M/S CONCERT CAPITAL LTD vs. THE INCOME TAX OFFICER

Relying on a decision of this court in 94 STC 234 and a decision of the hon'ble Supreme Court in 82 ITR 50, it was contended that, in order to make a 'prima facie adjustment' the mistake must be patent and obvious, which does not require any lengthy or serious debate to establish it. Referring to the amendment brouogh in to S.143(1), with effect from 01.06.1999, it was pointed out that, there is no room left after 01.06.1999 for any intimation under Section 143(1) except making arithmetical

Accepting the above contentions, the Appellate Authority found that, question about the liability has to be computed as per the return submitted by the assessee, after accepting all the claims of deduction, allowance or the existence of the liability; and if any deviation is required, recourse shall be to regular assessment, which could be the subject matter of a regular appeal. It was found that, section 143(1) as substituted by the Finance Act, 1999, w.e.f. 1st June, 1999, had dispensed with intimation permitting any 'prima facie adjustment' to the returned income. Intimation under Section 143 (1), on or after 1st June, 1999, will authorize refund or demand of tax strictly on the basis of return filed by the assessee. Therefore it was held that the set off claim will not come under 'prima facie adjustment' and hence the impugned intimation under Section 143(1) was set aside.

The findings of the Commissioner (Appeals) is to the effect that, the disallowance of the set off claimed, on the ground that the set off claim pertains to the years which are beyond the period for which such set off is permissible, is a question which need to have been adjudicated and decided in the process of assessment, as contemplated under Sections 143 (2) and 143(3). It was found that, the claim for set off with respect to depreciation loss to the tune of `72,78,605/- cannot be denied on the ground of limitation, because the relevant provision does not stipulate any period of limitation with respect to allowing set off against unabsorbed portion of depreciation.

The Revenue took up the matter in second appeal before the Income Tax Appellate Tribunal. In the order impugned herein, the Tribunal found that, the business loss with respect to which set off was claimed pertains to the assessment years 1997-1998 and 1998-1999, which can be carried forward only for a period of 8 years, ie. upto the year 2008-09. Since the assessment year under consideration is 2009-2010, set off with respect to business loss cannot be granted under Section 72(3) of the Act. Hence it was held that, this is a matter with respect to which 'prima facie adjustment' can be made under Section 143(1) of the Act. Therefore the decision of the CIT (Appeals) with respect to the set off claimed against carried forward business loss, was set aside. The intimation under Section 143 (1) was sustained to that extent. However, with respect to the set off claimed against depreciation loss, the findings of the CIT (Appeals) was upheld.

At the time of admitting the above appeal, this court framed the following substantial questions of law:- “1. Is not the Tribunal in error in Ann.H. order in partly allowing the Appeal of the Revenue, reversing the order of the Commissioner of Income Tax (Appeals), holding that impugned intimation under Section 143 (1) (Ann.F) is valid in as much as the same has disallowed the claim of carry forward of business loss?

Is not the Tribunal in error in holding that the carry forward and and set off provided under Section 41(5) will not be attracted in the case of the appellant?

Whether the Tribunal failed to consider the impact of Section 72(1) in the event of the Tribunal interpreting that Section 41(5) was not attracted in the instant case?

Whether the Tribunal erred in concluding that the claim for disallowance of business loss, as done in the case of the appellant, can be the subject matter of prima facie adjustments under Section 143(1)(a) of the Act.”

Heard; Sri.Joseph Markos, learned Senior Counsel appearing for the appellant and Sri.Jose Joseph learned Standing Counsel for Government of India (Taxes).

Learned Senior Counsel for the appellant had drawn our attention to the intimation issued under Section 143 (1) from the 'Centralized Processing Centre' of the Income Tax Department, copy of which is marked as Annexure F along with the Memorandum of Appeal. It is a computer generated printed form which contains tabulated columns, from which it is discernible that the sett off claimed in the return of the assessee with respect to an amount of `3,84,98,803/- was totally disallowed, as per the computation made under Section 143(1). The computer generated form under which the intimation was issued does not reflect any reasons for making such 'prima facie adjustment' under Section 143(1) of the Act.

Learned Senior Counsel had also furnished for our perusal a copy of the return filed with respect to the relevant assessment year. Evidently, income to the tune of `3,84,98,803/- was sought to be set off against brought forward loss and the net income after the set off was shown as 'zero'(0). In the 'scheduled CFL' attached to the return, contains the 'details of loss to be carried forward to future years', it is shown that, there is a total carried forward loss with respect to the years 2001-2002 and 2002-2003 to the tune of `5,22,43,000/-. Adjustment with respect to the loss in the current year is shown as `3,84,98,803/- and the balance amount of `1,37,44,197/- is shown as total loss to be carried forward to future years. Question is whether the claim made in the return is an incorrect claim, which is apparent from any information furnished in the return.

