ORDER
R.P. Garg, Accountant Member
1. This is an appeal by the Revenue against the order of the Commissioner of Income-tax (Appeals) for asst. year 1990-91.
2. The assessee is a company. It filed a return of income declaring the total income at Rs. 6,09,004, the break-up of which is as under :–
Rs.
Income from property : 3,37,812
Income from business : 11,84,991
15,22,803
Less : Set off of- Rs.
Unabsorbed loss of A.Y. 87-88 : 5,60,641
Unabsorbed depn. of A.Y. 87-88 : 8,14,407
Unabsorbed inv. allowance of
A.Y. 83-84: 1,47,755 15,22,803
Nil
Minimum taxable income under
sec. 115J of the I.T. Act, 1961
Rs.
Net profit as per P & L Account: 20,30,013
30% of the book profit: 6,09,004
or, say 6,09,000
Income-tax thereon @ 55% 3,34,950
Surcharge @ 8% thereon 26,796
Total: 3,61,746
3. The Assessing Officer issued an intimation under Section 143(1)(a) of the Act, dated 31-3-1991, wherein the income returned was shown at Rs. 6,09,004 and the income without recourse to the provisions of the Section 115J and after adjustments made under Section 143(1)(a) was determined at Rs. 26,53,617. In the Explanation sheet appended to the intimation, the Assessing Officer stated as under:–
Returned total income Rs. 15,22,803
Adjustments under Section 143(1)(a):
(a) Current liabilities Rs. 7,86,766
(b) Expenditure relating to earlier years Rs. 3,44,048
Rs. 26,53,617
Less : Set off of earlier year's loss
as per statement filed by the
assessee Rs. 26,53,617
Total income: Nil
The Assessing Officer thereupon levied additional tax under Section 143(1A) of an amount of Rs. 1,34,140 on the aforesaid two adjustments of Rs. 11,30,814 (i.e., Rs. 7,86,766 + Rs. 3,44,048).
4. The assessee made an application under Section 154, seeking rectification of the adjustments made under Section 143(1)(a) which was rejected by the Assessing Officer by his order dated 2-7-1991.
5. The assessee preferred an appeal to the CIT (Appeals) raising the ground that the adjustments made in the intimation were not in the nature of prima facie adjustments and, therefore, did not fall within the purview of the provisions of Section 143(1)(a) and that such adjustments warrant action for rectification under Section 154. It appears that in the course of the appellate proceeding, the assessee raised an additional ground challeriging the simultaneous application of Section 115J and Section 143(1)(a). The CIT (Appeals) admitted the said additional ground and’held in paragraphs 6 and 7 of his order as under:–
6. I would agree with the learned A.R. that the provisions of Section 115J and Section 143 of the Act cannot be simultaneously applied for determination of tax liability. If the circumstances of a case attract the provisions of Section 115J of the Act, application of those provisions becomes mandatory. Section 115J of the Act is a complete code in itself for determination of tax liability and of amounts to be carried-forward under various provisions of the Act as mentioned under Sub-section (2) of. that section. The non obstante Clause (“Notwithstanding anything contained in any other provisions of this Act”) at the beginning of Section 115J of the Act, the mandatory nature of its provisions (“…the total income…shall be deemed…”) and its completeness in determination of tax liability, make it clear that having invoked its provisions, the provisions of Section 143 of the Act cannot be referred to for pitching tax liability.
6.2 The ‘adjustments’ purported to have been made under Section 143(1)(a) of the Act have, therefore, to be deemed as an exercise Under Section 115J(2) of the Act. As has been rightly pointed out by the learned A.R., from out of the ‘current liabilities’ amounting to Rs. 7,86,766, a sum of Rs. 39,735 can only be disallowed as per the provisions of Section 43B of the Act. Electricity charges of the earlier years amounting to Rs. 1,30,542 having not been debited to the Profit & Loss A/c, the question of its disallowance does not arise. So far as the bank charges (Rs. 8,681) and the strike period wages, etc. (Rs. 2,04,853) are concerned, the details in respect of these items required to be looked into. That can conveniently be done at the Assessing Officer’s level.
