ORDER
G.S. Pannu, Accountant Member
1. This is an appeal by the Revenue against the order of the CIT(A) in ITA No. 137/CC-II/CIT(A)I/95-96, dated 26-7-1996, pertaining to the assessment year 1994-95. Although the Revenue has preferred as many as ten grounds of appeal, but they are essentially on three issues which revolve around a common issue of sustainability of the prima facie adjustments made by the Assessing Officer while processing the return under Section 143(1)(a) of the Income-tax Act.
2. At the time of hearing, Shri P.C. Chadaga, DR and Shri S. Parthasarathi, Advocate represented the Revenue and the assessee respectively. Their submissions have been heard and the same have been considered in disposing of the present appeal.
3. The facts giving rise to the disputes before us are in a narrow compass. The assessee-company had filed its return of income for the assessment year 1994-95 at an income of Rs. 15,07,70,963 on 8-6-1995. The said return was processed by the Assessing Officer and an intimation under Section 143(1)(a) was issued on 30-10-1995, wherein the income was adjusted to Rs. 39,14,72,260 after making certain adjustments in pursuance to the first proviso to Section 143(1)(a). The adjustments carried out were on account of Excise Duty, Non-competition fee paid, excess depreciation claimed etc. Presently, we are concerned with the adjustment relating to the non-competition fee reimbursed and excess depreciation claimed.
The assessee paid a sum of Rs. 1 crore to M/s. U.B. Engineering Ltd., as non-competition fee and assessee treated the same in its books of account as deferred expenditure to be written over a period of five years in equal instalments. However, in the consolidated return of income filed, the assessee claimed the entire expenditure of Rs. 1 crore as an allowable expenditure in this year itself. In the statement of total income filed along with the return, the said claim was reflected and it was proclaimed that the same was on the basis of certain judicial decisions in CIT v. G.D. Naidu [1987] 165 ITR 63 (Mad.) and Sree Annapoorna Gowrishankar Hotels (P.) Ltd. v. Asstt. CIT [1991] 37 ITD 541 (Mad.). The Assessing Officer while carrying out the processing of the return in pursuance to the provisions of Section 143(1)(a) disallowed a sum of Rs. 80,00,000 out of the total amount claimed. The Assessing Officer made the impugned adjustment by holding that since the assessee has treated the payment as a deferred expenditure, it was entitled for deduction of Rs. 20,00,000 only as found debited in the profit and loss account. Aggrieved by the said adjustment, the matter was carried in appeal before the first appellate authority. It is noticed that the first appellate authority in a short and cryptic order accepted the plea of the assessee that this is not a case for prima facie disallowance and, therefore, set aside the adjustment.
5. At the time of hearing before us, the learned DR by and large reiterated the arguments taken by the Assessing Officer in the adjustment explanatory sheet annexed to the intimation under Section 143(1)(a), dated 30-10-1995. According to the DR, the assessee in its books of account had only claimed Rs. 20 lakhs only in the profit and loss account and but the claim under the Income Tax law should also be viewed in the same manner. Therefore, according to him, the impugned adjustment does fall under the provisions of Section 143(1)(a).
6. On the other hand, the learned counsel for the assessee at the very out set contended that the impugned adjustments carried out by the Assessing Officer were outside the realm of the prima facie adjustments envisaged under Section 143(1)(a) of the Income-tax Act. According to the learned counsel, the issue sought to be subjected to adjustment by the Assessing Officer is a debatable issue.
