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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SUNIL KUMAR SINGH
This appeal by the assessee is directed against order dated 16.11.2023 passed by the Ld. Additional/Joint Commissioner of Income-tax (Appeals)-6, Chennai [in short ‘the Ld. First Appellate Authority ( FAA)] for assessment year 2019-2020, raising following grounds:
The learned CIT (A) erred confirming the prima facie adjustment made U/s 143(1)(a) of the Act of Rs. 1 crore without considering the reply of assessee merely because auditor had recorded difference of opinion on assessee merely because auditor had recorded difference of opinion on assessee merely because auditor had recorded difference of opinion on the claim more so without the claim more so without passing a speaking order on merits of the passing a speaking order on merits of the claim.
2. The learned CIT (A) failed to appreciate second proviso to see 143 2. The learned CIT (A) failed to appreciate second proviso to see 143 2. The learned CIT (A) failed to appreciate second proviso to see 143 (1)(a) which requires the AO to consider the response of assessee before which requires the AO to consider the response of assessee before which requires the AO to consider the response of assessee before making any adjustments, however in facts of the present there ar making any adjustments, however in facts of the present there ar making any adjustments, however in facts of the present there are no reasons stated for the adjustment. reasons stated for the adjustment.
The learned CIT (A) failed to appreciate that payment of cost imposed 3. The learned CIT (A) failed to appreciate that payment of cost imposed 3. The learned CIT (A) failed to appreciate that payment of cost imposed by the Hon. Court was in the course of the business and are in nature to by the Hon. Court was in the course of the business and are in nature to by the Hon. Court was in the course of the business and are in nature to protect the business interest and not in nature of penalty. protect the business interest and not in nature of penalty.
Briefly stated, facts of the case are that the return of income stated, facts of the case are that the return of income stated, facts of the case are that the return of income filed by the assessee was processed by the Computer Processing filed by the assessee was processed by the Computer Processing filed by the assessee was processed by the Computer Processing Centre (CPC), Bangalore on 02.10.2023 u/s 143(1) of the Income , Bangalore on 02.10.2023 u/s 143(1) of the Income- , Bangalore on 02.10.2023 u/s 143(1) of the Income tax Act, 1961 (in short ‘the Act’) tax Act, 1961 (in short ‘the Act’). In the said processing n the said processing/intimation order, the Assessing Officer made adjustment for the amount of , the Assessing Officer made adjustment for the amount of , the Assessing Officer made adjustment for the amount of Rs.1,00,00,000/- which was appearing in the relevant column which was appearing in the relevant column/row which was appearing in the relevant column of the tax audit report of the tax audit report as expenditure by way of penalty or fine for by way of penalty or fine for violation of any law for the time being in force. violation of any law for the time being in force. The Ld. As The Ld. Assessing Officer issued show cause notice to the assessee and after taking Officer issued show cause notice to the assessee and after taking Officer issued show cause notice to the assessee and after taking into consideration reply of the assessee, the Ld. Assessing Officer into consideration reply of the assessee, the Ld. Assessing Officer into consideration reply of the assessee, the Ld. Assessing Officer made adjustment for the item of expenditure of Rs.1,00,00,000/- made adjustment for the item of expenditure of Rs.1,00,00,000/ made adjustment for the item of expenditure of Rs.1,00,00,000/ for payment to Tata Memorial Hospital vide his order u/s 143(1) for payment to Tata Memorial Hospital vide his ord for payment to Tata Memorial Hospital vide his ord dated 02.10.2023. T dated 02.10.2023. The assessee filed appeal against the said he assessee filed appeal against the said intimation before the Ld. intimation before the Ld. ‘FAA’ and challenged the legality of making and challenged the legality of making addition u/s 143(1) and also the addition on merit. The Ld. ‘FAA’ addition u/s 143(1) and also the addition on merit. The Ld. addition u/s 143(1) and also the addition on merit. The Ld. rejected the contention of the assessee chall rejected the contention of the assessee challenging the legality of enging the legality of the addition observing as under: the addition observing as under:
“4.1 A notice was issued to the Appellant calling for the Audit Report 4.1 A notice was issued to the Appellant calling for the Audit Report 4.1 A notice was issued to the Appellant calling for the Audit Report filed in Form 3CB & 3CD to verify the facts stated by the Appellant. In filed in Form 3CB & 3CD to verify the facts stated by the Appellant. In filed in Form 3CB & 3CD to verify the facts stated by the Appellant. In response to the same, the Appellant provided the document response to the same, the Appellant provided the document response to the same, the Appellant provided the documents called for. The claim of the Appellant is carefully considered. for. The claim of the Appellant is carefully considered.
