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2012 (9) TMI 661 - HC - Income TaxAdditional tax u/s 143 (1) (a) on the difference of returned and assessed income - Denial of deduction u/s 80 IA for Unit I as assessee has taken benefit of Section 80IA on the gross total income by reducing the loss of Unit-II from Unit-I - SCN u/s 154 (1) (b) to assessee for rectifying the mistake - Held that - The powers under Section 154 can be used to rectify the mistake. It is true that the mistake should not be such, which may allow debate or where two views are possible. In the present case there was no contentions issue or any legal issue on which two views are possible - The assessee had adopted a wrong method of calculation for the purposes of reducing income to Nil , and had also carrying the loss forward to next year. The computation was clearly impermissible and was against the provisions of Section 80A (2). The gross total income as defined under Section 80B (5) includes total income computed in accordance with the provisions of the Act, before making any deduction under the chapter. The assessee could not have made any deduction, from the gross total income for the purposes of claiming benefit to return the income as Nil, and carry forward the loss. The intention of Section 143 IA was to discourage the misuse by unscrupulous tax payer, who might return lesser income by making obvious examination, or by claiming obvious incorrect deduction and taking a chance that if the same is deducted by the department, they would have to pay correct taxes only. In such cases while correcting the return, additional tax was payable. In the present case the provisions of Section 143 (I) (a) are clearly attracted. The respondent assessee claimed deduction, which were not permissible, and thereby not only tried to reduce the income to Nil, but also to carry forward the loss. The respondent assessee took chance, in which it did not succeed, and thus the A.O. and CIT (A) rightly imposed additional tax on him - in favour of Revenue.
Issues Involved:
1. Whether the ITAT's decision to allow deduction under Section 80IA was justified. 2. Whether the additional tax under Section 143 (1A) of the Income Tax Act was correctly charged. Issue-wise Detailed Analysis: 1. Whether the ITAT's decision to allow deduction under Section 80IA was justified: The respondent-assessee had two units, with Unit I declaring a profit of Rs.1,28,69,006/- and Unit II declaring a loss of Rs.1,14,03,131/-. The assessee claimed a deduction under Section 80IA at 30% on the income of Unit I, resulting in a gross total income of Rs.14,65,875/-. Despite this, the income was declared as Nil, and a loss of Rs.23,94,827/- was carried forward to the next assessment year. The Assessing Officer (A.O.) processed the return under Section 143 (1) (a) with 'nil' income and denied the carry forward of the loss. A show cause notice was issued under Section 154 (1) (b) to rectify the mistake, as additional tax was chargeable on the difference between the returned and assessed income. The respondent-assessee argued that the units should be considered separately, and the deduction under Section 80IA was rightly claimed. However, the A.O. charged additional tax by invoking Section 154 (1) (b), stating that since the gross total income was a loss, the deduction under Section 80IA was not allowable. The CIT (A) upheld the A.O.'s decision, stating that under Section 80A (2), the aggregate amount of deductions should not exceed the gross total income, which was defined under Section 80B (5). The CIT (A) found that the assessee had wrongly carried forward the deduction under Section 80IA, as there was no provision under the Income Tax Act to carry forward unabsorbed deductions. The ITAT allowed the assessee's appeal, following its judgment in Sybly Spinning Mills Pvt. Ltd., where it was held that prima facie adjustment under Section 143 (1) (a) in respect of deduction under Section 80I was not permissible. The High Court found that the ITAT misdirected itself by following its earlier judgment without considering the facts of the case. The A.O. had wrongly applied the method of computation, allowing the deduction under Section 80IA in respect of the income of one unit and thereby reducing it from the loss of the other unit. The assessee had wrongly taken the benefit of Section 80IA on the gross total income by reducing the loss of Unit II from Unit I and declaring the return as Nil and carrying forward the loss, which was not permissible. 2. Whether the additional tax under Section 143 (1A) of the Income Tax Act was correctly charged: The High Court considered the judgment in Indo-Gulf Fertilizers & Chemicals Corpn. Ltd., which discussed the scope of Section 143 (1A) and held that additional tax or penalty could not be levied where there was no income but only losses. However, the Court found that this judgment was not applicable to the present case, as the assessee had adopted a wrong method of calculation to reduce income to 'Nil' and carry forward the loss, which was against the provisions of Section 80A (2). The Court stated that the powers under Section 154 could be used to rectify mistakes that were not debatable or contentious. In this case, there was no contentious issue or legal debate, and the assessee had made an obvious incorrect deduction. The intention of Section 143 IA was to discourage misuse by taxpayers who might return lesser income by making obvious incorrect deductions. Therefore, the additional tax was correctly charged by the A.O. and CIT (A). Conclusion: Both questions were decided in favor of the revenue and against the assessee. The department was directed to make the computation and proceed in accordance with the law.
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