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Supreme Court of India
Rajasthan State Electricity … vs The Dy. Commissioner Of Income Tax … on 19 March, 2020Author: Ashok Bhushan
Bench: R. Banumathi, Ashok Bhushan, A.S. Bopanna
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.8590 of 2010
RAJASTHAN STATE ELECTRICITY BOARD
JAIPUR …APPELLANT(S)
VERSUS
THE DY. COMMISSIONER OF INCOME
TAX(ASSESSMENT) & ANR. …RESPONDENT(S)
J U D G M E N T
ASHOK BHUSHAN, J.
This appeal has been filed by the assessee
challenging the Division Bench judgment dated
13.11.2007 of the High Court of Judicature for
Rajasthan at Jaipur Bench, Jaipur by which D.B. Civil
Special Appeal (Writ) No.837 of 1993 filed by the
Revenue has been allowed upholding the demand of
additional tax under Section 143(1-A) of the Income Tax
Act, 1961.
Signature Not Verified
2.
Digitally signed by
MAHABIR SINGH
Date: 2020.03.19
Brief facts necessary to be noted for deciding this
18:37:08 IST
Reason:
appeal are:
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The assessee is a Government Company as defined
under Section 617 of the Companies Act, 1956. The
assessee filed return on 30.12.1991 for the assessment
year 1991-92 showing a loss amounting to Rs.
(-)427,39,32,972/-. Due to a bonafide mistake the
assessee claimed 100% depreciation of Rs.
333,77,70,317/- on written down value of assets instead
of 75% depreciation. Under the unamended Section 32(2)
of the Income Tax Act, 1961 the assessee was entitled
to claim 100% depreciation. However, after the
amendment the depreciation could only be 75%. The
assessee supported the returns with provisional revenue
account, balance sheet as on 31.03.1991, details of
gross fixed assets, computation chart and depreciation
chart. No tax was payable on the said return by the
assessee. No notice under Section 143(2) of the Income
Tax Act, 1961 was received by the assessee.
3. An intimation under Section 143(1)(a) of the Income
Tax Act, 1961 dated 12.02.1992 was issued by the
Assessing Officer disallowing 25% of the depreciation,
restricting the depreciation to 75%. Additional tax
under Section 143(1-A) of the Income Tax Act, 1961
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amounting to Rs.8,63,64,827/- was demanded. The
assessee filed an application under Section 154 of the
Income Tax Act, 1961 dated 18.02.1992 praying for
rectification of the demand. The assessee also filed a
petition under Section 264 of the Income Tax Act, 1961
against the demand of additional tax. In the petition
it was stated that even after allowing only 75% of
depreciation the income of the assessee remained to be
in loss to Rs.3,43,94,90,393/-. The assessee prayed for
quashing the demand of additional tax. The application
filed under Section 154 of the Income Tax Act, 1961 was
rejected by the Assessing Officer on 28.02.1992. The
revision petition under Section 264 of the Income Tax
Act, 1961 came to be dismissed by the Commissioner of
Income Tax by order dated 31.03.1992. The Commissioner
of Income Tax rejected the revision petition by giving
following reasoning:
“A plain reading of the provisions of
Section 143(1-A) shows that whenever
adjustment is made, additional tax has to be
charged @ 20% of the tax payable on such
‘excess amount’. The ‘excess amount’ refers
to the increase in the income and by
implication the reduction in loss where even
after the addition there is negative income.
The explanation to Section 143(1-A)(b)
provides that the tax payable on such excess
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means the tax that would have been chargeable
on the amount of adjustment to the total
income. Where the adjustment exceeds the
income determined. Clearly, therefore, in
this case the additional tax had to be
charged on the basis of the tax chargeable
on the sum of Rs.83,44,42,579/- added by the
Assessing Officer.”
