2022 (12) TMI 224 - HC - Income Tax

Intimation u/s 143(1)(a) - Adjustment of interest on deposits by the respondent/assessee at the stage of issuance of intimation u/s 143(1)(a) - HELD THAT - CIT(A) held that in the guise of prima facie adjustment, assessing officer cannot adjudicate upon debatable issues. CIT(A) noted that the decision of this Court in Godavari Fertilizers and Chemicals Limited 1991 (6) TMI 13 - ANDHRA PRADESH HIGH COURT on which heavy reliance is placed by the revenue was appealed against before the Supreme Court and the appeal was pending. CIT(A) held that the issue was highly debatable on which two opinions were clearly possible and on such a highly debatable issue, prima facie adjustment ought not to have been carried out by the assessing officer. Taking the view that interest payments sought to be set off against interest receipts having the same origin namely borrowed funds, CIT(A) set aside the prima facie adjustment made by the assessing officer. Tribunal held that order passed by the CIT(A) was a well reasoned one which did not warrant interference in further appeal. Tribunal further noted that decision of the Supreme Court in CIT v. Tuticorn Alkaline Chemicals and Fertilisers Ltd. 1997 (7) TMI 4 - SUPREME COURT was not available at the time of making prima facie adjustment by the assessing officer. Supreme Court had pronounced the decision in CIT v. Tuticorn Alkaline Chemicals and Fertilisers Ltd. (supra) on 08.07.1997 whereas the intimation was issued by the Assessing Officer much earlier on 27.03.1996. Adjustment can be carried out u/s 143(1)(a) - The prima facie adjustment sought to be carried out by the assessing officer in the instant case does not fall within any of the illustrations mentioned above. We do not find any error or infirmity in the view taken by the CIT(A) as affirmed by the Tribunal. That being the position, the substantial question of law as framed above, is answered in the affirmative and in favour of the respondent.

Summary

Issues:
- Whether the assessing officer could make a prima facie adjustment by disallowing the claim of adjustment of interest on deposits by the respondent at the stage of issuance of intimation under Section 143(1)(a) of the Income Tax Act, 1961.

Analysis:
1. The appeal was filed under Section 260A of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal for the assessment year 1995-96.
2. The appellant, an assessee under the Act, had claimed deduction of interest on deposits in their return of income. However, the Assessing Officer disallowed this deduction under Section 143(1)(a) of the Act, adding the interest income to the respondent's total income.
3. The first appellate authority, CIT(A), allowed the appeal of the respondent, stating that the assessing officer could not make a prima facie adjustment on debatable issues like the one in question.
4. The Revenue appealed to the Tribunal, which upheld the CIT(A)'s decision, noting that the Supreme Court's relevant decision was not available at the time of the assessing officer's adjustment.
5. The Court considered the provisions of Section 143(1)(a) of the Act, emphasizing that prima facie adjustments could only be made in specific circumstances, none of which applied to the case at hand.
6. The Court agreed with the CIT(A) and the Tribunal, concluding that the assessing officer's adjustment was not sustainable in law. The issue was deemed highly debatable, and the adjustment was set aside.
7. The Court dismissed the appeal, affirming the decisions of the lower authorities and answering the substantial question of law in favor of the respondent.

This detailed analysis of the judgment highlights the procedural history, arguments presented by both parties, decisions of the lower authorities, relevant legal provisions, and the final ruling of the Court, providing a comprehensive understanding of the case.