2007 (9) TMI 271 - HC - FEMA

Prima facie adjustment consideration of notes filed alongwith the return CBDT circular dated 24-8-1994 - held that - it is clear that the assessee had returned Rs.12,000/- as income from the property at Arulambal Street; yet, the details filed along with the return clearly showed that the assessee was in self-occupation of the property owned by him situate at Arulambal Street. Hence, there was nil income. If at all any income is received from the property, it is only from the one taken on lease at Mount Road. Hence, in the background of the circular of the Central Board of Direct Taxes and the provisions of Section 143(1)(a) itself providing for taking note of the documents/statements, the statement accompanying the return thus disclosing the facts fully, the income shown could only relate to the one from the property taken on lease, the documents accompanying the return ought to have been adverted to by the Income Tax Officer before passing any order under Section 143(1)(a) to make prima facie adjustment.

Summary

Issues:
1. Correctness of confirming intimation under Section 143(1)(a) of the Act.
2. Correctness of confirming intimation despite Board circular.

Issue 1 - Correctness of confirming intimation under Section 143(1)(a) of the Act:
The assessee owned an immovable property used for self-occupation and another property rented out. The return filed showed income from the self-occupied property, leading to a prima facie adjustment by the Assessing Authority under Section 143(1)(a). The Commissioner of Income Tax (Appeals) upheld this adjustment, stating that the deduction claimed for rent paid could not be allowed since the income was declared as from the self-occupied property. The Tribunal also rejected the appeal, emphasizing the clear provisions of law regarding the admissibility of deductions. The assessee argued that the return details clearly indicated the income was from the rented property, not the self-occupied one. The High Court agreed with the assessee, emphasizing that the statement accompanying the return should have been considered before making any adjustments under Section 143(1)(a).

Issue 2 - Correctness of confirming intimation despite Board circular:
The Central Board of Direct Taxes issued a circular explaining the scope of prima facie disallowances under Section 143(1)(a). The circular outlined when claims should be disallowed based on the information available in the return, accounts, or documents. In this case, the assessee had declared income from the self-occupied property but provided details showing the income was actually from the rented property. The High Court, considering the circular and Section 143(1)(a), concluded that the Income Tax Officer should have considered the accompanying statement before making any prima facie adjustments. The Court accepted the assessee's argument, setting aside the Tribunal's order and allowing the Tax Case Appeal.

This judgment highlights the importance of considering all relevant information provided with the return before making adjustments under Section 143(1)(a) and emphasizes the significance of Board circulars in interpreting and applying tax laws.