1998 (9) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Prima Facie Adjustment and Disallowance of IPRS Receipt
2. Nature of IPRS Receipt: Capital vs. Revenue
3. Jurisdiction and Validity of Intimation under Section 143(1)(a)/254
4. Limitation for Issuance of Intimation
5. Levy of Additional Tax

Detailed Analysis:

1. Prima Facie Adjustment and Disallowance of IPRS Receipt
The assessee challenged the CIT(A)'s confirmation of the Assessing Officer's (AO) action in making prima facie adjustments and disallowing the claim of deduction by way of IPRS received under section 143(1)(a). The Tribunal observed that prima facie adjustments under section 143(1)(a) should only include clear and undisputed items. The Tribunal cited the Supreme Court's decision in Union of India v. T.R. Verma, which emphasized the necessity of following natural justice principles. The Tribunal concluded that the IPRS receipt was a debatable issue and could not be subjected to prima facie adjustment.

2. Nature of IPRS Receipt: Capital vs. Revenue
The assessee argued that the IPRS receipt was capital in nature, representing reimbursement for the difference between domestic and international steel prices. The CIT(A) and AO treated the receipt as revenue, taxable under section 28(iiib) of the Income-tax Act. The Tribunal noted that the issue was debatable and controversial, and thus, it could not be settled through prima facie adjustments under section 143(1)(a). The Tribunal referenced several case laws, including Khatau Jankar Ltd. v. K.S. Pathania, which supported the view that debatable issues should not be adjusted prima facie.

3. Jurisdiction and Validity of Intimation under Section 143(1)(a)/254
The assessee contended that the AO's intimation under section 143(1)(a)/254 was without jurisdiction and null and void, especially after a regular assessment under section 143(3) had been completed. The Tribunal agreed with the assessee, noting that an order under section 143(3) had already been passed, and thus, the AO had no jurisdiction to issue a fresh intimation. The Tribunal quashed the impugned intimation dated 7-3-1997 and directed the deletion of the additional tax levied.

4. Limitation for Issuance of Intimation
The assessee argued that the impugned intimation was barred by limitation as per the third proviso to section 143(1)(a), which stipulates a two-year period from the end of the assessment year. The Tribunal agreed, noting that the limitation period ended on 31-3-1995, making the intimation issued on 7-3-1997 time-barred. The Tribunal emphasized that section 143(1)(a) is a self-contained code for limitation purposes and should not be conflated with section 153(2A).

5. Levy of Additional Tax
The assessee contended that no additional tax was legally leviable as the adjustments did not result in a positive income. The Tribunal noted that the IPRS receipt's nature was controversial and could not be adjusted prima facie. The Tribunal referenced various case laws and CBDT circulars, emphasizing that additional tax should not be levied on bona fide claims on controversial issues. The Tribunal concluded that the additional tax of Rs. 60,56,360 was excessive and should be deleted.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the impugned intimation under section 143(1)(a) dated 7-3-1997 and directing the deletion of the additional tax levied. The Tribunal emphasized that debatable or controversial issues could not be subjected to prima facie adjustments under section 143(1)(a), and any such adjustments made were without jurisdiction and barred by limitation.