4.2 The facts of the case were carefully considered. Though the The facts of the case were carefully considered. Though the The facts of the case were carefully considered. Though the compensation of Rs. 1,00,00,000/ compensation of Rs. 1,00,00,000/- was paid in favour of Tata was paid in favour of Tata Memorial Hospital, as per the directions of the Hon'ble High Co Memorial Hospital, as per the directions of the Hon'ble High Co Memorial Hospital, as per the directions of the Hon'ble High Court of Bombay, the same was remitted for infringement of registered design Bombay, the same was remitted for infringement of registered design Bombay, the same was remitted for infringement of registered design and trademarks held by M/s. Mahaveer Enterprises Ltd. The violation and trademarks held by M/s. Mahaveer Enterprises Ltd. The violation and trademarks held by M/s. Mahaveer Enterprises Ltd. The violation of the patents/trademark, etc. is always prohibited by law and of the patents/trademark, etc. is always prohibited by law and of the patents/trademark, etc. is always prohibited by law and therefore, in view of the provisions contained in therefore, in view of the provisions contained in Explanation to Section Explanation to Section 37(1) of the Income Tax Act (hereinafter referred to as „the Act"), the 37(1) of the Income Tax Act (hereinafter referred to as „the Act"), the 37(1) of the Income Tax Act (hereinafter referred to as „the Act"), the expenditure so incurred by the Appellant was not allowable. It was for expenditure so incurred by the Appellant was not allowable. It was for expenditure so incurred by the Appellant was not allowable. It was for such reason, that the Chartered Accountant qualified to undertake the such reason, that the Chartered Accountant qualified to undertake the such reason, that the Chartered Accountant qualified to undertake the Audit of accounts, h Audit of accounts, had remarked that the donation made as per the ad remarked that the donation made as per the order of the Court of Rs.1 crore is inadmissible and incorporated the order of the Court of Rs.1 crore is inadmissible and incorporated the order of the Court of Rs.1 crore is inadmissible and incorporated the same in Column no.21(a) of the Audit Report in Form no.3CD. same in Column no.21(a) of the Audit Report in Form no.3CD. same in Column no.21(a) of the Audit Report in Form no.3CD. 4.3 The Appellant has relied on a plethora of case laws to impress 4.3 The Appellant has relied on a plethora of case laws to impress 4.3 The Appellant has relied on a plethora of case laws to impress that the claim of expenditure is correct and does not fall within the m of expenditure is correct and does not fall within the m of expenditure is correct and does not fall within the purview of Explanation to S.37(1). However, it is apprised to the purview of Explanation to S.37(1). However, it is apprised to the purview of Explanation to S.37(1). However, it is apprised to the Appellant that the issue under adjudication in the present appeal is Appellant that the issue under adjudication in the present appeal is Appellant that the issue under adjudication in the present appeal is with regard to the correctness of the claim of expenditure, but with regard to the correctness of the claim of expenditure, but with regard to the correctness of the claim of expenditure, but whether the CPC was right in making this adjustment of Rs. 1 crore when the the CPC was right in making this adjustment of Rs. 1 crore when the the CPC was right in making this adjustment of Rs. 1 crore when the same was qualified by the Accountant for disallowance, but omitted to same was qualified by the Accountant for disallowance, but omitted to same was qualified by the Accountant for disallowance, but omitted to be added back in the return of income as business profits. added back in the return of income as business profits. 4.4 In this regard, it is concluded that when there is a mismatch In this regard, it is concluded that when there is a mismatch In this regard, it is concluded that when there is a mismatch between the corresponding as per column 21(a) of Form no.3CD and between the corresponding as per column 21(a) of Form no.3CD and between the corresponding as per column 21(a) of Form no.3CD and Schedule BP of e Schedule BP of e-filed ITR, the corresponding difference has to be filed ITR, the corresponding difference has to be necessarily added to the total income as adjustment u/s. 143(1 necessarily added to the total income as adjustment u/s. 143(1 necessarily added to the total income as adjustment u/s. 143(1). This adjustment undertaken by the CPC adheres to the provisions of adjustment undertaken by the CPC adheres to the provisions of adjustment undertaken by the CPC adheres to the provisions of S.143(1)(a)(iv) of the Act. In all the case laws relied upon, the action of S.143(1)(a)(iv) of the Act. In all the case laws relied upon, the action of S.143(1)(a)(iv) of the Act. In all the case laws relied upon, the action of the Assessing officer in disallowing the claim of expenditure was the Assessing officer in disallowing the claim of expenditure was the Assessing officer in disallowing the claim of expenditure was contested, but none of them relate to the ad contested, but none of them relate to the adjustment made by CPC justment made by CPC while the Audit report has qualified its disallowance. Therefore, these while the Audit report has qualified its disallowance. Therefore, these while the Audit report has qualified its disallowance. Therefore, these decisions rendered in an altogether different context are not found decisions rendered in an altogether different context are not found decisions rendered in an altogether different context are not found applicable to the facts of the case under consideration and hence not applicable to the facts of the case under consideration and hence not applicable to the facts of the case under consideration and hence not taken cognizance. taken cognizance. 4.5 As stated earlier, the ground of appeal is confined, as to whether stated earlier, the ground of appeal is confined, as to whether stated earlier, the ground of appeal is confined, as to whether the adjustment made by CPC u/s. 143(1) is in order or otherwise. On the adjustment made by CPC u/s. 143(1) is in order or otherwise. On the adjustment made by CPC u/s. 143(1) is in order or otherwise. On verification of the Audit Report in form no.3CD, more particularly verification of the Audit Report in form no.3CD, more particularly verification of the Audit Report in form no.3CD, more particularly Column no.21(a), the CPC cannot be erred for having under Column no.21(a), the CPC cannot be erred for having under Column no.21(a), the CPC cannot be erred for having undertaken this adjustment as there is a stark difference between the values reported adjustment as there is a stark difference between the values reported adjustment as there is a stark difference between the values reported by the CA and the values incorporated in the return of income. Under by the CA and the values incorporated in the return of income. Under by the CA and the values incorporated in the return of income. Under such circumstances, the adjustment made by the CPC is upheld. such circumstances, the adjustment made by the CPC is upheld. such circumstances, the adjustment made by the CPC is upheld.”
