1996 (3) TMI 157 - AT - Income Tax

Additional Tax, Assessment Order, Assessment Proceedings, Assessment Year, Bad Debt, Interest Payable, Mistake Apparent From Record, Regular Assessment, Retrospective Amendment

Summary

Issues Involved:
1. Rectification of intimation under section 143(1)(a) and charging of additional tax under section 143(1A) due to retrospective amendment.
2. Disallowance of unpaid interest to financial institutions under section 43B.
3. Disallowance of provision for doubtful debts/advances under section 36(1)(vii).

Detailed Analysis:

Issue 1: Rectification of Intimation under Section 143(1)(a) and Charging of Additional Tax under Section 143(1A)
The case involves an appeal against the order of the CIT(Appeals) upholding the rectification under section 154 of an intimation under section 143(1)(a). The original return filed showed a current loss and carried forward unabsorbed losses, resulting in a total loss. A notice under section 143(2) was issued, and processing under section 143(1)(a) led to a prima facie adjustment, reducing the loss and charging additional tax. The assessee filed a revised return and later an application under section 154, which was accepted, canceling the additional tax. However, due to a retrospective amendment of section 143(1A) by the Finance Act, 1993, additional tax could be charged even if the loss declared was reduced. The Assessing Officer issued a notice under section 154 and restored the additional tax.

The assessee contended that the decision of the Allahabad High Court still held good despite the retrospective amendment. The Assessing Officer, relying on a decision of the Andhra Pradesh High Court, rejected this contention, stating that an order inconsistent with a subsequent amendment with retrospective effect must be rectified under section 154. The CIT(Appeals) upheld this, relying on decisions of the Supreme Court and Allahabad High Court, stating that the Assessing Officer was bound to take cognizance of the amended law.

The Tribunal found that the decision of the Supreme Court in Bombay Dyeing & Mfg. Co. Ltd.'s case was applicable, allowing additional tax to be charged in view of the retrospective amendment. Thus, the rectification under section 154 was upheld.

Issue 2: Disallowance of Unpaid Interest to Financial Institutions under Section 43B
The unpaid interest to financial institutions amounting to Rs. 16,85,833 was disallowed under section 43B. The assessee argued that this was accepted in the revised computation before the final assessment. The Assessing Officer did not accept this, stating that the disallowability was not disputed, and the omission to make adjustments constituted a glaring mistake of law apparent from the record. The CIT(Appeals) observed that unpaid interest was not eligible for deduction under section 43B irrespective of the method of accounting, and overlooking this mandatory provision was a mistake apparent on the face of the record.

The Tribunal found that the assessee had admitted the facts and consented to the disallowance during assessment proceedings. The decision relied upon by the assessee was distinguished on facts, as the payment of taxes was not made before the due date in the present case. Thus, the prima facie adjustment for unpaid interest was upheld.

Issue 3: Disallowance of Provision for Doubtful Debts/Advances under Section 36(1)(vii)
The provision for doubtful debts/advances amounting to Rs. 2,59,76,755 was disallowed. The assessee contended that the revised computation already accepted this disallowance. The Assessing Officer did not accept this, stating that the disallowability was not disputed, and the omission to make adjustments was a mistake of law apparent from the record. The CIT(Appeals) observed that the provision for doubtful debts was not a bad debt written off and was not admissible under the amended section 36(1)(vii).

The Tribunal found that it was not patently clear from the return and accompanying accounts whether the bad debts had been written off as irrecoverable. It was only during assessment proceedings that further facts came to light. Thus, the prima facie adjustment for provision for doubtful debts was not justified, and the disallowance was directed to be deleted.

Conclusion:
The assessee's appeal is partly allowed. The additional tax under section 143(1A) will be recomputed in accordance with the Tribunal's directions, upholding the adjustments for unpaid interest but deleting the disallowance for provision for doubtful debts.