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TMI Blog2009 (10) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... eld the adjustment made under section 43B on the ground that it was based on the observation made by tax auditor in its report. Held that- the Tax Auditor did not specify in the tax audit report the amount inadmissible u/s 43B. Therefore, it was necessary for the Assessing officer to issue a notice under section 143(2) for the purpose of making proper assessment under section 143(3). Thus allow the appeal. X X X X Extracts X X X X X X X X Extracts X X X X ..... bution (Rs. 21,942). The Assessing Officer also allowed a portion of the assessee' s claim for deduction under section 80G. 6. The assessee preferred an appeal against the said order dated February 28, 1992 questioning, inter alia, the jurisdiction of the Assessing Officer to make the adjustments in the intimation dated August 6, 1990. On March 20, 1992 the assessee made another application under section 154 in respect of which the Assessing Officer passed an order on the same day partly increasing the deduction allowed under section 80G. 7. The assessee, thereafter, preferred another appeal against another order dated March 20, 1992 again raising, inter alia, the question of jurisdiction of the Assessing Officer to make the adjustments in the intimation dated August 6, 1990. A third rectification order under section 154 was passed by the Assessing Officer on July 20, 1992 against which the assessee also preferred an appeal before the Commissioner of Income-tax (Appeals). 8. All the said three appeals were decided by the Commissioner of Income-tax (Appeals) by a consolidated order dated December 28, 1994. The Commissioner of Income-tax (Appeals) held that no adjustment under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e evidence in support of a claim made in the return was not enclosed with the return or where an enquiry on facts was necessary. 12. He also contended that in Circular No. 581 dated September 28, 1990 ([1990] 186 ITR (St.) 2) issued by the Central Board of Direct Taxes, the scope of the power to make prima facie adjustment under section 143(1)(a) was somewhat coterminous with the power to rectify a mistake apparent from the record under section 154. In the case of Khatau Junkar Ltd. v. K.S. Pathania [1992] 196 ITR 55, it was held by the hon' ble Bombay High Court that prima facie adjustment could be made only where on the face of the return and the documents and accounts accompanying it, the deduction claimed was inadmissible. If any further enquiry was necessary or if the Income-tax Officer felt that further proof was required in connection with the claim for deduction, he would have to issue a notice under section 143(2) of the Act. 13. In the case of S. R. F. Charitable Trust v. Union of India [1992] 193 ITR 95, the hon' ble Delhi High Court at pages 98-99 of the Reports held as follows (page 98): "The conclusion that the claim of the assessee is inadmissible must, in other w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling under clause (b) provides for deduction only if payment has actually been made on or before the due date as per the provident fund law. Before making any disallowance under section 43B, the Assessing Officer is required to examine the applicability of the two provisos to the amounts in question. A disallowance under section 43B cannot be made simply because payment was not made within the previous year itself. 17. He further submitted that against serial No. 7(i) of the tax audit report, the amount debited to the profit and loss account but not paid during the previous year was required to be specified. The said serial No. 7(i) did not require the tax auditor to specify the amount which was inadmissible under section 43B. There was no requirement to furnish any break up of the respective amounts with reference to the different clauses of section 43B or to state as to whether the same or any part thereof had been paid before the due date for filing the income-tax return or as to whether the amount specified included any provident fund contribution and if so, whether such contribution had been actually paid on or before the due date prescribed under the provident fund law. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reports, it was held by this hon' ble court that for making a disallowance under section 43B, further enquiry was necessary and the power under section 154 could not be exercised merely on the basis of the information contained in the tax audit report without holding such enquiry. The principle laid down by this hon'ble court in Jagatdal Jute' s case [2004] 266 ITR 587 (Cal) with reference to the power of rectification under section 154 is equally applicable for deciding the scope of the power to make prima facie adjustment under section 143(1)(a). The power under section 143(1)(a) to make a prima facie adjustment has been equated with the power to rectify a mistake apparent from the record under section 154, which cannot be done under section 154 and section 143(1)(a) of the Act. 20. He further relied on the decision in the case of G. K. W. Ltd. v. CIT reported in [2005] 273 ITR 380 (Cal). It was held by this court that when the Assessing Officer proposed