4. Aggrieved by the order of the Commissioner of
Income Tax challenging the demand of additional tax
which was reduced to amount of Rs.7,67,68,717/- Writ
Petition No.2267 of 1992 was filed by the assessee in
the High Court of Judicature for Rajasthan, Bench at
Jaipur. Learned Single Judge vide judgment dated
19.01.1993 allowed the writ petition quashing the levy
of additional tax under Section 143(1-A). The Revenue
aggrieved by the judgment of the learned Single Judge
filed a Special Appeal which has been allowed by the
Division Bench of the High Court vide its judgment
dated 13.11.2007 upholding the demand of additional
tax. The assessee aggrieved by the judgment of the
Division Bench has come up in this appeal.
5. We have heard Shri Arijit Prasad, learned senior
counsel appearing for the appellant and Shri Rupesh
Kumar, learned counsel for the respondents.
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6. Shri Arijit Prasad referring to Circular No.549
dated 30.10.1989 of Central Board of Direct Taxes
submits that 20% additional tax sought to be imposed
under Section 143(1-A) of 1961 Act is in the nature of
penalty and can be levied only when the assessee had
intentionally sought to file an incorrect return. It
is submitted that such additional tax could only become
payable in case where assessee was assessed to an
income for the purpose of tax and could not apply where
there was no income or there was loss. The intent of
the Legislature in enacting provision of Section
143(1-A) was to ensure that the assessee also declares
his loss in the return correctly and where the assessee
deliberately or intentionally filed false returns, he
was liable to pay additional Income Tax. It is
submitted that unabsorbed losses and unabsorbed
depreciation were to be carried forward to future years
to be set off against profits and it did not in any
manner affect business loss. He submits that business
loss suffered by the assessee had not reduced because
of the bonafide mistake committed by the appellant in
calculating the depreciation. The assessee was in loss
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and continued to be in loss. Reduction in depreciation
from 100% to 75% did not amount to reduction in loss
and additional tax under Section 143(1-A) of the Income
Tax Act, 1961 was only to prevent evasion of tax. He
submits that when additional tax had clear and specific
imprint of penalty, the Revenue could not be heard to
say that the levy of additional tax is automatic under
Section 143(1-A) of the Act. If additional tax could
be levied in such circumstances, it would be punishing
the assessee for no fault of his and that too without
giving him a hearing.
7. Learned counsel for the Revenue submits that
provision of Section 143(1-A) demonstrates that it is
not penal in nature. It is the device to check evasion
of tax. It is submitted that challenge to vires of
Section 143(1-A) has been repelled by different High
Courts and this Court. Section 143(1-A) has been
inserted in the Income Tax Act so that the assessee may
not be able to evade tax by resorting to the method of
showing loss first and then reducing the loss. Learned
counsel submits that the Division Bench of the High
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Court has rightly allowed the appeal of the Revenue
upholding the demand of additional tax.
8. We have considered the submissions of the learned
counsel for the parties and perused the records.
9. Only question to be answered in this appeal is as
to whether the demand of additional tax under the
provisions of Section 143(1-A) in the facts of the
present case was justified or not.
10. Before we enter into the rival submissions of the
learned counsel for the parties, it is relevant to have
a look on the statutory scheme under Section 143 and
143(1-A). Section 143(1)(a) reads thus:
“143. (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
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(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 where adjustments are
made under the first proviso, an intimation
shall be sent to the assessee, notwithstanding
that no tax or interest is found due from him
after making the said adjustments:
Provided also that an intimation under this
clause shall not be sent after the expiry of
two years from the end of the assessment year
in which income was first assessable.”
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11. Sub-section (1-A), as it originally read, was thus:
“143. (1-A)(a) Where, in the case of any
person, the total income, as a result of the
adjustments made under the first proviso to
clause (a) of sub-section (1), exceeds the
total income declared in the return by any
amount, the Assessing Officer shall,—
(i) further increase the amount of tax
payable under sub-section (1) by an
additional income tax calculated at the
rate of twenty per cent of the tax
payable on such excess amount and
specify the additional income tax in the
intimation to be sent under sub-clause
(i) of clause (a) of sub-section (1);
(ii) where any refund is due under
sub-section (1), reduce the amount of
such refund by an amount equivalent to
the additional income tax calculated
under sub-clause (i).”
