ORDER
Pramod Kumar, A.M.
1. This appeal, filed by the revenue, is directed against CIT(A)’s order dated 22nd September 1995, in the matter of order under section 154 r.w.s. 143 (1)(a) of the Income Tax Act, 1961 for the assessment year 1990-91.
2. Revenue has raised the following grounds :
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that action under section 154 of the I.T. Act in respect of the adjustment made to the returned income that of applying Rule 115 of the I.T. Rules, 1962 and grossing up the income by the amount of tax paid by the Indian Collaborators of per 195-A of the Act is not justified. He further erred in holding that addl. Tax under section 143(1A)(a) was not chargeable.”
“On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in holding that the Income-tax paid by the Indian Collaborators are exempt under section 10 (6A) of the I.T. Act.”
3. Briefly, the material facts. The income tax return filed by the assessee for the assessment year 1990-91, disclosing the income at Rs. 7,51,63,010, was processed and duly accepted by the Assessing Officer under section 143(1)(a) of the Income Tax Act, 1961, on 27th March 1991. However, during subsequent rectification proceedings under section 154 read with section 143(1)(a), the Assessing Officer observed that the assesse3e has received royalty and technical fees of Deutsche Marks 14,92,370 during the relevant previous year and this income was taken at Indian Rupees 1,42,37,528. The Assessing Officer further observed that the aforesaid conversion of income into Indian rupees, in terms of the provisions of Rule 115, should have been made at the SBI TT Buying rate as on the last date of the relevant previous year i.e. 31st March 1990, which was 100 INR = DM 9.8850, and, accordingly, the income from such royalty and technical fees should have been quantified at Rs. 1,50,97,319/-. The Assessing Officer grossed up this amount under section 195 A of the Act and the amount so grossed up worked out to Rs. 1,88,71,650. It was also observed that since exemption under section 10(6A) was to be applied only on amount of tax borne by the India company, which was Rs. 25,37,272/- being the tax deducted at source, taxable amount on account of royalty and technical fees was Rs. 1,63,34,378/- (i.e. Rs. 1,88,71,650 minus Rs. 25,37,272). Aggrieved by the addition so made by the Assessing Officer under section 154 r.w.s. 143(1)(a), assessee carried the matter in appeal before the CIT(A) who deleted the addition by observing as follows :
“The provision of Rule 115 has been made ultra vires by the Bombay High Court in the case of Chowgule & Co Ltd (195 ITR 810). This cannot be applied in the case of the appellant who is in the jurisdiction of Bombay High Court. Therefore, the issue has become highly debatable as to whether the foreign currency should be converted into Indian Rupees as on the date of the last accounting year or at the time of receipt. Since the issue is debatable, the A.O. cannot make prima facie adjustment by converting foreign currency into Indian rupees at the exchange rate as on the last day of the previous years. The A.O.’s action under section 154 is, therefore, not correct. Secondly, since the income tax is not justified in grossing up the income under section (1)(a) of the I.T. Act. Therefore, this ground of appeal is allowed.”
Aggrieved by the order of the CIT(A), revenue is in appeal before us.
4. Heard the parties, perused the orders of the authorities below, as indeed the paper book filed by the assessee, and deliberated upon the applicable legal position as also the factual matrix of this case.
5. Hon’ble Bombay High Court, in the case of Chowgule & Co. Ltd Vs CIT (195 ITR 810) had inter alia observed that “we have…..arrived at a conclusion that clause (c) of Rule 115 of the Income Tax Rules 1962 is illegal as the same overrides the substantive provisions of the Act.” This judgment, on being carried in appeal in CIT Vs. Chowgule & Co Ltd (218 ITR 384), was reversed by Their Lordships of Hon’ble Supreme Court and the validity of rule 115 (c) was upheld. It is thus no longer open to us to approve the Commissioner (Appeals)’s action of treating the adjustment as debatable by the virtue of Rule 115(c) itself being held ultra vires. We have, however, other reasons to support the conclusions arrived at, even if not the reasoning adopted by, the learned CIT(A) and which we shall now come to. Before we deal with those reasons, we may also mention that unlike more common cases of resident assessees earning the foreign exchange abroad and bringing it to India, it appears to be a case of a non resident assessee earning foreign exchange in India and remitting it aboard. Therefore, the fact of remittance by the assessee and the foreign exchange rate prevailing at the time of the remittance, in our considered view, have no material impact on the rate at which such foreign exchange earning are to be converted in to Indian rupees for the purpose of taxability in India.
6. We find that the case before us pertains to proceedings under section 154 r.w.s. 143 (1)(a) and therefore limited issue that we are at liberty to address is whether, within narrow confines of these two legal provisions, the impugned addition can be justified. It is obvious that whatever cannot be done under section 143(1)(a), in can also not be done under section 154 r.w.s. 143 (1)(a). In this backdrop, we deem it necessary to address ourselves to a very fundamental question i.e. whether an addition of income can at all be made by the Assessing Officer while processing the income tax return under section 143(1)(a).
7. It is not in dispute that the power of making ‘prima facie adjustment’ is conferred on the Assessing Officer by first proviso to section 143(1)(a), which, as it stood at the material point of time, provided as follows :
Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustment shall be made in the income or the loss declared in the return, namely : –
(a) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;
(b) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents is prima facie admissible but which is not claimed in the return, shall be allowed;
(c) any loss carried forward, deduction allowance or relief claimed in the income tax return, accounts or documents is prima facie inadmissible, shall be disallowed.
