2020 (3) TMI 889 - SC - Income Tax

Demand of additional tax under the provisions of Section 143(1-A) - Prima facie adjustments - As per section 143(1A), additional tax has to be charged @ 20% of the tax payable on such excess amount . The excess amount refers to the increase in the income and by implication the reduction in loss where even after the addition there is negative income. - disallowing 25% of the depreciation - HELD THAT - This Court in Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog Limited and another 2015 (3) TMI 854 - SUPREME COURT had occasion to consider elaborately the provisions of Section 143(1-A), its object and validity. There was a challenge to the retrospectivity of the provisions of Section 143(1-A) as introduced by Finance Act, 1993. The Gauhati High Court had held that retrospective effect given to the amendment would be arbitrary and unreasonable. The appeal was filed by the Revenue in this Court in which appeal, this Court had occasion to examine the constitutional validity of the provisions. This Court in the above judgment held that object of Section 143(1-A) was the prevention of evasion of tax. As relying on KP VARGHESE VERSUS INCOME-TAX OFFICER, ERNAKULAM, AND ANOTHER 1981 (9) TMI 1 - SUPREME COURT in the above case held that provisions of Section 143(1-A) should be made to apply only to tax evaders. This Court in the above case upheld the constitutional validity of Section 143(1-A) (as inserted by the Finance Act, 1993) subject to holding that Section 143(1-A) can only be invoked where it is found on facts that the lesser amount stated in the return filed by the assessee is a result of an attempt to evade tax lawfully by the assessee. Even after dis-allowing 25% of the depreciation, the assessee in the return remained in loss and the 100% depreciation was claimed by the assessee in the return due to a bonafide mistake. By Taxation Laws (Amendment) Act, 1991, the depreciation in the case of Company was restricted to 75% which due to oversight was missed by the assessee while filing the return. CIT by deciding the revision petition has also not made any observation to the effact that 100% depreciation claimed by the assessee was with intend to evade payment of tax lawfully payable by the assessee, rather the Commissioner in his order dated 31.03.1992 has observed that whenever adjustment is made, additional tax has to be charged @ 20% of the tax payable on such excess amount. While interpreting a Tax Legislature the consequences and hardship are not looked into but the purpose and object by which taxing statutes have been enacted cannot be lost sight. This Court while considering the very same provision i.e. Section 143(1-A), its object and purpose and while upholding the provision held that the burden of proving that the assessee has attempted to evade tax is on the Revenue which may be discharged by the Revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee has, in fact, attempted to evade tax lawfully payable by it. In the present case, not even whisper, that claim of 100% depreciation by the assessee, 25% of which was disallowed was with intend to evade tax. We cannot mechanically apply the provisions of Section 143(1-A) in the facts of the present case and in view of the categorical pronouncement by this Court in Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog Limited and another 2015 (3) TMI 854 - SUPREME COURT where it is held that Section 143(1-A) can only be invoked when the lesser amount stated in the return filed by the assessee is a result of an attempt to evade tax lawfully payable by the assessee. In view of the above, we hold that mechanical application of Section 143(1-A) in the facts of the present case was uncalled for.

Summary

Issues Involved:

1. Validity of the demand for additional tax under Section 143(1-A) of the Income Tax Act, 1961.
2. Interpretation and application of Section 143(1-A) in cases of bona fide mistakes.
3. The nature and purpose of additional tax under Section 143(1-A).

Detailed Analysis:

1. Validity of the Demand for Additional Tax:

The primary issue was whether the demand for additional tax under Section 143(1-A) in the present case was justified. The assessee, a government company, filed a return showing a loss but mistakenly claimed 100% depreciation instead of the permissible 75%. The Assessing Officer disallowed 25% of the depreciation and demanded additional tax. The High Court upheld this demand, but the Supreme Court needed to determine if this was correct.

2. Interpretation and Application of Section 143(1-A):

Section 143(1)(a) allows for adjustments to be made to the return, and Section 143(1-A) provides for additional tax if these adjustments increase the income or reduce the loss declared by the assessee. The Court examined whether the additional tax could be levied in cases of bona fide mistakes. The assessee argued that the additional tax was penal in nature and should only apply if there was an intentional attempt to evade tax. The Revenue maintained that the provision was not penal but a deterrent against tax evasion.

3. Nature and Purpose of Additional Tax under Section 143(1-A):

The Court noted that Section 143(1-A) was intended to prevent tax evasion and ensure accurate filing of returns. The provision was amended retrospectively to cover cases where the declared loss was reduced due to adjustments. The Court referred to its judgment in Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog Limited, which held that Section 143(1-A) should apply only to cases where there was an attempt to evade tax.

Findings:

The Court found that the 100% depreciation claimed by the assessee was due to a bona fide mistake and not an attempt to evade tax. The Commissioner of Income Tax did not suggest any intention of tax evasion by the assessee. The Court emphasized that the burden of proving an attempt to evade tax lay with the Revenue, which was not discharged in this case.

Conclusion:

The Court concluded that the mechanical application of Section 143(1-A) was inappropriate in this case. It held that the additional tax could only be levied if there was an attempt to evade tax, which was not the case here. Therefore, the demand for additional tax was unjustified.

Judgment:

The Supreme Court allowed the appeal, set aside the judgment of the Division Bench of the High Court, and quashed the demand for additional tax.