12. Sub-section (1-A) was amended by the Finance Act,
1993 with effect from 1-4-1989, which was the date upon
which sub-section (1-A) had been introduced into the
Act. The substituted sub-section (1-A) read thus:
“143. (1-A)(a) Where as a result of the
adjustments made under the first proviso to
clause (a) of sub-section (1),—
(i) the income declared by any person in
the return is increased; or
(ii) the loss declared by such person in
the return is reduced or is converted into
income,
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the Assessing Officer shall,—
(A) in a case where the increase in income
under sub-clause (i) of this clause has
increased the total income of such person,
further increase the amount of tax payable
under sub-section (1) by an additional income
tax calculated at the rate of twenty per cent
on the difference between the tax on the
total income so increased and the tax that
would have been chargeable had such total
income been reduced by the amount of
adjustments and specify the additional income
tax in the intimation to be sent under sub-
clause (i) of clause (a) of sub-section (1);
(B) in a case where the loss so declared
is reduced under sub-clause (ii) of this
clause or the aforesaid adjustments have the
effect of converting that loss into income,
calculate a sum (hereinafter referred to as
additional income tax) equal to twenty per
cent of the tax that would have been
chargeable on the amount of the adjustments
as if it had been the total income of such
person and specify the additional income tax
so calculated in the intimation to be sent
under sub-clause (i) of clause (a) of sub-
section (1)
(C) where any refund is due under sub-
section (1), reduce the amount of such refund
by an amount equivalent to the additional
income tax calculated under sub-clause (A)
or sub-clause (B), as the case may be.”
13. The amendments brought by Finance Act, 1993 with
retrospective effect i.e. from 01.04.1989 are fully
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attracted with regard to assessment in question i.e.
for assessment year 1991-92. The substituted sub-
section (1-A) makes it clear that where the loss
declared by an assessee had been reduced by reason of
adjustments made under sub-section(1)(a), the
provisions of sub-section (1-A) would apply. As noted
above the Commissioner of Income Tax while rejecting
the revision petition of the petitioner has taken the
view that whenever adjustment is made, additional tax
would be charged @ 20% of the tax payable on such excess
amount. The excess amount refers to the increase in the
income and by implication the reduction in loss where
even after the addition there is negative income.
Whether there should be levy of additional tax in all
circumstances and cases where loss is reduced, is the
question to be answered in the present case.
14. By Taxation Laws (Amendment) Act, 1991 in Section
32 third proviso was inserted to the following effect:
“Provided also that, in respect of the
previous year relevant to the assessment year
on the 1st day of April, 1991, the deduction
in relation to any block of assets under this
clause shall, in the case of a company, be
restricted to seventy-five per cent of the
amount calculated at the percentage, on the
written down value of such assets, prescribed
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under this Act immediately before the
commencement of the Taxation Laws (Amendment)
Act, 1991.”
15. Prior to insertion of the above proviso the
depreciation was not restricted to 75% of the amount
calculated at the percentage on the written down value
of such assets. The return was filed by the assessee
on 31.12.1991, prior to which date the Taxation Laws
(Amendment) Act, 1991 had come into operation. It was
due to bonafide mistake and oversight that the assessee
claimed 100% depreciation instead of 75%. The 100%
depreciation of Rs.333,77,70,317/- was claimed on
written down value of assets, 25% depreciation was,
thus, disallowed restricting it to 75% and after
reducing 25% of the depreciation loss remained to the
extent of Rs.(-)3,43,94,90,393/-. Even as per reduction
of 25% depreciation the return of loss income of the
assessee remained. In claiming 100% depreciation the
assessee claims that there was no intention to evade
tax and the said claim was only a bonafide mistake. As
noted above by the Finance Act, 1993 Section 143(1-A)
was substituted with retrospective effect from
01.04.1989. The memorandum explaining the provisions
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of the Finance Bill with retrospective effect was to
the following effect:
“The provisions of Section 143(1-A) of
the Income Tax Act provide for levy of
twenty per cent additional income tax
where the total income, as a result of
the adjustments made under the first
proviso to Section 143(1)(a), exceeds
the total income declared in the return.