3. Before us, the Ld. counsel for the asses Before us, the Ld. counsel for the assessee addressing ground addressing ground Nos. 1 to 3 of the appeal, Nos. 1 to 3 of the appeal, referred to the various pages of the Paper referred to the various pages of the Paper Book filed on behalf of the assessee. The Ld. counsel referred to on behalf of the assessee. The Ld. counsel referred to on behalf of the assessee. The Ld. counsel referred to Paper Book page 9 which is part of the tax audit report filed in Paper Book page 9 which is part of the tax audit report filed in Paper Book page 9 which is part of the tax audit report filed in Form No. 3CD. The The relevant clause No. 21(a) of the said report of the said report contains details of the amount debited to the profit and loss contains details of the amount debited to the profit and loss contains details of the amount debited to the profit and loss account which are mainly of the disallowable nature including account which are mainly of the disallowable nature including account which are mainly of the disallowable nature including capital capital expenditure, expenditure personal expenditure, advertisement expenditure etc. Under this clause, two items Under this clause, two items have been listed have been listed under the entry of expenditure by way of penalty of the fine for under the entry of expenditure by way of penalty of the fine for under the entry of expenditure by way of penalty of the fine for violation of any law for time being in force. The first item is violation of any law for time being in force. The violation of any law for time being in force. The penalty for ‘Walmart legal metrology almart legal metrology’ case of Rs.25,000/ case of Rs.25,000/- and second item is donation against court order of Rs is donation against court order of Rs.1,00,00,000/-. is donation against court order of Rs These two items have These two items have been listed under the clause 21(a) been listed under the clause 21(a) by the tax auditor of the assessee company in Form No. 3CD i.e. form auditor of the assessee company in Form No. 3CD i.e. form auditor of the assessee company in Form No. 3CD i.e. form prescribed for filing tax audit report, relevant part of which has bed for filing tax audit report, relevant part of which has bed for filing tax audit report, relevant part of which has been extracted by the Ld CIT(A) in his finding reproduced above. cted by the Ld CIT(A) in his finding reproduced above. cted by the Ld CIT(A) in his finding reproduced above. Though the assessee admitted other amount of Rs.25,000/- for Though the assessee admitted other amount of Rs.25,000/ Though the assessee admitted other amount of Rs.25,000/ disallowance in the return of income, but did not add this amount disallowance in the return of income, but did not add this amount disallowance in the return of income, but did not add this amount of Rs. 1,00,000/- to the returned income. to the returned income. The Ld. counsel The Ld. counsel further referred to pages 53 and 56 of the Paper Book which are 53 and 56 of the Paper Book which are 53 and 56 of the Paper Book which are proposing adjustment communication by the Assessing Officer( cation by the Assessing Officer(CPC) proposing adjustment u/s 143(1)(a) of the Act including the amount of Rs.1,00,00,000/-. u/s 143(1)(a) of the Act including the amount of Rs.1,00,00,000/ u/s 143(1)(a) of the Act including the amount of Rs.1,00,00,000/ The assessee was given one more opportunity vide communication The assessee was given one more opportunity vide communication The assessee was given one more opportunity vide communication dated 04.06.2020 and informed the basis for adjustment to the 2020 and informed the basis for adjustment to the 2020 and informed the basis for adjustment to the returned income.
3.1 After considering response of the assessee, the Assessing After considering response of the assessee, the Assessing After considering response of the assessee, the Assessing Officer in order u/s 143(1)(a) of the Act dated 29.09.2020 made Officer in order u/s 143(1)(a) of the Act dated 29.09.2020 made Officer in order u/s 143(1)(a) of the Act dated 29.09.2020 made adjustment to the returned income containing following note: adjustment to the returned income containing following note: adjustment to the returned income containing following note:
3.4 In background of the above facts, t In background of the above facts, the Ld. counsel he Ld. counsel for the assessee submitted that the Assessing Officer has not passed a assessee submitted that the Assessing Officer has not passed a assessee submitted that the Assessing Officer has not passed a speaking order nor provided a proper opportunity of hearing. He speaking order nor provided a proper opportunity of hearing. He speaking order nor provided a proper opportunity of hearing. He further submitted that no reasons have been stated for the further submitted that no reasons have been stated for the further submitted that no reasons have been stated for the adjustment. According to him, the Assessing Officer was requi ccording to him, the Assessing Officer was required to ccording to him, the Assessing Officer was requi consider the response of the assessee and pass ponse of the assessee and pass a reasoned a reasoned order and failure in doing so, t and failure in doing so, the order u/s 143(1)(a) of the Act need to be he Act need to be quashed as void ab-initio initio. The Ld Counsel referred to the decision of The Ld Counsel referred to the decision of PR Packaging reported Coordinate Bench of Tribunal in the case of Coordinate Bench of Tribunal in the case of PR Packaging reported in 148 taxmann.com 153 (Mumbai) and submitted that tax auditor in 148 taxmann.com 153 (Mumbai) and submitted that tax auditor in 148 taxmann.com 153 (Mumbai) and submitted that tax auditor has not mentioned that said amount has not mentioned that said amount was disallowable under disallowable under section 37(1) of the Act, thus the AO was not authorised to invoke section 37(1) of the Act, thus the AO was not authorised to invoke section 37(1) of the Act, thus the AO was not authorised to invoke section 143(1)(a)(iv) of the Act. section 143(1)(a)(iv) of the Act.