7. After hearing the rival submissions, we proceed to dispose of the issue in the following lines. The scope and ambit of adjustments permitted to be carried out in pursuance to the provisions of the first proviso to Section 143(1)(a) are now judicially well settled. The adjustments that are envisaged under the first proviso of Section 143(1)(a) are only that which go to correct the errors apparent on the face of the record alone and even this is permissible only on the basis of the information accompanying the return. It is held by the Madhya Pradesh High Court in the case of Kamal Textiles v. ITO[1991] 189 ITR 339′ that under the guise of carrying out the adjustments under Section 143(1)(a), the Assessing Officer was precluded from adjudicating upon any debatable issue. The Hon’ble jurisdictional High Court in the case of God Granites v. CBDT[ 1996] 218 ITR 2982 (Kar.) has also reinforced the above said view. According to the Hon’ble Court, unless the inadmissibility of a deduction was evidently obvious from the documents forming part of the return and its annexures, the Assessing Officer who wanted to disallow such a deduction was precluded from doing the same and was bound to follow the procedure under Section 143(2) of the Act requiring giving of a notice to the assessee. It is further held by the Hon’ble jurisdictional High Court that no substantial adjustments which inter alia require examination of evidence or a hearing were envisaged under Section 143(1)(a). Even on this count, we have no hesitation in concluding that the prima facie adjustment carried out in the impugned intimation is clearly outside the scope and ambit of Section 143(1)(a) and is, therefore, liable to be quashed. This ground is decided in favour of the assessee.
8. The second issue is in relation to the adjustment carried out with respect to the excess depreciation claimed. Briefly the facts are that the return filed by the assessee on 8-6-1995 contained incomes/loss from different units which were erstwhile companies such as M/s. Consolidate Distilleries, M/s. Bangalore Hospitals Ltd., M/s. Coastal Distilleries etc. These erstwhile companies amalgamated with the assessee-company in pursuance to the scheme of Amalgamations. One of the erstwhile companies i.e., Bangalore Hospitals Ltd., to which the disputed related also became part of the assessee-company as a result of amalgamation. The assessee had claimed the depreciation as per the Income-tax Rules in the consolidated statement of accounts filed with the return of income in respect of various units. With respect to Bangalore Hospitals, it claimed depreciation of Rs. 3,09,18,226 in the consolidated return of income whereas in the separate individual return filed earlier in respect of Bangalore Hospitals, for the same assessment year, the depreciation as per IT Rules was claimed at Rs. 1,84,90,293. The Assessing Officer also was in possession of the individual tax return of M/s. Bangalore Hospitals Ltd., as a part of the records of the assessee consequent to the amalgamation of the said company with the assessee. It was noticed by the Assessing Officer that the difference between the two figures resulted in claiming of higher depreciation in respect of Bangalore Hospitals Ltd., by the assessee-company. The higher claim of depreciation was made by the assessee by adding back the unabsorbed depreciation of the earlier years of Bangalore Hospitals Ltd., to the Written Down Value (WDV). In other words, the depreciation in the consolidated return of income was claimed at a figure higher than the WDV in the hands of the erstwhile Bangalore Hospitals. The Assessing Officer found this inconsistent with the provisions of Explanation 2 to Clause (c) of Sub-section (6) of Section 43. Therefore, the excess depreciation amounting to Rs. 1,24,27,933 was disallowed by making an adjustment to the returned income while framing the intimation under Section 143(1)(a) by the Assessing Officer. The first appellate authority allowed the appeal of the assessee by holding that the issue was debatable and, therefore, outside the purview of Section 143(1)(fl).
9. At the time of hearing before us, the learned DR strongly submitted that the first appellate authority has failed to appreciate the facts in proper perspective. According to him, the first appellate authority has erred in not appreciating the clear provisions of Explanation 2 to Section 43(6)(c) which is clearly attracted in the instant case. According to the learned DR, the argument of the first appellate authority by referring to the decision of the Bombay High Court in CIT v. Hindustan Petroleum Corporation Ltd. [1991] 187 ITR I1 to support that the issue is debatable was far fetched. According to him, the Bombay High Court decision if at all found relevant, was for the earlier assessment years and not the year under appeal as law was amended thereafter. According to the learned DR, the omission on the part of the assessee, in failing to comply with the provisions of Explanation 2 to Section 43(6)(c) which is specifically applicable in cases of amalgamations, entitled the Assessing Officer to carry out the prima facie adjustments as envisaged in the first proviso to Section 143(1)(a). The learned DR argued that the adjustment carried out by the Assessing Officer was obvious and could be borne out from the records available with the Assessing Officer. According to him, the separate return of Bangalore Hospitals Ltd., was also available with the Assessing Officer as also the return of the assessee in the status of the consolidated company. According to the learned DR, it was clear from perusal of the return and accompanying records of the assessee that the claim of the assessee was patently inadmissible.