to differ with the disclosure made in the return, an opportunity of hearing to the assessee was required by service of notice under section 143(2) and the matter could be gone into under section 143(3) and not as a prima fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have enabled the Assessing Officer to make a prima facie adjustment under the proviso to section 143(1)(a) of the Act. 23. On the contrary, Mr. M. P. Agarwal, learned advocate, appearing on behalf of the Revenue relied on the decision in the case of CIT v. Sitaram Textiles Ltd. reported in [2001] 248 ITR 139 (Ker). In the said case, the court was concerned with clause (d) of section 43B which also finds mention in the first proviso. The facts in that case are clearly distinguishable. There the amount specified in the tax audit report only represented interest falling within clause (d) of section 43B, unlike the instant case where the amount was a composite one calling for an enquiry as regards its break up with reference to the different clauses of section 43B. Further, in that case the first proviso was not cited before nor considered by the court. As such, it was held by the court that mere statement in the tax audit report that the amount was not paid during the previous year, was sufficient to make the disallowance. The decision in Jagatdal Jute' s case [2004] 266 ITR 587 (Cal) was rendered after taking into consideration the effect of the provisos and it was held that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per the tax audit report Rs.1,66,20,887. (b) Donation debited to the profit and loss account disallowed for want of any receipt and also for want of any valid certificate for tax exemption certificate filed Rs. 42,25,532. 27. As a result of the aforesaid adjustments, the assessee was made liable for payment of additional tax over and above the normal tax. The assessee filed an application under section 154 of the Act objecting to the said adjustments. The assessee also furnished break up of the sum i.e., Rs. 1,26,773 for commission to the directors and bonus Rs. 1,50,00,000, both fall under clause (c) of section 43B and provident fund contribution (Rs. 14,94,084) falling under clause (b) of section 43B and our attention was also drawn to the evidence in support of such claims which is annexed to the paper book. It further appears that the Assessing Officer by an order dated February 28, 1992 under section 143(1)(a)/154, out of the said sum of Rs. 1,66,20,857 allowed a sum of Rs. 1,51,47,884 and the provident fund contributions (i.e. Rs. 14,72,142). The disallowance under section 43B was retained to the extent of Rs. 14,72,973 (i.e. bonus Rs. 14,51,031 and provident fund contribut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer to examine the second proviso before making any disallowance. A disallowance cannot be made under section 43B simply because payment was not made within the previous year. From the facts it appears that the information contained in the tax audit report did not enable the Assessing Officer to make any prima facie adjustments under section 143(1)(a) with reference to the provisions of section 43B. It further appears that the tax audit report did not contain any break-up of the amount or the further information required in the light of the two provisos to section 43B. The tax auditor did not specify in the tax audit report the amount inadmissible under section 43B. Therefore, it appears to us that it was necessary for the Assessing Officer to issue a notice under section 143(2) for the purpose of making an proper assessment under section 143(3). 31. In the case of Jagatdal Jute and Industries Ltd. v. CIT [2004] 266 ITR 587 (Cal), it has already been decided that for making a disallowance under section 43B, further enquiry was necessary and the power under section 154 could not be exercised merely on the basis of the information contained in the tax audit report without holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of section 43B(a). Therefore, section 43B(a), the first proviso to section 43B and Explanation 2 have to be read together as giving effect to the true intention of section 43B. If Explanation 2 is retrospective, the first proviso will have to be so construed. Read in this light also, the proviso has to be read into section 43B from its inception along with Explanation 2." The court further held that (page 686): "The departmental understanding also appears to be that section 43B, the proviso and Explanation 2 have to be read together as expressing the true intention of section 43B. Explanation 2 has been expressly made retrospective. The first proviso, however, cannot be isolated from Explanation 2 and the main body of section 43B. Without the first proviso, Explanation 2 would not obviate the hardship or the unintended consequences of section 43B. The proviso supplies an obvious omission. But for this proviso the ambit of section 43B becomes unduly wide bringing within its scope those payments, which were not intended to be prohibited from the category of permissible deductions." 35. Accordingly, following the decisions of our High Court and the Supreme Court, we hold in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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