RC/39/2001 of COMMISSIONER OF INCOME TAX VIJAYAWADA Vs M.KRISHNA MURTY on 29 December 2011

THE HON’BLE SRI JUSTICE V.V.S.RAOAND

THE HON’BLE SRI JUSTICE B.N.RAO NALLA

REFERRED CASE No.39 OF 2001

Dated:29.12.2011

Between:

Commissioner of Income Tax,Vijayawada .. Applicant And Sri M.Krishna Murthy,Development Officer, LIC of India,Chittoor .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA

REFERRED CASE No.39 OF 2001

ORDER:(Per the Hon’ble Sri Justice V.V.S.Rao)

The Income Tax Appellate Tribunal, Hyderabad Bench ‘B’referred the following question under Section 256(1) of theIncome Tax Act, 1961 (the Act, for brevity) for the opinion of the Court at the instance of the Revenue.

Whether on the facts and in the circumstances of the case,the ITAT was correct in holding that in view of the fact thatthe judgment of A.P.High Court in 214 ITR 368 wasrendered subsequent to the finalization of returns for theyears 1991-92 and 1992-93 the incentive bonus could beadded to salary income by disallowing the deductionclaimed while processing the return under S.143 (1)(a) ofthe Income Tax Act?

The assessee is a Development Officer in Life InsuranceCorporation of India. In his return of income for the assessmentyears 1990-1991, 1991-1992 and 1992-1993, he claimed 40% of the incentive bonus as a revenuededuction. The return was processed under Section 143(1)(a)of the Act. In purported prima facie adjustments, 40%deduction claimed was disallowed. The Appellate DeputyCommissioner allowed the claim observing that the issue is onewhich could not be disallowed as it was a debatable one. Theappeal by the Revenue was dismissed whereupon they sought the reference.

The question whether the assessing officer can makeadjustments which are debatable is no more res integra.

In Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers P. Ltd.[[1]], it was held as under.

What were permissible under the first proviso tosection 143(1)(a) to be adjusted were, (i) only apparentarithmetical errors in the return, accounts or documentsaccompanying the return, (ii) loss carried forward,deduction, allowance of relief, which was prima facieadmissible on the basis of information available in thereturn but not claimed in the return and similarly (iii) thoseclaims which were on the basis of the information availablein the return, prima facie inadmissible, were to berectified/allowed/disallowed. What was permissible wascorrection of errors apparent on the basis of thedocuments accompanying the return. The AssessingOfficer had no authority to make adjustments oradjudicate upon any debatable issues. In other words,the Assessing Officer had no power to go behind thereturn, accounts or documents, either in allowing or indisallowing deductions, allowance or relief.

(emphasis supplied)

The above view was reiterated in Kvaverner John Brown [2],wherein it was held as under.

Engg. (India) P. Ltd. v Asst. CIT

One of the main conditions stipulated by way of thefirst proviso to section 143(1)(a), as it stood during therelevant time, referred to prima facie adjustments. The firstproviso permitted the Department to make adjustments inthe income or loss declared in the return of cases ofarithmetical errors or in cases where any loss carriedforward or deduction or allowance which on the basis ofinformation available in such return was prima facieadmissible but which was not claimed in the return or incases where any loss carried forward, or deduction orallowance claimed in the return which on the basis ofinformation available in such return was prima facieinadmissible. In the present case, therefore, when therewere conflicting judgments on interpretation of section 80-O, in our view, prima facie adjustments contemplatedunder section 143(1)(a) was not applicable and, therefore,consequently the appellant was not liable to pay additional

In view of the above, the question is answered in theaffirmative in favour of the assessee and against the Revenue. The Referred Case shall stand disposed of accordingly withoutany order as to costs.

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(V.V.S. RAO, J)

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(B.N.RAO NALLA, J)

29.12.2011 KH

[1](2007) 291 ITR 500 (SC)[2](2008) 305 ITR 103 (SC)