2009 (5) TMI 607 - AT - Income Tax

Rectification of mistake occurred in the intimation issued under section 143(1)(a) of the Act - Adjustment of receipt against pre-operative expenditure - whether interest earned from deposits made by the assessee is assessable to tax can only be decided after examining and verifying the purpose for which the deposit was made, the source of money to make deposit, and no uniform formula can be laid down in all cases that the interest earned on deposits during construction period prior to commencement of business would invariably be assessable to tax under head Income from other sources . whether the assessee would be, or not liable to tax on the amount of interest, etc., simply because the assessee has made set-off of the same against expenses pending capitalisation, inasmuch as, in the present appeals, that question is not involved. whether the assessee can be held liable to tax, on this count or not - Held that - it was wrong on the part of the Assessing Officer to reject the application under section 154 filed by the assessee. Thus, the assessee s applications under section 154 stand allowed and the intimation issued under section 143(1)(a) by the Assessing Officer shall stand rectified accordingly for the year under appeal, appeals filed by the Revenue dismissed.

Issues Involved:
1. Adjustment of receipt against pre-operative expenditure.
2. Deletion of additions made by prima facie adjustment under section 143(1)(a).

Detailed Analysis:

Adjustment of Receipt Against Pre-Operative Expenditure:
The primary issue in the assessment year 1992-93 was whether the learned Commissioner of Income-tax (Appeals) erred in allowing the adjustment of receipt of Rs. 5,08,789 against pre-operative expenditure. The assessee had declared nil income by treating the interest income during the construction period as a capital receipt and set it off against construction expenses. The Assessing Officer, however, made a prima facie adjustment, bringing the interest income to tax, stating it was not in the nature of capital receipt and thus taxable.

Deletion of Additions Made by Prima Facie Adjustment Under Section 143(1)(a):
For the assessment year 1993-94, the issue was whether the learned Commissioner of Income-tax (Appeals) erred in deleting additions made by prima facie adjustment under section 143(1)(a), which included interest income of Rs. 42.52 lakhs, gain on foreign exchange of Rs. 2.02 lakhs, and sale proceeds of scrap of Rs. 0.18 lakhs. The Assessing Officer added these amounts to the taxable income, asserting they were not capital receipts and thus taxable.

Application Under Section 154:
The assessee filed applications under section 154 for both assessment years to rectify the intimation issued under section 143(1)(a), arguing that the adjustments made were beyond the scope of section 143(1)(a). The Assessing Officer rejected these applications, maintaining that the interest income was not incidental to the assessee's business or construction work and thus not eligible for set-off against pre-operative expenditure.

Appeals to Commissioner of Income-tax (Appeals):
The assessee appealed to the learned Commissioner of Income-tax (Appeals), who held that the issues were highly debatable and thus not subject to prima facie adjustment under section 143(1)(a). Consequently, the Commissioner allowed the assessee's applications under section 154, directing the rectification of the intimation issued under section 143(1)(a).

Tribunal's Initial Decision:
The Tribunal initially upheld the Assessing Officer's decision, stating that the assessee should have appealed against the order under section 143(1)(a) and not under section 154. The Tribunal also upheld the prima facie adjustment of interest income but found the adjustment of foreign exchange gains improper.

High Court's Intervention:
The assessee appealed to the High Court, which noted that the right to appeal against an order under section 143(1)(a) was not available at the relevant time. The High Court set aside the Tribunal's order and remanded the matter for re-adjudication, acknowledging that the assessee could not appeal against the initial intimation due to the absence of a legal provision at that time.

Tribunal's Final Decision:
Upon reconsideration, the Tribunal concluded that the adjustments made by the Assessing Officer were of a controversial nature, which could not be addressed under section 143(1)(a). The Tribunal emphasized that such issues require detailed examination and verification, which can only be done under section 143(3) after issuing a notice under section 143(2). The Tribunal held that the Assessing Officer overstepped his jurisdiction by making prima facie adjustments of a debatable nature and confirmed the order of the learned Commissioner of Income-tax (Appeals), allowing the assessee's applications under section 154.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both assessment years, concluding that the Assessing Officer's prima facie adjustments were beyond the scope of section 143(1)(a) and should be rectified as per the applications under section 154 filed by the assessee. The Tribunal did not delve into the merits of the additions, focusing solely on the procedural aspect of the prima facie adjustments.

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