On the contrary, the Ld. Departmental Representative (DR) he contrary, the Ld. Departmental Representative (DR) he contrary, the Ld. Departmental Representative (DR) submitted that u/s 143(1) of the Act, the Assessing Officer is having submitted that u/s 143(1) of the Act, the Assessing Officer is having submitted that u/s 143(1) of the Act, the Assessing Officer is having limited jurisdiction of making prima facie adjustment appearing limited jurisdiction of making prima facie adjustment appearing limited jurisdiction of making prima facie adjustment appearing from the return of income and other enclosed records only. He from the return of income and other enclosed records only. He from the return of income and other enclosed records only. He submitted that the Assessing Officer following the provisions of ted that the Assessing Officer following the provisions of ted that the Assessing Officer following the provisions of section 143(1) of the Act communicated the assessee for the section 143(1) of the Act communicated the assessee section 143(1) of the Act communicated the assessee proposed adjustment proposed adjustment not once but twice. Finally, he did not accept he did not accept the response filed by the assessee and adjusted the amount to the the response filed by the assessee and adjusted the amount the response filed by the assessee and adjusted the amount returned income as proposed in the communication to the assessee. as proposed in the communication to the assessee. as proposed in the communication to the assessee.
We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The issue in dispute in Ground No. 1 to relevant material on record. The issue in dispute in Ground No. 1 to relevant material on record. The issue in dispute in Ground No. 1 to 3 of the appeal raised is whether the Assessing Officer, in 3 of the appeal raised is whether the Assessing Officer 3 of the appeal raised is whether the Assessing Officer proceedings u/s 143(1) of the Act, proceedings u/s 143(1) of the Act, was required to pass a speaking was required to pass a speaking and reasoned order after considering the response of the assessee. and reasoned order after considering the response of the assessee. and reasoned order after considering the response of the assessee. For ready reference the relevant section is reproduced as under: For ready reference the relevant section is reproduced as under: For ready reference the relevant section is reproduced as under:
“143(1) Where a return has been made under section 139, Where a return has been made under section 139, or in Where a return has been made under section 139, response to a notice under sub response to a notice under sub-section (1) of section 142, such return section (1) of section 142, such return shall be processed in the following manner, namely: shall be processed in the following manner, namely:— (a)the total income or loss shall be computed after making the the total income or loss shall be computed after making the the total income or loss shall be computed after making the following following adjustments, namely:— (i)any arithmetical error in the return; (i)any arithmetical error in the return; (ii)an incorrect claim, if such incorrect claim is apparent from (ii)an incorrect claim, if such incorrect claim is apparent from (ii)an incorrect claim, if such incorrect claim is apparent from any information in the return; any information in the return; (iii)disallowance of loss claimed, if return of the previous year (iii)disallowance of loss claimed, if return of the previous year (iii)disallowance of loss claimed, if return of the previous year for which set off of loss is for which set off of loss is claimed was furnished beyond the claimed was furnished beyond the due date specified under sub due date specified under sub-section (1) of section 139; section (1) of section 139; (iv)disallowance of expenditure [or increase in income] disallowance of expenditure [or increase in income] disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account indicated in the audit report but not taken into account indicated in the audit report but not taken into account in computing the total income in the return; in computing the total income in the return; (v)disallowance of deduction claimed under [section 10AA or lowance of deduction claimed under [section 10AA or lowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI under any of the provisions of Chapter VI-A under the heading A under the heading "C.—Deductions in respect of certain incomes", if] the return is Deductions in respect of certain incomes", if] the return is Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub furnished beyond the due date specified under sub furnished beyond the due date specified under sub-section (1) of section 139; of section 139; or (vi)addition of income appearing in Form 26AS or Form 16A or (vi)addition of income appearing in Form 26AS or Form 16A or (vi)addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total Form 16 which has not been included in computing the total Form 16 which has not been included in computing the total income in the return: income in the return: Provided that no such adjustments shall be made unless an Provided that no such adjustments shall be made unless an Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustme intimation is given to the assessee of such adjustme intimation is given to the assessee of such adjustments either in writing or in electronic mode: in writing or in electronic mode: Provided further that the response received from the assessee, if any, Provided further that the response received from the assessee, if any, Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case shall be considered before making any adjustment, and in a case shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such where no response is received within thirty days of the issue of such where no response is received within thirty days of the issue of such intimation, such adjustments shall be made: tion, such adjustments shall be made: Provided also that no adjustment shall be made under sub Provided also that no adjustment shall be made under sub Provided also that no adjustment shall be made under sub-clause (vi) in relation to a return furnished for the assessment year commencing in relation to a return furnished for the assessment year commencing in relation to a return furnished for the assessment year commencing on or after the 1st day of April, 2018; on or after the 1st day of April, 2018;
