2012 (5) TMI 397 - HC - Income Tax

Power of the AO to make Adjustments u/s 143(1)(a) - held that - Where it is evident from the return as filed, along with the documents in support thereof, that a claim of the assessee is inadmissible, only then an adjustment under the said proviso can be made. If proof in support of the claim is not, furnished by an assessee, then for the lack of proof, no dis-allowance or an adjustment can be made. The only option which is open to the Income-tax Officer, in such a case, is that he can require the assessee to furnish proof in which case he will presumably have to issue notice under section 143(2). - Decided in favor of assessee. Adjustment with reference to section 43B - retrospective amendment - it has been held by the Supreme Court that the first proviso to Section 43B has to be treated as retrospective and should be read as a part of the Act with effect from 1.4.1984 itself. The Supreme Court observed that the amendment would not serve its objective unless it is construed as retrospective. Without first proviso, and explanation 2 would not obviate the hardship of Section 43B. - Addition made u/s 143(1)(a) deleted.

Summary

Issues Involved:
1. Adjustment of Scientific Research Expenses and Club Payments under Section 143(1)(a) of the Income Tax Act, 1961.
2. Interpretation of clause (iii) of the proviso to Section 143(1)(a) regarding inadmissible claims by the Income-tax Officer.
3. Adjustment of statutory dues under Section 43B of the Income Tax Act, 1961.

Analysis:

1. Adjustment of Scientific Research Expenses and Club Payments:
The High Court examined the adjustments made by the Assessing Officer under Section 143(1)(a) of the Income Tax Act, 1961, pertaining to Scientific Research Expenses and Club Payments in the return of income for the assessment year 1989-90. The Court held that these adjustments were not prima facie adjustments that could have been made by the Assessing Officer under the said provision. Reference was made to the limited power and jurisdiction of the Assessing Officer as elucidated in previous cases. The Court emphasized that adjustments can only be made if the claim or allowance is prima facie inadmissible based on the information available in the return, and lack of proof alone cannot be a basis for disallowance.

2. Interpretation of clause (iii) of the proviso to Section 143(1)(a):
The Court delved into the interpretation of clause (iii) of the proviso to Section 143(1)(a) which allows adjustments if a claim is prima facie inadmissible based on the return filed by the assessee. It was clarified that the Income-tax Officer cannot disallow a claim solely due to lack of proof; the inadmissibility must be evident from the return and accompanying documents. The Court highlighted that adjustments can only be made when a disallowance is apparent from the facts on record, as illustrated in a circular issued by the Central Board of Direct Taxes.

3. Adjustment of Statutory Dues under Section 43B:
Regarding the adjustment of statutory dues under Section 43B of the Income Tax Act, 1961, the Court analyzed the retrospective effect of the relevant provisions. Referring to a Supreme Court decision, it was established that the first proviso to Section 43B should be treated as retrospective from 1.4.1984. The Court concluded that the third addition made by the Assessing Officer under Section 143(1)(a) was not justified and should be deleted on merits. Consequently, the impugned order under Section 143(1)(a) was set aside, along with the demand of additional tax plus interest.

In summary, the High Court allowed the writ petition, quashed the impugned order dated 15.3.1990 under Section 143(1)(a), and set aside the demand of additional tax plus interest. The judgment did not express any opinion on the merits in case regular assessment proceedings were initiated under Section 143(2) of the Act.