For a better appreciation of the question involved, it is necessary to have a scanning of the provisions contained under Section 143 (1). The said provision as it existed prior to the Finance Act, 1999 which came into force w.e.f June 1,1999, reads as follows:- “(1)(a) where a return has been made under section 139,or in response to a notice under sub-section (1) of section 142,- (i) If any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly ; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee : Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:- (I) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified; (ii) 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; (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, is prima facie inadmissible, shall be disallowed : Provided further that an intimation shall be sent to the assessee whether or not any adjustment has been made under the first proviso and notwithstanding that no tax or interest is due from him;”

The provision underwent substantial recasting through Finance Act, 1999 w.ef.1.06.1999, which thereafter read as follows:- (i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Section 156 and all the provisions of this Act shall apply accordingly; and ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee: Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him: Provided further that no intimation under this sub- section shall be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.

Again there occurred a total recasting of the provisions through Finance Act 2008 w.e.f 1.04.2008, which reads now as follows:- “143.Assessment.-(1) where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:- (a) The total income or loss shall be computed after making the following adjustments, namely:- (i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return; (b) The tax and interest, if any, shall be computed on the basis of the total income computed under clause (a) ; (c) The sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax and interest, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of chapter VIII, any tax paid on self- assessement and any amount paid otherwise by way of tax or interest; (d) An intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause ( c); and (e) The amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the asssessee: Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax or interest is payable by, or no refund is due to, him: Provided further that no intimation under this sub- section shall be sent after the expiry of one year from the end of financial year in which the return is made. Explanation.- For the purposes of this sub-section,- (a) “An incorrect claim apparent from any information in the return’’ shall mean a claim, on the basis of an entry, in the return,- (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;”

Contention raised by learned Senior Counsel is that, an adjustment under Section 143 (1) can be made only with respect to an incorrect claim, if such incorrect claim is apparent from any information contained in the return, as per Section 143 (1) (a) (ii), as per the provision which stood amended w.e.f 1.04.2008, which is applicable with respect to the relevant assessment year. Further, he pointed out that, the explanation provided to Section 143 (1) (a) elaborates the meaning of what is “an incorrect claim apparent from any information in the return”. According to learned Senior Counsel, the explanation (a) (iii) provides that, in respect of a deduction, where such deduction exceeds the specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction, based on any entry in the return, alone will come within the purview of an “incorrect claim apparent from any information in the return”. It is the contention that, the said provision relates only with respect to deductions and it will not pertain to any claim for set off. Moreover it is contended that the claim made in the return for set off exceed the specified statutory limit is not an aspect apparent from any information in the return and therefore such an adjustment disallowing the claim for set off is not one coming within the purview of Section 143(1). It is contended that, instead, if the assessing authority was of the opinion that the claim for set off could not be allowed, the appropriate method which could have been adopted is to make an assessment, after complying with the requirements under Section 143 (2) and 143 (3) of the Act.

Further contention raised by the appellant-company is that, the company was undergoing winding up before this court and was not functional, since the year 2000. It is pointed out that, the income generated in the assessment year concerned is only out of the sale of immovable property belonging to the company, which according to the appellant, was sold as permitted by this court for the purpose of rehabilitation. Since the company was in the business of real estate development, the proceeds out of such sale has to be considered as income chargeable during the relevant assessment year. It is pointed out that, under Section 41(5) of the Act, the business loss sustained during the previous year in which the company ceased to exist, is entitled to be set off as an income chargeable under sub-Sections (1), (3), (4) and 4(A) of the Act. But there was no occasion for having any adjudication of such a claim, because the proceedings issued was only an adjustment contemplated under Section 143(1). It was argued that, if the Revenue had resorted to the process of assessment as contemplated under Section 143(3), definitely the company could have raised all such contentions and the assessing authority would became compelled to have an adjudication on such contentions. By denying such an opportunity, the intimation was issued under Section 143(1), making the adjustment to the extent of disallowing the claim for set off. Hence it is liable to be interfered, because such adjustment made is beyond the scope of the powers vested under Section 143(1), is the contention.

Learned Standing Counsel, per contra, contended that, it is not in dispute that the carried forward business loss pertains to the assessment years 1997-1998 and 1998-1999, and the same can be allowed to be carried forward only upto 8 years 'ie: only upto the year 2008-09’. As the assessment year concerned is 2009-2010, the carried forward business loss cannot be given set off under Section 72(3) of the Act. With respect to the set off claimed against unabsorbed portion of depreciation, it is fairly conceded that there is no limitation and hence the finding of the CIT(Appeals) allowing set off in that respect, which was confirmed by the Tribunal, is correct and sustainable.

According to learned Standing Counsel, the claim for set off made in the return is an incorrect claim apparent from the return itself. He placed reliance on the explanation (a) (ii) of Section 143 (1), which provides that, “an incorrect claim apparent from any information in the return” would include a claim with respect to which information is required to be furnished under this Act in order to substantiate such entry which has not been furnished. Therefore the adjustment made is sustainable, is the contention. On the facts it is contended that, the assessee had failed to furnish any information relating to the carried forward business loss. It is pointed out that the company had failed to furnish information with respect to the carried forward loss, as to which assessment year it pertains to; or to furnish any proof to substantiate that such carried forward business loss is liable to be set off against the income of the current assessment year.