10. On the other hand, Shri Parthasarathi, the learned counsel appearing on behalf of the assessee reiterated similar arguments as in relation to the first ground. It is also pointed out by the learned counsel for the assessee that the assessee relied upon the decision of the Bombay High Court in Hindustan Petroleum Corporation Ltd. ‘s case (supra), on a bona fide belief that the decision was applicable to the year under appeal. Of course, the amendment to law negated the stand of the assessee, but according to him, two views were possible on this issue and, therefore, was of debatable nature and, therefore, outside the scope of Section 143(1)(a). The learned counsel in detail defended the orders of the first appellate authority.
11. We have heard the rival submissions on this ground very carefully and have also perused the material on record in order to dispose of the issue in the following lines. Admittedly, the Assessing Officer was having in his possession the two returns of income i.e., the consolidated return of the assessee (incorporating therein the figures of Bangalore Hospitals) as also the separate return of Bangalore Hospitals Ltd., filed earlier depicting contrary claims of depreciation. The circumstances and the scope of carrying out the prima facie adjustment under the first proviso to Section 143(1)(a) has already been discussed by us in the foregoing paragraphs while disposing of the first issue. It is also an undisputed position in the instant case that the provisions contained in Explanation 2 to Section 43(6)(c) are clearly attracted. The assessee’s counsel has very fairly conceded the position on merits. However, the only issue to be decided is as to whether the action of the Assessing Officer can be said to be falling within the ambit of prima jade adjustments or was it a debatable issue, thereby taking it outside the ambit of prima jade adjustments envisaged under Section 143(1)(a). The adjustments which can be made on a prima jade basis are as provided in the first proviso to Section 143(1)(a), the relevant portion is reproduced as under:
i. any arithmetical errors in the return, accounts or documents accompanying it;
ii any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents, was prima fade admissible but which was not claimed in the return; and
iii. any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, was prima facie inadmissible.
(underlined for emphasis)
In our view, the ingredients that are necessary for the Assessing Officer to invoke the power of carrying out the prima facie adjustments as envisaged herein above were evidently present in the instant case. The Assessing Officer on the basis of the information and the documents available in the return and/or documents before him could infer on a prima faciebasis that the assessee has made a claim of depreciation which was higher than that allowable as per law. As we have mentioned earlier, the applicability of the provisions of Explanation 2 to Section 43(6)(c) are not in doubt. What the Assessing Officer has done is to merely apply the provisions of the aforesaid section on the basis of the facts and information available on records before him. Therefore, in our view, the impugned adjustment falls within the scope and ambit of the prima facie adjustments envisaged under the first proviso to Section 143(1)(a). Hence, we conclude by holding that the first appellate authority was clearly in error in holding that the issue was debatable. We uphold the action of the Assessing Officer and reverse the order of the CIT(A) on this issue. We may also note here that during the course of hearing, it has been brought to our notice that the Bangalore Bench of the Tribunal in the assessee’s own case in ITA.373/Bang./98, dated 22-12-1998 while deciding on the merits of the issue in pursuance to orders of assessment under Section 143(3) has held the issue against the assessee. On the basis of the aforesaid discussion, in the end, we hold that the Revenue has to succeed on this ground. We hold accordingly.
12. The third issue taken up by the Revenue is against the decision of the CIT(A) in holding that the addition made towards capital gains does not fall within the purview of Section 143(1)(a).
13. At the time of hearing, it was submitted by the learned DR that the Department does not wish to press this ground of appeal. Hence, we dismiss the said ground as not pressed.
14. In the result, the appeal of the Revenue is treated as partly, allowed.