(b)the tax, interest and fee, if any, shall be computed on the basis of the tax, interest and fee, if any, shall be computed on the basis of the tax, interest and fee, if any, shall be computed on the basis of the total income computed under clause (a); the total income computed under clause (a); (c)the sum payable by, or the amount of refund due to, the assessee the sum payable by, or the amount of refund due to, the assessee the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax, interest and fee, if be determined after adjustment of the tax, interest and fee, if be determined after adjustment of the tax, interest and fee, if any, computed under clause (b) by any tax deducted at source, any any, computed under clause (b) by any tax deducted at source, any any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable tax collected at source, any advance tax paid, any relief allowable tax collected at source, any advance tax paid, any relief allowable under section 89, any relief allowable under an agreement under section 89, any relief allowable under an agreement under section 89, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, section 90 or section 90A, or any relief allowable under section 91, 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 any rebate allowable under Part A of Chapter VIII, any tax paid on any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax, assessment and any amount paid otherwise by way of tax, assessment and any amount paid otherwise by way of tax, interest or fee; (d)an intimation shall be prepared or generated and sent to the an intimation shall be prepared or generated and sent to the an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the assessee specifying the sum determined to be payable by, or the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and amount of refund due to, the assessee under clause (c); and amount of refund due to, the assessee under clause (c); and (e)the amount of refund due to the assessee in pursuance of the the amount of refund due to the assessee in pursuance of the the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee: determination under clause (c) shall be granted to the assessee: determination under clause (c) shall be granted to the assessee: Provided that an intimation shall also be sent to the assessee in a Provided that an intimation shall also be sent to the assessee in a Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the asses case where the loss declared in the return by the assessee is adjusted see is adjusted but no tax, interest or fee is payable by, or no refund is due to, him: but no tax, interest or fee is payable by, or no refund is due to, him: but no tax, interest or fee is payable by, or no refund is due to, him: Provided further that no intimation under this sub Provided further that no intimation under this sub-section shall be sent section shall be sent after the expiry of [nine months] from the end of the financial year in after the expiry of [nine months] from the end of the financial year in after the expiry of [nine months] from the end of the financial year in which the return is mad which the return is made. Explanation.—For the purposes of this sub For the purposes of this sub-section,— (a)"an incorrect claim apparent from any information in the (a)"an incorrect claim apparent from any information in the (a)"an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return" shall mean a claim, on the basis of an entry, 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 an item, which is inconsistent with another entry of the an item, which is inconsistent with another entry of the same or some other item in such return; same or some other item in such return; (ii)in respect of which the information required to be furnished (ii)in respect of which the information required to be furnished (ii)in respect of which the information required to be furnished under this Act to substantiate such entry has not been so under this Act to substantiate such entry has not been so under this Act to substantiate such entry has not been so furnished; or furnished; or (iii)in respect of a (iii)in respect of a deduction, where such deduction exceeds deduction, where such deduction exceeds specified statutory limit which may have been expressed as specified statutory limit which may have been expressed as specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction; monetary amount or percentage or ratio or fraction; (b)the acknowledgement of the return shall be deemed to be the (b)the acknowledgement of the return shall be deemed to be the (b)the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payab intimation in a case where no sum is payable by, or refundable to, the le by, or refundable to, the assessee under clause (c), and where no adjustment has been made assessee under clause (c), and where no adjustment has been made assessee under clause (c), and where no adjustment has been made under clause (a). under clause (a).”
5.1 In view of clear language In view of clear language of the section, the Assessing Officer , the Assessing Officer has taken into consideration, the response of the assessee for has taken into consideration, the response of the assessee for has taken into consideration, the response of the assessee for making adjustment to the return of income under various making adjustment to the return of income under various making adjustment to the return of income under various provisions of section 143(1) of the Act. In our opinion, under the provisions of section 143(1) of the Act. In our opinion, under the provisions of section 143(1) of the Act. In our opinion, under the provisions of section 143(1) of the Act, the A provisions of section 143(1) of the Act, the Assessing Officer is ssessing Officer is required to compute the income after taking into consideration the required to compute the income after taking into consideration the required to compute the income after taking into consideration the adjustment as prescribed subject to adjustment as prescribed subject to communication communication to the assessee. In the intimation In the intimation letter, the ld AO has referred the the ld AO has referred the reasons for adjustment. He has made adjustment on the basis of reasons for adjustment. He has made adjustment on reasons for adjustment. He has made adjustment on entry made by the tax Auditor of the assessee under the row entry made by the tax Auditor of the assessee under the row entry made by the tax Auditor of the assessee under the row prescribed for expenditure by way of penalty or fine for violation of prescribed for expenditure by way of penalty or fine for violation of prescribed for expenditure by way of penalty or fine for violation of law for time in being in force. Out of the two items listed under this law for time in being in force. Out of the two items listed under this law for time in being in force. Out of the two items listed under this row in tax audit report, one item was row in tax audit report, one item was already added by the assessee added by the assessee for computing returned income but the second item of Rs. for computing returned income but the second item of Rs. for computing returned income but the second item of Rs. 1,00,000/- was omitted for including in the returned income. On was omitted for including in the returned income. On was omitted for including in the returned income. On the basis of omission observed, the AO (CPC) communicated the the basis of omission observed, the AO (CPC) communicated the the basis of omission observed, the AO (CPC) communicated the proposed adjustment and thereafter passed the proposed adjustment and thereafter passed the intimation order intimation order along with reasons of adjustment duly along with reasons of adjustment duly specified specified as part of intimation order. Therefore, Therefore, the arguments of the ld counsel of the ld counsel that intimation order passed is not order passed is not reasoned, are incorrect incorrect. Further, the contention of the ld Counsel that the AO was contention of the ld Counsel that the AO was required to pass a required to pass a speaking order, we may like to refer the Hon’ble Supreme Court in speaking order, we may like to refer the Hon’ble Supreme Court in speaking order, we may like to refer the Hon’ble Supreme Court in the case of CIT Vs Rajesh Jhaveri Stock Brokers P ltd (2007) 291 the case of CIT Vs Rajesh Jhaveri Stock Brokers P ltd (2007) 291 the case of CIT Vs Rajesh Jhaveri Stock Brokers P ltd (2007) 291 ITR 500 (SC), where in the Hon’ble Supreme Court observed as ITR 500 (SC), where in the Hon’ble Supreme Court observed as ITR 500 (SC), where in the Hon’ble Supreme Court observed as under:
