1994 (11) TMI 161 - AT - Income Tax

1978 (10) TMI 3 - SC

Issues Involved:
1. Justification of the Assessing Officer's action under section 143(1)(b) of the Income-tax Act, 1961.
2. The legitimacy of withdrawing deductions under sections 80HH and 80-I.
3. The applicability of section 143(1)(b) versus section 143(2) for making adjustments.

Issue-wise Detailed Analysis:

1. Justification of the Assessing Officer's action under section 143(1)(b) of the Income-tax Act, 1961:

The primary issue was whether the Assessing Officer (AO) was justified in passing an order under section 143(1)(b) for the assessment year 1991-92. The assessee, a limited company, filed its return declaring total income at Rs. 8,59,54,567, which was processed under section 143(1)(a), making minor adjustments. A revised return was filed, and similar minor adjustments were made. Subsequently, the AO passed an order under section 143(3) for the previous assessment year (1990-91) and used this to process the 1991-92 return under section 143(1)(b), adding Rs. 1,64,62,908 by withdrawing deductions under sections 80HH and 80-I.

The assessee challenged this addition under section 154, but the AO and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition. The tribunal examined the scheme of section 143(1), noting that section 143(1)(a) allowed for prima facie adjustments, while section 143(1)(b) could be invoked if there was a variation in loss carried forward, deduction, allowance, or relief due to an order for an earlier assessment year passed after the filing of the return for the subsequent year. The tribunal found that the total income for 1990-91 was positive, indicating no variation in the brought-forward loss, deduction, or allowance. Thus, the basic condition for invoking section 143(1)(b) was not met, making the AO's action unjustified.

2. The legitimacy of withdrawing deductions under sections 80HH and 80-I:

The assessee argued that the AO wrongly assumed jurisdiction under section 143(1)(b) and illegally withdrew deductions under sections 80HH and 80-I for the Poanta Sahib unit. It was contended that the scope of section 143(1)(b) was limited and could not be applied merely because of a different view taken in the earlier assessment year. The tribunal agreed, noting that the correct course for making such additions would be to pass an order under section 143(3) after issuing a notice under section 143(2).

On merits, the assessee cited the Supreme Court decision in CIT v. Patiala Flour Mills Co. (P.) Ltd., arguing that deductions under section 80HH could not be withdrawn simply because there was no positive income in the unit. The tribunal did not delve deeply into the merits but indicated that much could be said in favor of the assessee regarding the claim under section 80HH.

3. The applicability of section 143(1)(b) versus section 143(2) for making adjustments:

The tribunal emphasized that section 143(1)(b) could only be applied if there was a variation in the brought-forward loss, deduction, allowance, or relief due to an order for an earlier assessment year passed after the filing of the return for the subsequent year. In this case, there was no such variation, so the AO should have issued a notice under section 143(2) to verify the correctness or completeness of the return and then made the necessary adjustments under section 143(3) or section 144. The tribunal illustrated this with an example, explaining that if there was no variation in the brought-forward loss or other claims, adjustments could not be made under section 143(1)(b).

Conclusion:

The tribunal concluded that there was no variation in the brought-forward loss, deduction, allowance, or relief necessitating action under section 143(1)(b) for the assessment year 1991-92. Therefore, the AO was not justified in invoking section 143(1)(b) to make an addition of Rs. 1,64,62,908. The assessee's income under section 143(1)(a) was determined to be Rs. 8,44,59,216, and the appeal was allowed.

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