7. Subject to the observations made hereinabove, the amounts to be carried forward may be determined as per the provisions of Section 115J(3) of the Act. The appeal partly succeeds.
The Revenue is in appeal before the Tribunal objecting to the deletion of additional tax under Section 143(1A) with reference to the computation of income made under Section 115J of the Act.
6. We have heard the parties and considered their rival submissions. In our opinion, it would not be correct to say that the provisions of Section 143 and Section 115J cannot simultaneously be applied. Sec. 143 provides the machinery for assessment whereas Section 115J provides the extent of total income. The scope of total income of a person is first determined under Section 5 of the Act. Where such determination of income is found to be less than 30% of the book profits, Section 115J deems such 3096 as total income of the assessee. Such deeming is only for levying tax for that year and would not affect the determination of the assessee’s right to carryforward of unabsorbed depreciation under Section 32(2), investment allowance under Section 32A(3), business loss under Section 72(1)(ii), speculation loss under Section 73, capital gains under Section 74, under other sources under Section 74A(3) or deduction under Section 80J(3). Both Sections 143 and 115J thus have different fields of operation. In a situation where Section 115J becomes applicable, it has to be taken into consideration and given effect to while making the assessment under Section 143. Merely because Section 115J comes into play, it cannot be said that it becomes a separate code by itself and Section 143 ceases to have any application. Determination of income, whether under Section 5 or under Section 115J, has to be milled through the procedure under Section 143.
7. Clause (a) of Sub-section (1) of Section 143 provides for collection of tax on the basis of the return filed by an assessee and after adjustments of arithmetical or prima facie nature based on the information available in the return, accounts or documents accompanying the return. This is one of the procedure of determination of total income as per the provisions of the Act, i.e., under Section 5 read with the provisions for computation of income under the five heads under Chapter IV and the provisions of Chapters V, VI, VI-A and VII of the Act. If such determination in the case of a corporate assessee falls short of 30% of its book profit, the total income instead of the amount as determined as per the usual provisions, is deemed to be the said 30% of the book profit. The adjustments provided in the first proviso to Section 143 (1)(a) can be either in computing the real total income under the usual procedure or the deemed total income under Section 115J of the Act. Thus, though it may not be wholly incorrect to say that Section 115J is a separate code in itself, it is not separate from Section 143(1)(a) or the other provisions providing for computation of total income in the usual course. If any arithmetical mistake is detected in computing the total income under Section 115J or prima facie adjustment is required to be made in the loss to be carried forward, deduction, allowance or relief for determining such deemed total income, the provisions of Section 143(1)(a) apply to such determination; the determination of book profit being for purposes of arriving at the total income of the assessee, though for the limited purpose of collecting tax for that year. If carry-forward benefits are available to the assessee, they are not to be affected by virtue of the provisions of Sub-section (2) of Section 115J of the Act. In that case, two determinations have their separate identity – one for levy of tax in the current year and the other for ascertaining the right of the assessee to carry-forward losses and other deductions and allowances. We, therefore, do not find any merit in the finding of the CIT (Appeals) that the provisions of Section 143 and Section 115J cannot simultaneously be applied for determining the tax liability of an assessee. The consequent finding that therefore the exercise of making adjustments was only for the purposes of Section 115J and not Section 143 is also not correct. He seems to have accepted the assessee’s contention that no additional tax can be levied if the exercise was under Section 115J and not under Section 143. As aforesaid, the exercise is to be made under Section 143 itself, whether for determination of income in the usual course or by application of the provisions of Section 115J. To this extent, we agree with the learned departmental representative that the CIT (Appeals) was wrong.
8. The matter, however, does not end there. The assessee supports the order of the CIT (Appeals) on the ground :
(1) that the two adjustments are not prirna facie disallowable claim;
(2) that they do not increase the total income within the meaning of Section 143(1A)(a)(ii)(A); and
(3) that the amounts are not disallowed in the final assessment and, therefore, the additional tax is to be reduced to nil by virtue of the provisions of Section 143(1A)(b).