What were permissible under the first proviso to section 143(1)(a) 12. What were permissible under the fi section 143(1)(a) to be adjusted were, (i) only apparent arithmetical errors in the return, be adjusted were, (i) only apparent arithmetical errors in the return, be adjusted were, (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, accounts or documents accompanying the return, (ii) loss carried forward, accounts or documents accompanying the return, (ii) loss carried forward, deduction allowance or relief, which was prima facie admissible on the deduction allowance o r relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return basis of information available in the return but not claimed in the return basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information and similarly (iii) those claims which were on the basis of the information and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, available in the return, prima facie inadmissible, available in the return, prima facie inadmissible, were to be were were rectified/allowed/disallowed. What was permissible was correction of rectified/allowed/disallowed. What was permissible was correction of rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. errors apparent on the basis of the documents accompanying the return. errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or The Assessing Officer had no authority to make adjustments or The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other adjudicate upon any debatable issues. In other words, the adjudicate upon any debatable issues. In other Assessing Officer had no power to go behind the return, accounts Assessing Officer had no power to go behind the return, accounts Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, or documents, either in allowing or in disallowing deductions, or documents, either in allowing or in disallowing deductions, allowance or relief. allowance or relief 13. One thing further to be noticed is that intimation under 13. One thing further to be noticed is that intimation under section 13. One thing further to be noticed is that intimation under 143(1)(a) is given without prejudice to the provisions of is given without prejudice to the provisions of is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand Though technically the intimation issued was deemed to be a demand Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right of , that did not per se preclude the right of the Assessing Officer to proceed under section 143(2) the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from April 1, 1989 and is not taken away. Between the period from April 1, 1989 and is not taken away. Between the period from April 1, 1989 to March 31, 1998, the second proviso to section 143(1)(a) to March 31, 1998, the second proviso to section 143(1)(a), required that where adjustments were made under the first proviso to where adjustments were made under the first proviso to section where adjustments were made under the first proviso to 143(1)(a), an intimation had to be sent to the assessee notwithstanding , an intimation had to be sent to the assessee notwithstanding , an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. that no tax or refund was due from him after making such adjustments. that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to With effect from April 1, 1998, the second proviso to section With effect from April 1, 1998, the second proviso to 143(1)(a) was substituted by the was substituted by the Finance Act, 1997 Finance Act, 1997, which was operative till June 1, 1999. The requirement was that an intimation was operative till June 1, 1999. The requirement was that an intimation was operative till June 1, 1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made he assessee whether or not any adjustment had been made he assessee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax under the first proviso to and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, or interest was found due from the assessee concerned. Between April 1, or interest was found due from the assessee concerned. Between April 1, 1998 and May 31, 1999, sending of an intimation under 1998 and May 31, 1999, sending of an intimation under section 1998 and May 31, 1999, sending of an intimation under was mandatory. Thus, the legislative intent is very clear Thus, the legislative intent is very clear 143(1)(a) was mandatory. from the use of the word intimation as substituted for from the use of the word intimation as substituted for from the use of the word intimation as substituted for assessmentthat two different concepts emerged. While making an assessmentthat tw o different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition assessment, the Assessing Officer is free to make any addition assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments after grant of opportunity to the assessee. By making adjustments after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is under the first proviso to , no addition which is impermissible by the information given in the return could be impermissible by the information given in the return could be impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing no opportunity is granted to the assessee and the Assessing no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the Officer proceeds on his opinion on the basis of the return filed by the Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given assessee. The very fact that no opportunity of being heard is given assessee. The very fact that no opportunity of being heard is given
under section 143(1)(a) section 143(1)(a) indicates that the Assessing Officer has to indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments proceed accepting the return and making the permissible adjustments proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and Finance (No. 2) Act of 1991 with effect from October 1, 1991, and Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994 subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the and ultimately omitted with effect from June 1, 1999, by the Explanation and ultimately omitted with effect from June 1, 1999, by the as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the assessee under section 143(1)(a) was deemed to be an order for the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 between June 1, 1994, to May 31, 1999, and purposes of section 246 between June 1, 1994, to May 31, 1999, and purposes of section 246 between June 1, 1994, to May 31, 1999, and under section 264 between October 1, 1991, and May 31, 1999. It is to be under section 264 between October 1 , 1991, and May 31, 1999. It is to be noted that the expressions intimation and assessment order have been noted that the expressions intimation and assessment order have been noted that the expressions intimation and assessment order have been used at different places. The contextual difference between the two used at different places. The contextual difference between the two used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. expressions has to be understood in the context the expressions are used. expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes the computation of income, ent is used as meaning sometimes the computation of income, ent is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes sometimes the determination of the amount of tax payable and sometimes sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the the whole procedure laid down in the Act for imposing liability upon the the whole procedure laid down in the Act for imposing liability upon the tax payer. In the scheme of things, as noted above, the intimation under tax payer. