2017 (10) TMI 102 - HC - Income Tax

Additional tax to be charged under section 143(1A) - effect of reducing the loss declared by the assessee in the return of income - Held that - Supreme Court in case of Commissioner of income Tax and others v. Sati Oil Udyog Ltd. and another 2015 (3) TMI 854 - SUPREME COURT in which it was held and observed that section 143(1A) can be invoked where it is found on facts that the lesser amount stated in the return filed by the assessee was a result of an attempt to evade tax lawfully payable by the assessee and the burden of proving such fact is on the Revenue. The Tribunal observed that the assessee was a government undertaking and was since long running into huge losses year after year. The partial disallowance of depreciation in the year under consideration in any case would not result into any evasion of tax. In short, the assessee would earn no benefit out of the reduced depreciation which can always be claimed in later years. The assessee was a government company and was running into huge losses year after year consistently. The reduction of loss was only on account of disallowance of depreciation claimed by the assessee. The Tribunal also noted that if the disallowance was on the dispute of the machinery not having been installed during the year under consideration, such depreciation would always be available to the assessee in the later years. Since there was consistent loss offered by the assessee, this shifting of the depreciation to a later year would have no impact on its tax. - Decided in favour of assessee.

Summary

Issues:
1. Whether the ITAT was right in law in deleting enhancement of additional tax under section 143(1A) without considering the permissible adjustment?
2. Whether the ITAT was justified in granting relief to the assessee by holding that enhancement of additional tax under section 143(1A) was legally not sustainable?

Analysis:
1. The case involved an appeal by the Revenue against the Income Tax Appellate Tribunal's judgment regarding the additional tax charged under section 143(1A) for the assessment year 1991-92. The Assessing Officer had made adjustments under section 143(1) of the Income Tax Act, resulting in a reduced loss declared by the assessee. The Revenue contended that additional tax should be levied on the reduced losses under section 143(1A). However, the Tribunal, relying on a Supreme Court judgment, held that section 143(1A) could only be invoked if the lesser amount stated in the return was an attempt to evade tax lawfully payable, with the burden of proof on the Revenue. The Tribunal found that the reduction in loss was due to a disallowance of depreciation, which would not result in tax evasion as the assessee, a government undertaking, had been consistently running into losses.

2. The relevant provision of section 143(1A) allowed for the levying of additional tax at the rate of 20% if the total income resulting from adjustments exceeded the total income declared in the return. The Supreme Court had clarified that this provision could only be applied if the lesser amount in the return was an attempt to evade tax lawfully payable. In the present case, the Tribunal found that the necessary facts did not establish tax evasion on the part of the assessee, a government company facing continuous losses. The disallowance of depreciation would not benefit the assessee in the long run, as the depreciation could be claimed in subsequent years. Therefore, the Tribunal concluded that the enhancement of additional tax under section 143(1A) was not legally sustainable and granted relief to the assessee.

In conclusion, the High Court upheld the Tribunal's decision and dismissed the Tax Appeal, finding that the Revenue had not proven that the assessee attempted to evade tax lawfully payable. The judgment emphasized the importance of establishing tax evasion to invoke the provisions of section 143(1A) and clarified that mere adjustments in returns without intent to evade tax would not warrant the imposition of additional tax.