1993 (11) TMI 102 - AT - Income Tax

Issues Involved:
1. Calculation of profits under the Income-tax Act (excluding section 115J).
2. Levy of additional tax under section 143(1A).
3. Rectification of intimation under section 154 after regular assessment.
4. Classification of incentive receipts as capital or revenue.
5. Right to claim set-off of past losses pending appeal.
6. Validity of prima facie adjustments under section 143(1)(a).
7. Doctrine of merger and its implications on rectification.

Detailed Analysis:

1. Calculation of Profits Under the Income-tax Act (Excluding Section 115J):
The assessee filed a return for the assessment year 1989-90 showing an income of Rs. 48,16,112 before deduction of carry-forward losses of Rs. 50,72,382, resulting in a declared loss of Rs. 2,56,270. The Assessing Officer, however, computed the income at Rs. 48,85,918 by adding back cash incentives of Rs. 69,806 and levied additional tax of Rs. 8,062. The controversy centers around the calculation of profits excluding the provisions of section 115J.

2. Levy of Additional Tax Under Section 143(1A):
The Assessing Officer initially levied additional tax of Rs. 8,062 based on the intimation dated 28-2-1990. However, after subsequent rectification, the additional tax was recalculated to Rs. 5,85,861. The Commissioner of Income-tax (Appeals) modified this amount to Rs. 5,30,702. The assessee challenged the correctness of this levy, arguing that the claim for set-off of past losses was bona fide and consistent with its understanding of the law at the time of filing the return.

3. Rectification of Intimation Under Section 154 After Regular Assessment:
The assessee contended that the initial intimation merged into the regular assessment order dated 30-4-1990, rendering any subsequent rectification invalid. The Tribunal agreed, stating that once a regular assessment is made, the intimation ceases to have any validity and gets merged with the assessment order. Therefore, the rectification order dated 25-9-1991 was deemed illegal and unjustified.

4. Classification of Incentive Receipts as Capital or Revenue:
The assessee argued that cash compensatory support, excise duty rebate, duty drawback, and sale proceeds of REPs received were capital receipts and not taxable. This contention was supported by the decision of the Special Bench of the Tribunal in Gedore Tools (India) (P.) Ltd. v. IAC. However, the Finance Act, 1990, retrospectively amended section 28, making these receipts taxable. The Tribunal noted that this retrospective amendment altered the legal position, affecting the assessee's claim.

5. Right to Claim Set-off of Past Losses Pending Appeal:
The Tribunal held that the assessee has a statutory right to claim set-off of past losses even if those losses were not recognized in previous assessments, provided the claim is pending in appeal. This right is not conditional upon the quantification of losses by the Income-tax Officer or any appellate authority. The Tribunal cited the Supreme Court's decision in Manmohan Das's case to support this view.

6. Validity of Prima Facie Adjustments Under Section 143(1)(a):
The Tribunal emphasized that prima facie adjustments under section 143(1)(a) should be limited to rectifying arithmetical errors or allowing/disallowing claims based on the information available in the return. The disallowance of the assessee's claim for set-off of past losses was not justified as a prima facie adjustment, as it required an inquiry into the merits of the claim. The Tribunal referred to the Bombay High Court's decision in Khatau Junkar Ltd. v. K.S. Pathania to support this interpretation.

7. Doctrine of Merger and Its Implications on Rectification:
The Tribunal held that the initial intimation dated 28-2-1990 merged into the regular assessment order dated 30-4-1990, and therefore, any rectification of the intimation was invalid. The Tribunal rejected the Revenue's argument that section 143(1A)(b) allowed for rectification of the intimation after regular assessment, noting that this provision applies only when there is a variation in the assessed income, which was not the case here.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the rectification order dated 25-9-1991 was illegal and unjustified. The Tribunal emphasized that the assessee's claim for set-off of past losses was bona fide and consistent with its understanding of the law at the time of filing the return. The Tribunal also noted that the retrospective amendment to section 28 altered the legal position, affecting the assessee's claim.

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