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The section 143(1)(a) cannot be treated to be an order of assessment. The section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they distinction is also well brought out by the statutory provisions as they distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(l)(a) as it stood prior to stood at different points of time. Under section 143(l)(a) as it stood prior to stood at different points of time. Under section 143(l)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if 9, the Assessing Officer had to pass an assessment order if 9, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the he decided to accept the return, but under the amended provision, the he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with requirement of passing of an assessment order has been dispensed with requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by and instead an intimation is required to be sent. Variou s circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, the Central Board of Direct Taxes spell out the intent of the Legislature, the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the departmental work to scrutinize each and every i.e., to minimize the departmental work to scrutinize each and every i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. return and to concentrate on selective scrutiny of returns. These aspects return and to concentrate on selective scrutiny of returns. were highlighted by one of us (D. K. Jain J) in y one of us (D. K. Jain J) in Apogee International Apogee International Limited v. Union of India [(1996) 220 ITR 248]. It may be noted above Limited v. Union of India [(1996) 220 ITR 248]. It may be noted above that under the first proviso to the newly substituted section 143(1), with that under the first proviso to the newly substituted section 143(1), with that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the rom June 1, 1999, except as provided in the provision itself, the rom June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under acknowledgment of the return shall be deemed to be an intimation under acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) section 143(1) where (a) either no sum is payable by the assessee, or (b) section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not no refund is due to him. It is significant th at the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be done by any Assessing Officer, but mostly by ministerial staff. Can it be done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any assessment is done by them? The reply is an emphatic no. said that any assessment is done by them? The reply is an emphatic no. said that any assessment is done by them? The reply is an emphatic no. The intimation under section 143(1)(a) was deemed to be a notice of The intimation under section 143(1)(a) was deemed to be a notice of The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making ection 156, for the apparent purpose of making ection 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such machinery provisions relating to recovery of tax applicable. By such machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation application only recovery indicated to be payable in the intimation application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming became permissible. And nothing more can be inferred from the deeming became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), ovision. Therefore, there being no assessment under section 143(1)(a), ovision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. the question of change of opinion, as contended, does not arise. the question of change of opinion, as contended, does not arise.
5.2 The Hon’ble supreme court has distinguished between The Hon’ble supreme court has distinguished between The Hon’ble supreme court has distinguished between intimation and assessment and held that under intimation the intimation and assessment and held that under intimation the intimation and assessment and held that under intimation the authority of the AO is limited to carry out adjustment based on the uthority of the AO is limited to carry out adjustment based on the uthority of the AO is limited to carry out adjustment based on the and he can’t go return of income or return of income or accompanying documents and he can’t go beyond that and make adjustment on any debatable issue. In our beyond that and make adjustment on any debatable issue. In our beyond that and make adjustment on any debatable issue. In our opinion, in view of above observation, the AO was not required to opinion, in view of above observation, the AO was not required to opinion, in view of above observation, the AO was not required to pass a speaking order for adjustments made ass a speaking order for adjustments made in strict terms, in strict terms, although he has duly proposed the said adjustment twice to the although he has duly proposed the said adjustment twice to the although he has duly proposed the said adjustment twice to the provided reasons assessee and thereafter in the intimation he has and thereafter in the intimation he has provided reasons of adjustment.
5.3 Regarding the ratio of PR Packaging (supra), we 5.3 Regarding the ratio of PR Packaging (supra), we find that in said find that in said case in the Audit report it was not clearly mentioned whether said case in the Audit report it was not clearly mentioned whether said case in the Audit report it was not clearly mentioned whether said amount was disallowable or not but in the instant case , the amount was disallowable or not but in the instant case , the amount was disallowable or not but in the instant case , the amount has been categorized by the Tax Auditor under penalty or amount has been categorized by the Tax Auditor under penalty or amount has been categorized by the Tax Auditor under penalty or fine for violation of law for time being in f fine for violation of law for time being in force, therefore, the orce, therefore, the amount being prima-facie -facie disallowable under section 143(1)(a)(iv) of disallowable under section 143(1)(a)(iv) of the Act.
5.4 In view of above discussion, t 5.4 In view of above discussion, the relevant grounds he relevant grounds No. 1 to 3 of the appeal are accordingly are accordingly dismissed.
