2005 (10) TMI 69 - HC - Income Tax

Challenge to the intimation issued under section 143(1)(a) and rectification order passed under section 154 rectifying the intimation in the intimation AO has made addition as additional tax under section 143(1A). If the amount sought to be disallowed itself is not taken into account while computing the total income, then, the question of levying the additional tax on the amount of disallowance does not arise at all. - Therefore, the addition as additional tax made in the intimation, is without any basis and the same is liable to be deleted. further it is held that the assessee is entitled to the credit for the TDS amount in the assessment year 1989-90. Accordingly, the order, to withdraw the said credit and adjustment of the demand raised by such withdrawal from the refund due for the assessment year 1990-91 is set aside.

Summary

Issues Involved:
1. Challenge to the intimation issued under Section 143(1)(a) of the Income-tax Act, 1961.
2. Rectification order under Section 154 of the Act.
3. Adjustment of refund against outstanding demand under Section 245 of the Act.
4. Levy of additional tax under Section 143(1A) of the Act.
5. Entitlement to interest under Section 244A of the Act.

Detailed Analysis:

1. Challenge to the Intimation Issued Under Section 143(1)(a):
The petitioner challenged the intimation issued on May 28, 1990, for the assessment year 1989-90. The Assessing Officer made prima facie adjustments, including tax on book profits under Section 115J and additional tax under Section 143(1A). The petitioners argued that the TDS amount was deposited by the companies within the time allowed by the court, and thus, the credit for the TDS amount given in the intimation was just and proper. The court held that the withdrawal of the credit for the TDS amount was not justified as the TDS amount was paid to the Central Government before the return was processed.

2. Rectification Order Under Section 154:
The Assessing Officer issued a rectification order on February 5, 1991, withdrawing the credit for the TDS amount and the interest granted under Section 244A. The court found that the withdrawal of the credit for the TDS amount was illegal as the TDS amount was paid to the Central Government. The court set aside the rectification order and the consequent adjustment of the demand from the refund due for the assessment year 1990-91.

3. Adjustment of Refund Against Outstanding Demand Under Section 245:
The Assessing Officer issued a notice under Section 245 on March 27, 1991, for adjusting the demand raised by the rectification order from the refund due for the assessment year 1990-91. The court held that the adjustment was illegal as it was done without prior intimation to the assessee, in contravention of Section 245. The court quashed the adjustment of the demand.

4. Levy of Additional Tax Under Section 143(1A):
The court examined the levy of additional tax for both assessment years. For the assessment year 1989-90, the court found that the disallowance of Rs. 12,77,320, which formed the basis for the additional tax, was not included in the final computation of income. Therefore, the additional tax of Rs. 1,34,119 was set aside. For the assessment year 1990-91, the court permitted the assessee to file an appeal against the additional tax of Rs. 1,24,344.

5. Entitlement to Interest Under Section 244A:
The court noted that the issue of entitlement to interest under Section 244A was debatable. The court allowed the assessee to agitate this issue by filing an appeal. The appellate authority was directed to consider the appeal sympathetically, taking into account the period during which the issue was pending before the court.

Conclusion:
The petition was partly allowed with the following orders:
1. The assessee is entitled to the credit for the TDS amount in the assessment year 1989-90. The rectification order dated February 5, 1991, and the adjustment of the demand from the refund due for the assessment year 1990-91 were set aside.
2. The levy of additional tax amounting to Rs. 1,34,119 for the assessment year 1989-90 was set aside.
3. The assessee is permitted to file an appeal regarding the interest under Section 244A and the additional tax for the assessment year 1990-91. The appellate authority is to consider the application for condonation of delay sympathetically.

The petition was disposed of with no order as to costs.