Procedure for consequential revision in cases where more then one direct tax involved. - Income Tax - 1831/1989

INSTRUCTION NO. 1831/1989 Dated: October 26, 1989 In para 1.12 of 141st report the Public Accounts Committee has recommended that the department should devise suitable mechanism or procedure to watch consequential revision in cases where more than one direct tax laws are involved. 2. The recommendation was made in the context of failure in one case to revise the income-tax assessment on the revision in appeal of interest-tax liability which is an allowable deduction in computing the total income under the Income-tax Act by virtue of section 18 of the Interest Act. In this regard, attention is invited to boards instruction No. 1805 (F.No.160/1/89-ITA-I) dated 20th January ,1989 whereby interest-tax liability had been reduced in appeal, revision or other proceeding with a view to revising the income-tax assessment of the corresponding assessment year. It was also desired that while giving effect to any appellate or other order under the Interest-tax act, Income-tax assessment of the corresponding assessment year should also be revised simultaneously. Moreover DCs were required to keep in view this aspect while carrying out inspection of the work of AOs and the internal audit parties were asked to ensure that lapses of this type do not occur in future. 3. The other instances where revision of assessment under one direct tax law requires consequential revision under another direct tax law are as under:- i. Under rule 2 of the First schedule to the companies surtax Act, in computing chargeable profits, the amount of income-tax payable by the company has to be deducted. Therefore a modification in the assessment under the I.T.Act will require a consequential modification under the companies (profits) surtax act. ii. Under section 21 of the Hotel Receipts Tax Act, 1980 the amount of tax payable under the said act is deductible in computing the taxable profits under the I.T.Act. A consequential modification is therefore, required in the liability under the Hotel receipts tax act. iii. According to the ratio of Supreme court's decision in the case of CIT Vs. KSN Bhatt (1984) 145 ITR 1, the liabilities towards income-tax and gift-tax which crystalise on the relevant valuation date as determined in the respective assessment orders are to be deducted even though these assessment orders are finalised after the valuation date. After the completion of wealth-tax assessment under the I.T.Act and Gift-tax Act may be modified in appeal etc., which will require consequential modification of the wealth-tax assessment. iv. The receipt of expenditure-tax will form part of trading receipt and the liability under the Expenditure-tax Act 1987 will be allowable as deduction. However by virtue of section 43 B of the income-tax act it will be restricted to the actual sum paid. In case of reduction of liability to the actual sum paid. In case of reduction of liability by way of appeal etc. the excess amount of expenditure-tax will be refunded. Such refund will be chargeable to income-tax as remission of liability u/s.41(1) or otherwise. The assessing officer will be required to make a note of such refund granted as a result of appeal etc., under the Expenditure Tax Act so that it may be checked whether the income-tax return of the relevant year shows such refund as income and the same may be brought to tax while completing the assessment under the I.T.Act. 4. In order to ensure that consequential action is taken in the cases of the nature mentioned above, the board desire that:- a. The assessing officers have to take particular care of such consequential revisions. b. While carrying out inspection of the work of AOs the DCs and CsIT should also see whether corresponding action as indicated above has been taken in the cases inspected by them. c. In the appeal and rectification registers maintained by the Assessing officers, a column should be added to indicate whether any consequential action, required to be taken in pursuance of the modified order, either under the same enactment or under any other direct tax law has been taken or not. This would also help in ensuring that any modification in the assessment of a firm is given effect to in the assessment of the partners of the firm. d. The check list prepared for the use of Internal audit parties should also contain this point.