COMMISSIONER OF INCOME TAX AP 1 HYD V. M RAMANADHAM CHETTY

RC/21/2000

AI Insights

The case involves the Commissioner of Income Tax, A.P.I, Hyderabad as the applicant and Shri M. Ramanadham Chetty and another as respondents. The core issue was the disallowance of 40% of the incentive bonus claimed by the respondents, who were Development Officers in the Life Insurance Corporation of India, as a deduction in their income tax returns. The Assessing Officer initially rejected this claim, but the Commissioner of Income Tax (Appeals) later accepted it for the assessment years 1992-1993 and 1993-1994. However, for the assessment year 1994-1995, the Commissioner rejected the claim, which led to further appeals. The Income Tax Appellate Tribunal (ITAT) decided in favor of the assessees, referencing a decision by the High Court. The Revenue challenged this decision, leading to the current reference to the court under Section 256(1) of the Income Tax Act, 1961.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 744040 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 20-12-2011
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax v B.Chinnaiah, Kvaverner John Brown Engg. (India) P.Ltd v Assistant Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Deduction; Incentive bonus; Income Tax; Prima facie adjustments; Conflicting Judgments
• Section: 143(1)(a); 143(1A); 256(1); 80-O

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.21 of 2000 Dated:20.12.2011 Between: Commissioner of Income Tax, A.P.I, Hyderabad. …Applicant and Shri M.Ramanadham Chetty, Madakasira, And another. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.21 of 2000 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The following question is referred to this Court under Section 256(1) of the Income Tax Act, 1961 (the Act), at the instance of the Revenue. Whether on the facts and in the circumstances of the case the ITAT was correct in law in holding that the disallowance of 40% of the incentive bonus claimed by the assessee as a deduction was a debatable issue till 8.3.95? To appreciate the issue, it is necessary to briefly notice the fact of the matter as summarized in the statement of case. The respondents/assessees, who were the Development Officer in the Life Insurance Corporation of India, filed their returns and claimed deduction of 40% of the incentive bonus received by them from their employer towards expenses incurred for earning the same. The same was rejected by the Assessing Officer while processing the returns under Section 143(1)(a) of the Act by making prima facie adjustments in that behalf. On appeal, for the assessment years 1992-1993 and 1993-1994 the Commissioner of Income Tax (Appeals) accepted the claims of the assessees and directed the Assessing Officer to allow necessary deductions. However, in his appellate order for the assessment year 1994-1995 the Commissioner of Income Tax rejected the contention of the assessee and upheld the action of the Assessing Officer. The assessee carried the matter in further appeal for the assessment year 1994-1995, and the Revenue carried the matter in the second appeal before the Tribunal. The Tribunal followed the decision of this Court in Commissioner of Income Tax v B.Chinnaiah[1] and decided the issue in favour of the assessee and against the Revenue. During the course of arguments the attention of this Court is invited to the decision of the Supreme Court in Kvaverner John Brown Engg. (India) P.Ltd v Assistant Commissioner of Income Tax[2], wherein it was held as under. …One of the main conditions stipulated by way of the first proviso to Section 143(1)(a), as it stood during the relevant time, referred to prima facie adjustments. The first proviso permitted the Department to make adjustments in the income or loss declared in the return in cases of arithmetical errors or in cases where any loss carried forward or deduction or disallowance which on the basis of information available in such return was prima facie admissible but which was not claimed in the return or in cases where any loss carried forward, or deduction or allowance claimed in the return which on the basis of information available in such return was prima facie inadmissible. In the present case, therefore, when there were conflicting judgments on interpretation of Section 80-O, in our view, prima facie adjustments contemplated under Section 143(1)(a) was not applicable and, therefore, consequently appellant was not liable to pay additional tax under Section 143(1A) of the 1961 Act. In view of the same, it may be taken as well settled that while assessing the return of income under Section 143(1)(a) of the Act, the Income Tax Officer or any Assessing Officer of the Department is not entitled to make adjustments except in regard to arithmetical errors or matters which are prima facie adjustable. Following the above, the reference is answered in the affirmative in favour of the assessees and against the Revenue. The Referred Case shall stand disposed of accordingly without any order as to costs. _______________ (V.V.S.RAO, J) ____________________ (R.KANTHA RAO, J) 20.12.2011 vs [1] (1995) 214 ITR 368 [2] (2008) 305 ITR 103 (SC) "