These provisions seek to cover cases of
returned income as well as returned loss.
Besides its deterrent effect, the
purpose of the levy of the additional
income tax is to persuade all the
assesses to file their returns of income
carefully to avoid mistakes.
In two recent judicial
pronouncements, it has been held that the
provisions of Section 143(1-A) of the
Income Tax Act, as these are worded, are
not applicable in loss cases.
The Bill, therefore, seeks to amend
Section 143(1-A) of the Income Tax Act
to provide that where as a result of the
adjustments made under the first proviso
to Section 143(1)(a), the income
declared by any person in the return is
increased, the assessing officer shall
charge additional income tax at the rate
of twenty per cent, on the difference
between the tax on the increased total
income and the tax that would have been
chargeable had such total income been
reduced by the amount of adjustments. In
cases where the loss declared in the
return has been reduced as a result of
the aforesaid adjustments or the
aforesaid adjustments have the effect of
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converting that loss into income, the
Bill seeks to provide that the assessing
officer shall calculate a sum (referred
to as additional income tax) equal to
twenty per cent of the tax that would
have been chargeable on the amount of the
adjustments as if it had been the total
income of such person.
The proposed amendment will take
effect from 1-4-1989 and will,
accordingly, apply in relation to
Assessment Year 1989-1990 and subsequent
years.”
16. Learned counsel for the Revenue has rightly
submitted that object of Section 143(1-A) was the
prevention of evasion of tax. The memorandum explaining
the provisions of the Finance Bill as noted above was
also to persuade to the assessee to file Income Tax
Return carefully to avoid mistakes.
17. This Court in Commissioner of Income Tax, Gauhati
vs. Sati Oil Udyog Limited and another, (2015) 7 SCC
304, had occasion to consider elaborately the
provisions of Section 143(1-A), its object and
validity. There was a challenge to the retrospectivity
of the provisions of Section 143(1-A) as introduced by
Finance Act, 1993. The Gauhati High Court had held that
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retrospective effect given to the amendment would be
arbitrary and unreasonable. The appeal was filed by the
Revenue in this Court in which appeal, this Court had
occasion to examine the constitutional validity of the
provisions. This Court in the above judgment held that
object of Section 143(1-A) was the prevention of
evasion of tax. In paragraph 9 of the judgment
following has been laid down:
“9. On a cursory reading of the provision,
it is clear that the object of Section 143(1-
A) is the prevention of evasion of tax. By the
introduction of this provision, persons who
have filed returns in which they have sought
to evade the tax properly payable by them is
meant to have a deterrent effect and a hefty
amount of 20% as additional income tax is
payable on the difference between what is
declared in the return and what is assessed to
tax.”
18. Relying on earlier judgment of this Court in K.P.
Varghese v. ITO, (1981) 4 SCC 173, this Court in the
above case held that provisions of Section 143(1-A)
should be made to apply only to tax evaders. In
paragraphs 21 and 25 following was laid down:
“21. In the present case, the question
that arises before us is also as to
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whether bona fide assessees are caught
within the net of Section 143(1-A). We
hasten to add that unlike in J.K.