Further contention on behalf of the revenue is that, claim of the assessee that the limitation will not apply because the income concerned will fall within the purview of Section 41(5), cannot be accepted. It is pointed out that, the company had never ceased to exist and there was only a temporary suspension of business due to the winding up proceedings pending before this court. It is also pointed out that, the income with respect to which the set off was claimed will not fall under any of the categories provided under sub Section (1), (3), (4) and (4)(a) of section 41(5). Therefore it is contended that the adjustment made in the return is perfectly legal and valid.

As already pointed out in the forgoing paragraphs, the provision had undergone drastic changes through Finance Act, 2008. The premise under which an adjustment with respect to the computations contained in the return can be made is in fact streamlined under different provisions introduced through the amendment. In the circular issued as Explanatory Note to the Finance Act, 2008(Circular No.1/2009 dated 27.03.2009) it is mentioned that, intention behind introduction of the amended sub-section(1) of Section 143 is to effect corrections of arithmetical mistakes and adjustments of incorrect claims, through centralized processing of the returns. Under Clause 28.2 of the above Circular it is mentioned that, under the existed provision of Section 143(1), there was no provision for correcting the arithmetical mistakes or internal inconsistencies, which led to unavoidable revenue loss. It is with an object to reduce such revenue loss, sub-Section(1) of Section 143 of the Income Tax Act was amended to provide that, the total income of an assessee shall be computed under sub-section (1) of Section 143, after making the adjustments as provided.

In Clause 28.4 of the Circular it is clarified that, such adjustments shall be made only in the course of computerized processing, without any human interface. It is explained that, in other words, the software would be designed to detect arithmetical inaccuracies and internal inconsistencies and to make appropriate adjustments in computation of the total income. It is to facilitate such process that the amendments are introduced by incorporating sub-sections (a), (b) and (c) to Section 143(1).

As argued by learned Senior Counsel for the appellant, the legislative intention in bringing the drastic amendments to Section 143(1) itself was to streamline scope of the adjustments and the disallowances which could be effected while scrutinizing the return through the computerized process known as 'Centralized Processing of Returns', without any interference of the assessing authority.

Confronting the arguments of the Standing Counsel with respect to the failure to furnish information to substantiate the claim for set off, learned Senior Counsel for the appellant pointed out that, there exists no statutory requirement or obligation to furnish any information or supporting documents for establishing such a claim, while submitting the return.

While evaluating the rival contentions, this court takes note of the fact that, the disallowance of the claim for set off was made as an adjustment coming within the purview of Section 143(1), on the basis that it is an incorrect claim made, which is apparent in the information contained in the return. But, from the return, it is not discernible as to which period the carried forward business loss pertains to. It is admitted by the appellant that, information furnished in the schedule attached to the return, with respect to the year for which the carried forward business loss pertains to, is incorrect. But at the same time it is not apparent from any information contained in the return as to which exactly is the year with respect to which the business loss was accrued. Further we cannot accept the contention of the revenue that there occurred any failure on the part of the assessee to furnish any information in order to substantiate such an entry of the claim for set off. This is specifically because, no statutory provision can be pointed out which mandates the assessee to furnish any such information, apart from furnishing details in the return itself. Therefore, we are not in a position to hold that, there exists an incorrect claim apparent from any information contained in the return itself, with respect to which an adjustment could be made by invoking Section 143(1) of the Act. The learned Standing Counsel had pointed out that, the assessee had to concede that the carried forward business loss pertains to an year beyond the statutory period of 8 years and the claim is unsustainable. But the crucial question is as to whether it is a debatable point upon which determination through a process of adjudication is required or not. In other words, whether it is a matter which is falling within any of the stipulated categories under Section 143(1) of the Act, is the question. As pointed out in the decision of the Madras High Court in C.S. Kothari(cited supra), even by exhausting the procedure prescribed under Section 143(2) of the Act, the consequences may be the same. But whether the adjustment made by disallowing the claim, categorizing it as an incorrect claim apparent from the return itself, is correct or not, is the question to be decided. The question can only be answered with a big 'no'. This is more so because, the appellant company had also placed a claim under Section 41(5) of the Act. Learned Standing Counsel had pointed out that, the Appellate Tribunal had already considered the contention of the assessee based on Section 41(5) and found it to be not sustainable. It is argued that the appellant is not in a position to impugn such a finding successfully, even before this court. But the crucial question in deciding the appeal is not as to whether the claim of the assessee under Section 41(5) is sustainable or not. On the other hand, the issue is with respect to sustainability of the intimation issued under Section 143(1). For reasons elaborated as above, we are persuaded to find that, the intimation issued under Section 143(1) suffers from legal infirmity and cannot be sustained. The reasoning mentioned by the appellate Tribunal to reverse the findings of the CIT(Appeals) cannot be sustained. However, we make it clear that this judgment will not stand in the way of the revenue taking any steps for assessment under Section 143(3) to the extend permissible under law. Therefore the questions of law is answered in favour of the assessee and against the revenue. In the result, the above appeal is allowed and the impugned order of the Income Tax Appellate Tribunal, Cochin Bench in ITA No.118/Coch/2012 is hereby set aside. C.K. ABDUL REHIM, JUDGE. R.NARAYANA PISHARADI, JUDGE. ul/mpm/-