessee with the State Government dt. 10th April, 1997 as per the scheme. The said agreement as per para 2 clearly records that the assessee is permitted to convert all sales-tax payable by him for a period of ten years ending 7th April, 2003. It is therefore clear that sales-tax liabilities converted into loans and upto the last date mentioned above have been permitted. No change was made under the scheme. The assessee is also shown to be liable to repay loan after 7th April, 2003. There is no material on record to establish that conversion into loan shown by the assessee was incorrect. Thus, the circular of CBDT has been shown to be fully applicable in this case. Assuming for the sake of argument that some other view is also possible, the matter is highly debatable and question of making adjustments under Section 143(1)(a) of the Act could not arise in this case. At any rate, there is no scope to levy additional tax, which has been held to be equal to penalty by their Lordships of Supreme Court in the earlier decision in the case of CIT v. Hindustan Electro Graphites Ltd. (supra). There was no justification on the part of the AO to make adjustments under Section 143(1)(a) or impose additional tax on the assessee. For all the above reasons, I agree with the view taken by the learned JM.