1997 (9) TMI 151 - AT - Income Tax

Accounting Year, Additional Tax, Assessed Tax, Assessing Officer, Assessment Year, Mistake Apparent From Record, Previous Year

Summary

Issues Involved:
1. Legality of the order under section 154 cancelling the previous order under section 3(4) allowing the change of accounting year.
2. Validity of the adjustments made under section 143(1)(a) for assessment year 1989-90.

Issue-wise Detailed Analysis:

1. Legality of the order under section 154 cancelling the previous order under section 3(4) allowing the change of accounting year:

The revenue contended that the CIT(A) erred in law and on facts by cancelling the order under section 154, which was correctly passed by the Assessing Officer (AO) to cancel the order under section 3(4) dated 7-12-1987. The revenue argued that the permission granted for the change of the previous year was a mistake apparent on the record, as it did not align with the amended provisions of section 3 introduced by the Direct Tax Laws (Amendment) Act, 1987, effective from 1-4-1989. This amendment mandated a uniform previous year ending on 31st March, which would result in no previous year for assessment year 1988-89 and an impermissible 27-month period for assessment year 1989-90.

The assessee countered that the order under section 3(4) was valid when made, as the amendment bill was introduced after the permission was granted. The assessee argued that the amended law did not prescribe a limit for the transitional previous year for assessment year 1989-90, and the issue was highly debatable, falling outside the scope of section 154.

The tribunal concluded that the order under section 3(4) was valid when passed, as the amendment bill was introduced after the order. The tribunal noted that the successor AO's observations were incorrect, and the order under section 154 was unsustainable as it was made without granting an opportunity to the assessee, violating section 154(3). The tribunal also highlighted that the new provision of section 3 did not provide for the cancellation of permissions granted before its introduction. The tribunal emphasized that the issue was debatable and beyond the scope of section 154, referencing the Supreme Court judgment in T. S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50. Consequently, the tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal for assessment year 1988-89.

2. Validity of the adjustments made under section 143(1)(a) for assessment year 1989-90:

The assessee filed a return declaring a loss, which the AO processed under section 143(1)(a), making various adjustments and determining a reduced loss. The assessee disputed these adjustments under section 154, and the AO partially allowed the application, reducing the adjustments. The CIT(A) concluded that the adjustments were of a disputed nature and directed the AO to modify the order under section 154, excluding the adjustments and not demanding additional tax.

The revenue contended that the CIT(A)'s findings were contrary to law, arguing that the adjustments were justified under section 143(1)(a) and supported by the retrospective amendment to section 143 by the Finance Act, 1993. The assessee supported the CIT(A)'s order, arguing that the adjustments were debatable and outside the scope of section 143(1)(a), referencing CBDT instructions clarifying that debatable items fall outside the scope of adjustments under section 143(1)(a).

The tribunal examined the specific adjustments:

- Disallowance of Rs. 91,503 out of Travelling Expenses under Rule 6D: The tribunal found the disallowance debatable, referencing differing views by various Tribunal Benches and the Tax Audit Report.
- Disallowance of Rs. 50,554 under section 40A (a): The tribunal found the disallowance debatable, involving subscription/membership fees and expenses attributable to staff.
- Disallowance of Rs. 47,50,079 under section 43B: The tribunal found the adjustment incorrect, referencing CBDT circulars clarifying compliance with section 43B.
- Disallowance of Rs. 28,75,653 being Investment allowance on distillery unit: The tribunal found the adjustment required detailed investigation and was outside the scope of section 143(1)(a).
- Disallowance of Excess depreciation in Distillery Unit and Fertilizer Unit: The tribunal found the disallowance debatable and requiring further investigation.
- Disallowance of Rs. 2,81,938 under section 37(2A): The tribunal found the disallowance debatable, involving expenses attributable to staff.

The tribunal upheld the CIT(A)'s order, clarifying that the AO could examine the allowability of the items in a regular assessment under section 143(3). The tribunal emphasized that the findings were not on the merits of the claims but on the debatable nature of the adjustments, which were beyond the scope of section 143(1)(a). Consequently, the tribunal dismissed the revenue's appeal for assessment year 1989-90.

Conclusion:
The tribunal dismissed both appeals by the revenue, upholding the CIT(A)'s orders for assessment years 1988-89 and 1989-90.