2004 (8) TMI 83 - HC - Income Tax

Prima facie adjustments - adjustment under section 143(1)(a) - While processing the returns of the assessee u/s 143(1)(a) AO made prima facie adjustments by adding the income of two minor sons of the assessee, namely, Varun Mehra and Raghav Mehra, in the hands of the assessee u/s 64(1A) - None of these clauses (i), (ii) and (iii) of the first proviso to section 143(1)(a), confer any authority on the Assessing Officer to make any adjustment by way of making addition of any income under section 64(1A) of the Act or of any other income not claimed by the assessee to be his own. The Assessing Officer has clearly transgressed his authority under section 143(1) of the Act by adding the income of the minor sons of the assessee towards her total income under section 143(1)(a) of the Act.

Summary

Issues:
1. Addition of income of minor sons under section 64(1A) of the Income-tax Act during processing of returns under section 143(1)(a).
2. Legality of Assessing Officer's authority to make adjustments under section 143(1)(a) for adding unclaimed income of the assessee.

Analysis:
1. The judgment addressed the issue of adding the income of minor sons of the assessee under section 64(1A) of the Income-tax Act during the processing of returns under section 143(1)(a). The Assessing Officer had made prima facie adjustments by adding the income of the minor sons to the assessee's total income, which was challenged by the assessee before the Commissioner of Income-tax (Appeals). The Commissioner dismissed the appeals, leading the assessee to further appeal before the Tribunal. The Tribunal, relying on a judgment of the Rajasthan High Court, upheld the objection of the assessee and quashed the action of the Assessing Officer in adding the income of the minors to the assessee's total income under section 143(1)(a) of the Act.

2. The second issue focused on the legality of the Assessing Officer's authority to make adjustments under section 143(1)(a) for adding unclaimed income of the assessee. The Counsel for the Revenue argued that the amendment of section 64(1A) of the Act made the income of the minor sons assessable in the assessee's hands, even if it did not arise from gifts made by her. The Assessing Officer had also framed regular assessments where the income of the minor sons was assessed in the assessee's hands, which was confirmed in appeal. However, the High Court clarified that the dispute was not about the assessability of the income but rather the legal competence of the Assessing Officer to add it to the returned income of the assessee under section 143(1)(a) of the Act. The court analyzed the provisions of section 143(1)(a) and the first proviso thereto, emphasizing that the Assessing Officer exceeded his authority by adding the income of the minor sons to the assessee's total income under section 143(1)(a), as the provision did not empower such adjustments.

In conclusion, the High Court dismissed the appeals, affirming that the Assessing Officer had overstepped his authority by adding the income of the minor sons to the assessee's total income under section 143(1)(a) of the Income-tax Act. The judgment clarified the limitations of the Assessing Officer's powers in making adjustments under the said section, emphasizing the specific provisions for permissible adjustments and highlighting the need for adherence to statutory provisions in assessing and processing income tax returns.