In ground No. 4, the Ld. counsel ground No. 4, the Ld. counsel for the assessee has for the assessee has challenged the adjustment on the merit. T ed the adjustment on the merit. The Ld. counsel referred he Ld. counsel referred to order of the Hon’ble High Court of Bombay order of the Hon’ble High Court of Bombay, available o available on page 62 to 69 of the Paper Book. The Ld. counsel submitted that a suit was 69 of the Paper Book. The Ld. counsel submitted that a suit was 69 of the Paper Book. The Ld. counsel submitted that a suit was filed by M/s Mahavir Enterprises Lt filed by M/s Mahavir Enterprises Ltd. against the assessee for d. against the assessee for infringement of registered design and trade mark but pursuant to infringement of registered design and trade mark but pursuant to infringement of registered design and trade mark but pursuant to the undertaking given by the assessee in the consent terms the undertaking given by the assessee in the consent terms the undertaking given by the assessee in the consent terms es, the suit along with the Notice of Motioin executed between part executed between parties, the suit along with the Notice o was disposed off by the Hon’ble High was disposed off by the Hon’ble High Court vide vide order dated 03.11.2018. But M/s Mahavir Enterprises moved a petition against 03.11.2018. But M/s Mahavir Enterprises moved a petition against 03.11.2018. But M/s Mahavir Enterprises moved a petition against the assessee for breach the court order dated 03.11.2018 and Court the assessee for breach the court order dated 03.11.2018 and Court the assessee for breach the court order dated 03.11.2018 and Court receiver was to visit the premises of the distributors of the assessee. receiver was to visit the premises of the distributors of the assessee. receiver was to visit the premises of the distributors of the assessee. directed to pay a cost The Ld. counsel submitted th The Ld. counsel submitted that Hon’ble Court directed in favour of Tata Memorial Hospital which is neither a penalty nor in favour of Tata Memorial Hospital which is neither in favour of Tata Memorial Hospital which is neither expenditure in prohibition of the law expenditure in prohibition of the law , therefore, no disallowance is therefore, no disallowance is warranted u/s 143(1) warranted u/s 143(1)(a) of the Act on merit. The Ld Counsel The Ld Counsel referred to various decisions cited before the ld CIT(A). decisions cited before the ld CIT(A). decisions cited before the ld CIT(A).
On the other hand, Ld. DR submitted that the Ld. CIT(A) has On the other hand, Ld. DR submitted that the Ld. CIT(A) has On the other hand, Ld. DR submitted that the Ld. CIT(A) has not decided the issue on merit and therefore, matter may be not decided the issue on merit and therefore, matter may be not decided the issue on merit and therefore, matter may be restored back for deciding afresh. restored back for deciding afresh.
We have heard rival submission of the parties and peru We have heard rival submission of the parties and peru We have heard rival submission of the parties and perused the relevant material on record. Admittedly, the Ld. CIT(A) has not gone relevant material on record. Admittedly, the Ld. CIT(A) has not go relevant material on record. Admittedly, the Ld. CIT(A) has not go into the merit of the issue. T into the merit of the issue. The Ld. CIT(A) has not examined he Ld. CIT(A) has not examined whether the expenditure incurred is in whether the expenditure incurred is in violation of Explanation 1 to violation of Explanation 1 to section 37(1) of the Act section 37(1) of the Act, wherein it is prescribe wherein it is prescribed that any expenditure incurred by the assessee for any purpose which is an expenditure incurred by the assessee for any purpose which is a expenditure incurred by the assessee for any purpose which is a offence or and which is prohibited by law shall not deemed for the offence or and which is prohibited by law shall not deemed for the offence or and which is prohibited by law shall not deemed for the purpose of business or purpose of business or profession and no deduction or allowance and no deduction or allowance shall be made in respect of such shall be made in respect of such expenditure. The . The claim of the assessee that said expenditure is not for any purpose which is an assessee that said expenditure is not for any purpose which is an assessee that said expenditure is not for any purpose which is an offence or which is prohibited offence or which is prohibited by law. The claim of the assessee The claim of the assessee that said expenditure is not for any purpose which is an offence or said expenditure is not for any purpose which is an offence or said expenditure is not for any purpose which is an offence or prohibited by law need to be examined by th prohibited by law need to be examined by the Ld. CIT(A) in the light e Ld. CIT(A) in the light of the order of the Hon’ble High Court in original application of the of the order of the Hon’ble High Court in original application of the of the order of the Hon’ble High Court in original application of the parties as well as in the order of the Hon’ble High Court referred parties as well as in the order of the Hon’ble High Court referred parties as well as in the order of the Hon’ble High Court referred above. Since complete set of orders of Hon’ble High Court has not Since complete set of orders of Hon’ble High Court has not Since complete set of orders of Hon’ble High Court has not ew of the above discussion, we feel it been filed before us, i been filed before us, in view of the above discussion, we feel it appropriate to restore this issue back to the file of the Ld. CIT(A) for appropriate to restore this issue back to the file of the Ld. CIT(A) for appropriate to restore this issue back to the file of the Ld. CIT(A) for deciding afresh on merit of the addition. The ground No. 4 of the deciding afresh on merit of the addition. The ground No. 4 of the deciding afresh on merit of the addition. The ground No. 4 of the appeal of the assessee is accordingly allowed for statistical appeal of the assessee is accordingly allowed for statistical appeal of the assessee is accordingly allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for the result, the appeal of the assessee is partly allowed for the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on nced in the open Court on 13/05 /05/2024. Sd/ Sd/- Sd/- (SUNIL KUMAR SINGH SUNIL KUMAR SINGH) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 13/05/2024 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to :
1. 1. The Appellant 2. The Respondent.
3. CIT 4. DR, ITAT, Mumbai