COMMISSIONER OF INCOME TAX HYD V. K.N.R. PRASADA RAO KURNOOL

RC/100/2000

AI Insights

The case revolves around the disallowance of a 40% incentive bonus claimed by Sri K.N.R. Prasada Rao, a Development Officer at the Life Insurance Corporation of India, as a deduction in his income tax return for the assessment year 1994-1995. The Assessing Officer initially disallowed the claim, which was affirmed by the Commissioner of Income Tax (Appeals). However, the Income Tax Appellate Tribunal reversed this decision, leading to a reference by the Revenue to the High Court under Section 256(2) of the Income Tax Act, 1961. The core legal issue was whether the disallowance was a debatable issue until a specified date, which the court resolved by referencing a Supreme Court decision that clarified the conditions under which prima facie adjustments could be made under Section 143(1)(a) of the Act.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719213 (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: Debatable Issue; Deduction; Incentive bonus; Income Tax; Prima-facie adjustment
• Section: 143(1)(a); 256(2)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.100 of 2000 Dated:20.12.2011 Between: Commissioner of Income Tax, AP-1, Hyderabad. …Applicant and Sri K.N.R.Prasada Rao, Kurnool. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.100 of 2000 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The reference is by the Income Tax Appellate Tribunal under Section 256(2) of the Income Tax Act, 1961 (the Act), in obedience to the directions of this Court dated 02.12.1999 in I.T.C.No.14 of 1999. The following question is referred. 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 8.3.1995? The respondent/assessee who was a Development Officer in the Life Insurance Corporation of India filed his return of income for the assessment year 1994-1995. Therein he claimed 40% of incentive bonus as deduction towards expenditure. While processing the return under Section 143(1)(a) of the Act, the Assessing Officer disallowed the claim and made prima facie adjustment in that behalf. The same was affirmed by the Commissioner of Income Tax (Appeals). On further appeal by the assessee, the Appellate Tribunal followed the decision of this Court in Commissioner of Income Tax v B.Chinnaiah[1] and directed the Assessing Officer to allow the deduction. Aggrieved by the same, the reference was sought, which was denied, and thereafter, the Revenue approached this Court under Section 256(2) of the Act. This Court directed that the above extracted question be referred to this Court. 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 assessee 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) "