2005 (2) TMI 441 - AT - Income Tax

Summary

Issues Involved:
1. Deduction under Section 80L for income of minor children clubbed under Section 64(1A).
2. Prima facie adjustment under Section 143(1)(a).

Issue-wise Detailed Analysis:

1. Deduction under Section 80L for income of minor children clubbed under Section 64(1A):
The primary issue was whether the assessee could claim a deduction under Section 80L for the income of minor children that was clubbed with the assessee's income under Section 64(1A) of the Income Tax Act.

- Facts: The assessee declared income earned by two minor children under Section 64(1A) and claimed a deduction under Section 80L at the rate of Rs. 15,000 per minor child.
- Assessing Officer's Decision: The AO disallowed the deduction of Rs. 30,000 for AY 1997-98 and Rs. 24,000 for AY 1998-99, stating that the separate claim under Section 80L in respect of minors' income was prima facie disallowable.
- CIT(A)'s Decision: The CIT(A) deleted the disallowance, relying on prior case laws and holding that the issue was controversial and outside the purview of prima facie adjustments.
- Revenue's Argument: The revenue argued that after the insertion of Section 64(1A) by the Finance Act, 1992, minors' income must be clubbed with the parent's income, and the only permissible deduction was Rs. 1,500 per minor child under Section 10(32).
- Assessee's Argument: The assessee contended that they were entitled to a deduction under Section 80L for each minor child in addition to their own income, relying on previous case laws.
- Tribunal's Decision: The Tribunal held that with effect from 1-4-1993, all income of a minor child must be included in the total income of the parent, and the only permissible deduction was under Section 10(32). It was concluded that the assessee was not entitled to separate deductions under Section 80L for the minor children's income.

2. Prima facie adjustment under Section 143(1)(a):
The second issue was whether the Assessing Officer was correct in making prima facie adjustments under Section 143(1)(a) for the disallowance of deductions claimed under Section 80L.

- Assessing Officer's Action: The AO made prima facie adjustments, disallowing the deductions claimed under Section 80L for the minor children's income.
- CIT(A)'s Decision: The CIT(A) reversed the AO's adjustments, stating that the issue was debatable and thus outside the scope of prima facie adjustments.
- Revenue's Argument: The revenue argued that the adjustments were correctly made as there was no room for doubt or debate regarding the disallowance of separate deductions under Section 80L after the insertion of Section 64(1A).
- Tribunal's Decision: The Tribunal agreed with the revenue, stating that the provisions clearly indicated that no separate deduction under Section 80L was permissible for the income of minor children clubbed under Section 64(1A). Therefore, the prima facie adjustments made by the AO were correct and justified.

Conclusion:
The Tribunal reversed the CIT(A)'s order and upheld the Assessing Officer's prima facie adjustments, disallowing the deductions claimed under Section 80L for the minor children's income. The appeals by the revenue were allowed.