Synthetics case, Section 143(1-A) has in
fact been challenged on constitutional
grounds before the High Court on the facts
of the present case. This being the case,
we feel that since the provision has the
deterrent effect of preventing tax
evasion, it should be made to apply only
to tax evaders. In support of this
proposition, we refer to the judgment in
K.P. Varghese v. ITO. The Court in that
case was concerned with the correct
construction of Section 52(2) of the
Income Tax Act: (K.P. Varghese case, SCC
p. 179, para 4 : SCR p. 639)
“52. (2) Without prejudice to the
provisions of sub-section (1), if in
the opinion of the Income Tax Officer
the fair market value of a capital
asset transferred by an assessee as on
the date of the transfer exceeds the
full value of the consideration
declared by the assessee in respect of
the transfer of such capital asset by
an amount of not less than fifteen per
cent of the value declared, the full
value of the consideration for such
capital asset shall, with the previous
approval of the Inspecting Assistant
Commissioner, be taken to be its fair
market value on the date of its
transfer.”
25. Taking a cue from Varghese case, we
therefore, hold that Section 143(1-A) can
only be invoked where it is found on facts
that the lesser amount stated in the
return filed by the assessee is a result
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of an attempt to evade tax lawfully
payable by the assessee. The burden of
proving that the assessee has so
attempted to evade tax is on the Revenue
which may be discharged by the Revenue by
establishing facts and circumstances from
which a reasonable inference can be drawn
that the assessee has, in fact, attempted
to evade tax lawfully payable by it.
Subject to the aforesaid construction of
Section 143(1-A), we uphold the
retrospective clarificatory amendment of
the said section and allow the appeals.
The judgments of the Division Bench2 of
the Gauhati High Court are set aside.
There will be no order as to costs.”
19. This Court in the above case upheld the
constitutional validity of Section 143(1-A) (as
inserted by the Finance Act, 1993) subject to holding
that Section 143(1-A) can only be invoked where it is
found on facts that the lesser amount stated in the
return filed by the assessee is a result of an attempt
to evade tax lawfully by the assessee.
20. Applying the ratio of the above judgment in the
present case, we need to find out as to whether 100%
depreciation as mentioned in return filed by the
assessee was a result of an attempt to evade tax
lawfully payable by the assessee.
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19. We have seen from the facts, as noted above, that
even after dis-allowing 25% of the depreciation, the
assessee in the return remained in loss and the 100%
depreciation was claimed by the assessee in the return
due to a bonafide mistake. By Taxation Laws (Amendment)
Act, 1991, the depreciation in the case of Company was
restricted to 75% which due to oversight was missed by
the assessee while filing the return. The Commissioner
of Income Tax by deciding the revision petition has
also not made any observation to the effact that 100%
depreciation claimed by the assessee was with intend
to evade payment of tax lawfully payable by the
assessee, rather the Commissioner in his order dated
31.03.1992 has observed that whenever adjustment is
made, additional tax has to be charged @ 20% of the tax
payable on such excess amount.
20. It is true that while interpreting a Tax
Legislature the consequences and hardship are not
looked into but the purpose and object by which taxing
statutes have been enacted cannot be lost sight. This
Court while considering the very same provision i.e.
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Section 143(1-A), its object and purpose and while
upholding the provision held that the burden of proving
that the assessee has attempted to evade tax is on the
Revenue which may be discharged by the Revenue by
establishing facts and circumstances from which a
reasonable inference can be drawn that the assessee
has, in fact, attempted to evade tax lawfully payable
by it. In the present case, not even whisper, that
claim of 100% depreciation by the assessee, 25% of
which was disallowed was with intend to evade tax. We
cannot mechanically apply the provisions of Section
143(1-A) in the facts of the present case and in view
of the categorical pronouncement by this Court in
Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog
Limited and another(supra), where it is held that
Section 143(1-A) can only be invoked when the lesser
amount stated in the return filed by the assessee is a
result of an attempt to evade tax lawfully payable by
the assessee. In view of the above, we hold that
mechanical application of Section 143(1-A) in the facts
of the present case was uncalled for.
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21. In the result, we allow the appeal, set aside the
judgment of the Division Bench of the High Court as
well as demand of additional tax dated 12.02.1992 as
amended on 28.02.1992.
……………………….J.
( ASHOK BHUSHAN )
……………………….J.
( MOHAN M.SHANTANAGOUDAR )
New Delhi,
March 19, 2020.
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