8. While elaborating on this provision, Central Board of Direct Taxes Circular No. 689 dated 24th August 1994 (209 ITR Statute 75) observed that :
” Section 143(1)(a) authorises, with effect from assessment year 1989-90, inter alia, disallowance of any loss carried forward, deduction, allowance or relief claimed which, on the basis of information available in the return or the accompanying accounts or documents is prima facie inadmissible. The earlier instructions of the Board were to the effect that no disallowance should be made of items on which two opinions are possible. The matter has been further considered by the Board in the light of the recommendations of the “Tax Reforms Committee” headed by Prof Raja J. Chelliah and it has been decided that prima facie disallowance shall be made only in respect of following types of claims :
(a) an incorrect claim, if such incorrect claim is apparent from the existence of other information in the return or the accompanying accounts or documents.
Example :
If a deduction has been claimed under the head Capital Gains under section 54 F, and if there is information in the return of income or accompanying accounts or documents to show that the unutilized consideration has not been deposited in an account specified in the scheme as stipulated under section 54F(4), the claim is incorrect and should be disallowed as prima facie adjustment.
(b) any claim in respect of which there is an omission or information which is required, under the specific provisions of the Act or the Rules, to be furnished alongwith the return to substantiate such claim.
Example :
If the audit report specified under section 80 HHC (4), which is required to be filed along with the return of income is not so filed, the deduction claimed under that section can be disallowed asa prima facie adjustment. Some more examples in this regard are non filing of reports or other evidences along with the return of income as required under section 12A(b), 54 F(4), 54G(2), 80HH (5), 80HHA (4), 80 HHB (3), 80HHD (6), 80 HHE (4) 80 1(7), 80 IA (8) and the like. But if evidence is subsequently furnished, rectification under section 1547 will be carried out to the extent permitted by the Board Circular No 669, dated 25th October 1993. No prima facie disallowance shall, however, be made if any evidence, required to be filed along with the return of income only in pursuance of non statutory guidance notes for filing of return of income, is not so filed.
(c) A claim for deduction or rebate of any amount which exceeds statutory limit imposed, if such limit is expressed either as a specific mandatory amount or as a percentage, ratio or fraction, and if the information relevant to application of the statutory limit appear in the return or the accompanying document or documents.
Example :
(i) If under section 24(1)(i) the deduction in respect of repairs and collection charges is claimed in excess of one-fifth of annual value (applicable with effect from the assessment year 1993-94), such excess can be disallowed asa prima facie adjustment.
(ii) If the rebate on contribution eligible under section 88 is claimed in excess of 20% of such contribution, the excess can be disallowed, provided there is indication of the total amount of such contribution in the return or the accompanying document or documents.
(d) Any other claim which is patently inadmissible in law.
Example :
Deductions of items like income tax, wealth tax, wealth tax, personal expensed, depreciation claimed on conveyance under the head salary, depreciation claimed under the head house property and like. The items of disallowance should be such that not two opinions are possible on their inadmissibility.
2. The Board desires that no other prima facie disallowance should be made except with the previous approval of the Commissioner of Income Tax who will, after according approval is suitable cases, bring the same to the notice of the Board.
3. The above procedure applies to all returns pending processing under section 143(1)(a) on the date of issue of this circular.”
9. Our careful perusal of the statutory provision and the Board’s circular does not help us find any enabling provision whereby a positive income can be brought to tax while processing an income tax return under section 143(1)(a) of the Act. The inherently limited scope of this provision only contemplates adjustments on accounts of arithmetical errors and adjustments on account of any loss carried forward, deduction, allowance or relief claimed in the income tax return but prima facie inadmissible or not claimed in the income tax return but prima facie inadmissible or not claimed in the income tax return but prima facie admissible. In other words, only non artithmetical errors contemplated under the scope of section 143(1)(a) relate to “loss carried forward, deduction, allowance or relief claimed or pima facie admissible”. In our considered view, therefore, any prima facie adjustment which goes beyond this category of adjustments and outside the arithmetical corrections, is outside the scope of section 143(1)(a). As to whether the impugned adjustment was warranted on the facts and circumstances of the case, on merits, we may only mention that such as adjustment, whether justified on merits or not, was outside the scope of section 143(1)(a). To us, there appears no justification to depart from normal Rule of construction according to which the intention of legislature is primarily to be gathered from the words used in the statute. It will be well to recall the words of Rowlatt J. in Cape Brandy Syndicate v. Inland Revenue Commissioners (1921) 1 KB 64 (KB) at page 71, that : “……………. in a taxing act one has to look at merely what is clearly said. There is no room for any intendment.
There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.” We are, thus, of the considered view that the limited scope of section 143(1)(a) does no allow bringing any positive income to tax. This conclusion also has the support of judgments of Hon’ble jurisdictional High Court in the cases of Bank of America N.T. & S.A. Vs. DCIT (200 ITR 739) and Adamas Gem Industries Ltd Vs. ACIT (203 ITR 737). As far as the revenue’s ground regarding exemption under section 10(6A) is concerned, it is only consequential in nature. Accordingly, in our considered view, the Assessing Officer acted beyond his jurisdiction in making the impugned Addison to the returned income of the assessee, while processing income tax return under section 143(1)(a) of the Act and declaiming the exemption under section 10(6A) on the income so added. Once the addition itself is deleted, the denial of exemption on the amount of difference of tax so payable by the assessee vis-a-vis the taxes deducted and borne by the Indian collaborators is rendered in fructuous.
10. For the reasons stated above, we support the conclusions arrived at by the CIT (A) and decline to interfere in the matter. We, however, make it clear that we have decided this appeal on the issue of scope of powers of Assessing Officer u/s 143 (1)(a) of the Act, and we, accordingly, see no need to address ourselves to the merits of the impugned addition. We leave it at that.
11. In the result, the appeal is dismissed.