1999 (3) TMI 659 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of income earned during the construction stage of the factory.
2. Validity of prima facie adjustments under section 143(1)(a).
3. Application of section 143(1B) regarding revised returns.
4. Jurisdiction of the Tribunal to grant stay without prior rejection by the Administrative CIT.
5. Consideration of CBDT circulars and previous judicial decisions in granting stay.

Issue-wise Detailed Analysis:

1. Taxability of Income Earned During Construction Stage:
The assessee, a public limited company, raised loans to construct a factory for polyester fibre production. The funds not immediately needed were deposited in Fixed Deposits, earning income. The issue was whether this income should be taxed as income from other sources or reduce the cost of plant and machinery. The assessee capitalized interest paid on convertible debentures and reduced it by the interest received on Fixed Deposits/Units of UTI and ICDs.

2. Validity of Prima Facie Adjustments Under Section 143(1)(a):
For the assessment year 1997-98, the assessee filed a return on 9-12-1997, and an intimation under section 143(1)(a) was sent on 9-7-1998, raising a demand of Rs. 3,08,21,463. The ACIT added Rs. 6,29,45,036 to the returned income, stating the exclusion claim was prima facie inadmissible due to the lack of proof of tax payment. The assessee contended that the adjustments were invalid, relying on CBDT instructions and various High Court judgments, arguing that additional income cannot be added as prima facie adjustments under the proviso to section 143(1)(a).

3. Application of Section 143(1B) Regarding Revised Returns:
The assessee filed a revised return on 16-7-1998. According to section 143(1B), adjustments should be made based on the revised return, and the tax demand should be amended accordingly. The demand was unenforceable as it was not revised under section 143(1B).

4. Jurisdiction of the Tribunal to Grant Stay Without Prior Rejection by the Administrative CIT:
The stay application was filed without the Administrative CIT's rejection. The assessee argued that this does not bar the Tribunal from granting a stay, citing the Delhi Tribunal's decision in Prima India Products v. CIT and the Calcutta High Court's decision in Susanta Kumar Nayak v. Union of India. The urgency of the matter and the department's coercive actions justified the Tribunal's intervention.

5. Consideration of CBDT Circulars and Previous Judicial Decisions in Granting Stay:
The assessee cited several judicial decisions and CBDT circulars supporting the stay of tax demands when the assessed income is substantially higher than the returned income. The Tribunal noted the assessee's success in a similar issue for the previous assessment year and the applicability of section 143(1B) due to the revised return. The CBDT circulars and judicial decisions indicated that stay should be granted when the taxable income is determined at more than twice the returned income and the appeal is pending.

Conclusion:
The Tribunal found a prima facie case in favor of the assessee based on the previous year's Tribunal decision, the application of section 143(1B), and the relevant CBDT circulars. The Tribunal granted the stay, subject to the condition that the managing director of the assessee-company files an affidavit within 10 days, undertaking not to alienate the company's assets without prior permission from the Tribunal. The appeal was directed to be posted out of turn in the last week of August 1999.