9. The amount of Rs. 7,86,766 represents the liability outstanding on the last day of the accounting year and a sum of Rs. 7,47,376 out of that was paid before filing of return as per annexure I to the return filed by the assessee. The balance amount of Rs. 39,390 was disallowed by the assessee itself in the computation of total income. Therefore, no further disallowance at all was called for. The second item is Rs. 3,44,048. It consists of Rs. 8,681 being bank charges for assessment years 1985-86 and 1986-87, Rs. 87,168 +Rs. 1,17,684 being bonus and salary and wages for asst. year 1980-81 and Rs. 1,30,542 being electricity charges (50%) relating to asst. years 1987-88 and 1988-89. These are as per note 10 in the “Notes forming parts of the Account” which reads as under :–
10. Expenditure related to previous year debited during the year :–
(a) During the year the Company has debited Bank charges amounting to Rs. 8,681.15 ps. relates to previous years, i.e., 1985-86 and 1986-87.
(b) During the year the Company has paid Bonus to Staff and Workers amounting to Rs. 87,168.40 ps. and Salaries and Wages amounting to Rs. 1,17,684.20 ps. relating to the year 1980-81, as per the Court Award.
(c) Arrears of Cumulative redeemable preference dividend of Rs. 3,00,321 provided in Balance-Sheet relating to the years 1981-82 to 1988-89.
(d) An amount of Rs. 1,30,541.77 ps. towards 50% of the increased rate of electricity charges has been provided in the Balance Sheet, relating to the years 1987-88 and 1988-89.
The CIT (Appeals) says that the last amount was not debited in the profit and loss account of this year. This, in our opinion, is contrary to what the aforesaid Note 10 states. He directed the Assessing Officer to consider the other two items under Section 115J(2). We do not find ourselves in agreement with what the CIT (Appeals) says or the assessee contends. It is prima facie a disallowable item if seen with reference to the Notes appearing in the balance-sheet as, while computing the income of a year, last year’s expenses cannot be allowed or deducted, the assessee admittedly following mercantile system of accounting. The amount of Rs. 3,44,048 was, therefore, in our opinion, subject to adjustment under Section 143(1)(a). However, the additional tax under Section 143(1A) cannot be levied in respect thereof. Section 143(1A) reads as under :
143 (1A)(a) Where as a result of the adjustments made under the first proviso to Clause (a) of Sub-section (1),–
(i) the income declared by any person in the return is increased; or
(ii) the loss declared by such person in the return is reduced or is converted into income,
the Assessing Officer shall,–
(A) in a case where the increase in income under Sub-Clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under Sub-Clause (i) of Clause (a) of Sub-section (1);
(B) in a case where the loss so declared is reduced under Sub-Clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under Sub-Clause (i) of Clause (a) of Sub-section (1);
(C) where any refund is due under Sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under Sub-Clause (A) or Sub-Clause (B), as the case may be.
(b) Where as a result of an order under Sub-section (3) of this section or Section 154 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264, the amount on which additional income-tax is payable under Clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly, and,–
(i) in a case where the additional income-tax is increased, the Assessing Officer shall serve on the assessee a notice of demand under Section 156;
(ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded.
On a close reading of these provisions, it is evident that additional tax is levied in two situations, viz., (i) when the income declared by the assessee is increased and (ii) when the loss returned by the assessee is reduced or converted into income. The additional tax in the first case is chargeable when the increase in the income increases the amount of total income of the assessee and it is 20% of the difference between the increased total income and the total income as reduced by the adjustment. In the second case, additional tax is chargeable at 20% of the amount of adjustment as if that were the total income of the assessee. Evidently, the present is not a case of loss return. The assessee filed return declaring an income of Rs. 6,09,000, being the deemed total income under Section 115J. Even after adjustments, the income of the assessee remained at Rs. 6,09,000. The adjustments made, therefore, did not increase the total income of the assessee. The income computed in the usual manner was nil as per the return and it was nil after the adjustments were made. The assessee’s income for the year as per the return was Rs. 15,22,803. The assessee had carried forward depreciation and investment allowance of Rs. 39.63 lakhs. Therefore, the total income was nil after set off of carried forward losses. Though valid adjustment was made, as aforesaid, to the extent of Rs. 3,44,035, even thereafter the income of the assessee was nil because of the availability of carried forward losses of a much higher figure. In these circumstances, we are of the opinion that no additional tax can be levied on the assessee.
