CIT SHIMLA vs. W.N.KAHAL DEVELOPMENT OFFICER,

ITR/121/1998HC Punjab & HaryanaPHHC01037906199808 December 2006Author: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE ADARSH KUMAR GOEL3 pages
AI SummaryAllowed

What were the facts?

The assessee, Shri W.N. Kahol, a Development Officer with LIC of India, filed his return for assessment year 1992-93 under Section 143(1)(a) of the Income Tax Act, 1961. He claimed expenditure against incentive bonus received. The Assessing Officer disallowed this claim and added it to the assessee's income. The assessee's application for relief under Section 154 was rejected. The Appellate Authority and subsequently the Income Tax Appellate Tribunal (ITAT) held that the adjustment on account of expenditure claimed against incentive bonus could not be made under Section 143(1)(a) as the matter was debatable and capable of two opinions. The ITAT's order dated 16.10.1997 in I.T.A.No.691/Chandi/95 is under challenge.

What did the High Court hold?

The High Court held that the Tribunal was right in law in holding that the adjustment on account of expenditure claimed against incentive bonus received by a development officer could not be made under Section 143(1)(a) of the Income Tax Act, 1961. The Court relied on its own decision in Commissioner of Income-Tax Vs. Saurabh Kulshreshtra (2001) 251 ITR 571, and similar views from the Madhya Pradesh High Court in Commissioner of Income-Tax Vs. Shikharchand Jain (2003) 263 ITR 221 and the Calcutta High Court in G.K.W.Ltd. Vs. Commissioner of Income-tax (2005) 273 ITR 380. The reasoning was that the scope of Section 143(1)(a), as it prevailed at the relevant time, did not permit the Assessing Officer to make adjustments on debatable issues where two opinions could be formed. Such matters, where the Assessing Officer proposes to differ with the disclosure in the return, require an opportunity of hearing to the assessee and should be gone into under Section 143(3) by serving a notice under Section 143(2), not under the summary procedure of Section 143(1)(a). The question referred is answered against the Revenue and in favour of the assessee.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that adjustment on account of expenditure claimed against incentive bonus received by a development officer of the Life Insurance Corporation of India could not be made under Section 143(1)(a) of the Income Tax Act, 1961, as the matter was debatable and capable of two opinions? Assessee's Contention: The assessee argued that the issue of claiming expenditure against incentive bonus was debatable, allowing for two different opinions. Therefore, such a matter fell outside the scope of summary adjustments permissible under Section 143(1)(a) and required a regular assessment under Section 143(3) after issuing a notice under Section 143(2). Revenue's Contention: The revenue contended that the Assessing Officer was justified in disallowing the expenditure claimed against the incentive bonus and adding it to the assessee's income under Section 143(1)(a). The revenue implicitly argued that the adjustment was within the AO's powers under the said section.

Which sections of the Income-tax Act were involved?

Section 143(1)(a),Section 154,Section 143(3),Section 143(2)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
I.T.R No.121 of 1998 -1- *** IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.R No.121 of 1998 Date of decision:8.12.2006 Commissioner of Income-Tax, Shimla ...Petitioner Versus Shri W.N.Kahol, Development Officer, LIC of India, Theog (HP) ...Respondent CORAM: HON'BLE MR.JUSTICE ADARSH KUMAR GOEL HON'BLE MR.JUSTICE RAJESH BINDAL Present: Dr.N.L.Sharda, Advocate for the revenue ****

JUDGMENT Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh arising out of its order dated 16.10.1997 passed in I.T.A.No.691/Chandi/95, in respect of the assessment year 1992- 93. “Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that adjustment on account of expenditure claimed against incentive bonus received by a development officer of the Life Insurance Corpn. Of India could not be made u/s 143(1) (a) as the matter was debatable and capable of two opinions? The assessee filed return under Section 143(1) (a) of the Income Tax Act, 1961 (for short “the Act”) and claimed incentive bonus received by him

The order continues below.

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