2014 (12) TMI 762 - HC - Income Tax

Determination of character of amount claim of deduction on refund of customs duty - Whether determination as to the character of the amount could have been done at the stage of prima facie adjustment or not - Held that - Wherever there exists a debatable issue, recourse must be had to Section 143 (2) and (3) of the Act and it is only when the facts are undisputed that the procedure u/s 143 (1) (a) of the Act can be resorted to assessee claimed deduction of substantial amount which was in the form of refund of customs duty - a return could have been the subject matter of a prima facie adjustment u/s 143(1)(a), if only the AO accepted the version or the contention of the assessee once he has decided not to accept that contention, there was no occasion or basis for him to invoke Section 143(1)(a) thus, the view taken by the Tribunal is correct Decided against revenue.

Summary

Issues:
Assessment under Section 143(1)(a) of the Income Tax Act, 1961 - Prima facie adjustment disallowing deduction of customs duty refund - Appeal before Tribunal - Correctness of Tribunal's decision in allowing the appeal.

Analysis:

The judgment by the Andhra Pradesh High Court involved an appeal regarding the assessment under Section 143(1)(a) of the Income Tax Act, 1961. The respondent, an assessee, had claimed a deduction for a sum representing the refund of customs duty in their returns for the assessment year 1995-96. The assessing officer made a prima facie adjustment under Section 143(1)(a) by treating it as a revenue receipt and disallowed the deduction. This decision was upheld by the Commissioner of Income Tax (Appeals-IV), leading the respondent to file an appeal before the Hyderabad Bench A of the Income Tax Appellate Tribunal.

The Tribunal allowed the appeal on the grounds that determining the character of the amount should not have been done at the stage of prima facie adjustment. The High Court, in its analysis, highlighted the two methods of assessment under Section 143 of the Act. It explained that if the assessing officer doubts the correctness or accuracy of the facts and figures provided by the assessee, he can issue a notice under Section 143(2) for further assessment. However, if there are no serious discrepancies, prima facie adjustments can be made under Section 143(1)(a).

The High Court emphasized that when there is a debatable issue like a substantial deduction claimed by the assessee, the procedure under Section 143(2) and (3) should be followed. In this case, since the assessing officer did not accept the contention of the assessee regarding the customs duty refund deduction, there was no basis for invoking Section 143(1)(a). The Court agreed with the Tribunal's decision, stating that once the assessing officer rejected the contention, the prima facie adjustment was not warranted.

Furthermore, the Court noted that an order under Section 143(3) of the Act had been passed regarding the same claim, which was the subject of another appeal before the Court. Ultimately, the appeal before the High Court was dismissed, with no order as to costs. The judgment provided a comprehensive analysis of the legal provisions and the correct application of assessment procedures under the Income Tax Act, affirming the Tribunal's decision in favor of the respondent.