10. The matter can be dealt with from a different angle as well. The provisions of Section 143(1A)(b) provide that where as a result of an order under Section 143(3), 154, 250 254, 260, 262, 263 or 264, the amount on which additional income-tax is payable under Clause (a) has been increased or reduced, as the case may be, the additional income-tax shall be increased or reduced accordingly. The adjustments which were made by the Assessing Officer under Section 143(1)(a) were not repeated in the assessment made under Section 143(3). Therefore, on a plain reading of the provisions of Clause (b) of Sub-section (1A) of Section-143, the additional tax is to be reduced to nil. This is also explained by the Central Board of Direct Taxes in circular No. 636 dated 31-8-1992 the relevant paragraph of which reads as under :
Modification in the procedure for assessment:–
47. Under Section 143(1A) of the Income-tax Act, an assessee is required to pay additional income-tax at the rate of 20 per cent of the tax payable on the excess amount of the income determined over that returned by the assessee. In cases where, in the course of regular assessment proceedings under Sub-section (3) of Section 143, the additions made while processing a return of income under Clause (a) of Sub-section (1) of Section 143 are not sustained, the additional income-tax levied under Section 143(1A) is to be deleted or modified as the case may be. With a view to making this position beyond doubt, an amendment has been made to Sub-section (1A) of Section 143 of the Income-tax Act.
47.1 The above amendment takes effect retrospectively from 1st April, 1989, and, accordingly, applies to the assessment year 1989-90 and subsequent years.
47.2 Under the provisions of the Income-tax Act, an assessee can file an application for rectifying any mistake in the intimation referred to in Clause (a) of Sub-section (1) of Section 143. The assessee can go in appeal only against the order passed under Section 154 in respect of the application for rectification, no order of appeal being available against such intimation. In order to expedite the disposal of such applications and to provide a right of appeal within a fixed-time frame, Sub-section (2) of Section 154 of the Income-tax Act has been amended. Under the amended provisions, the Assessing Officer is required to take action on the application for rectification within a period of 3 months from the end of the month in which the application is filed. Where no order is made within the said period, the assessee will have a right to appeal to the Deputy Commissioner (Appeals) or as the case may be, to the Commissioner (Appeals).
47.3 This amendment takes effect from 14th May, 1992, i.e., the date on which the Finance Bill, 1992, received the assent of the President. [Sections 60 and 61].
The amount on which the additional tax was held payable by the assessee by virtue of adjustment under Section 143(1)(a) was with respect to two items, viz., current liabilities Rs. 7,86,766 and expenditure of earlier years Rs. 3,44,048. Neither of these two amounts was found disallowable in the final assessment made by the Assessing Officer under Section 143(3). Therefore, even if the additional tax was leviable with reference to these two amounts, it has to be reduced to nil by virtue of the provisions of Section 143(1A)(b). It is true that an addition of Rs. 2,35,400 was made by the Assessing Officer out of the provision for electricity charges, but this amount has nothing to do with the amount of adjustment of Rs. 3,44,048 made by the Assessing Officer under Section 143(1)(a). This is altogether a different item. In other words, this is not an addition made in processing the return of income under Clause (a) of Sub-section (1) of Section 143. It is an independent and separate addition made in the assessment under Section 143(3).
11. The additional tax levied on the assessee, in our opinion, was, therefore, rightly deleted by the CIT (Appeals). We, accordingly, uphold his order, though on different grounds.
12. In the result, the appeal is dismissed.