1995 (10) TMI 78 - AT - Income Tax

Summary

Issues Involved:
1. Simultaneous application of Section 115J and Section 143(1)(a) of the Income Tax Act.
2. Nature of adjustments made under Section 143(1)(a).
3. Levy of additional tax under Section 143(1A).

Detailed Analysis:

1. Simultaneous Application of Section 115J and Section 143(1)(a):
The core issue was whether the provisions of Section 115J and Section 143(1)(a) could be simultaneously applied. The CIT (Appeals) held that these sections could not be applied together, stating that Section 115J is a complete code in itself for determining tax liability, and its mandatory nature precludes the application of Section 143. The Tribunal disagreed, clarifying that Section 143 provides the assessment machinery, while Section 115J determines the extent of total income. Both sections have different fields of operation and can be applied together. The Tribunal emphasized that the determination of income, whether under Section 5 or Section 115J, must be processed through the procedure under Section 143.

2. Nature of Adjustments Made Under Section 143(1)(a):
The CIT (Appeals) found that the adjustments made were not prima facie disallowable claims and thus did not warrant additional tax. The Tribunal examined the nature of the adjustments:
- Current Liabilities: The amount of Rs. 7,86,766 was outstanding on the last day of the accounting year, with Rs. 7,47,376 paid before filing the return. The balance of Rs. 39,390 was disallowed by the assessee itself.
- Expenditure Relating to Earlier Years: The amount of Rs. 3,44,048 included bank charges, bonus, salaries, wages, and electricity charges from previous years. The Tribunal found that these were prima facie disallowable items as they related to expenses from previous years and were not allowable under the mercantile system of accounting.

3. Levy of Additional Tax Under Section 143(1A):
The Tribunal analyzed the conditions under which additional tax is levied:
- Increase in Declared Income: Additional tax is levied if the adjustments increase the total income declared by the assessee.
- Reduction of Declared Loss: Additional tax is levied if the adjustments reduce the declared loss or convert it into income.

In this case, the assessee declared an income of Rs. 6,09,000 under Section 115J. The adjustments did not increase the total income, as the income remained nil after considering carried forward losses. Therefore, additional tax could not be levied. Furthermore, the Tribunal noted that the adjustments made under Section 143(1)(a) were not repeated in the final assessment under Section 143(3), and thus, the additional tax should be reduced to nil as per Section 143(1A)(b). This interpretation was supported by the CBDT Circular No. 636, which clarified that additional tax should be deleted or modified if the adjustments are not sustained in the regular assessment.

Conclusion:
The Tribunal upheld the CIT (Appeals) order to delete the additional tax, though on different grounds, and dismissed the Revenue's appeal. The key points were that Section 115J and Section 143(1)(a) can be applied together, the adjustments made were prima facie disallowable, and additional tax could not be levied as the total income did not increase post-adjustments.