COMMISSIONER OF INCOME TAX VIJAYAWADA V. M.KRISHNA MURTY

RC/39/2001

AI Insights

The case revolves around the Income Tax Appellate Tribunal's decision to refer a question concerning the disallowance of a deduction claimed by the assessee, Sri M.Krishna Murthy, on his incentive bonus. The assessee, a Development Officer at LIC of India, had claimed 40% of his incentive bonus as a revenue deduction in his income tax returns for the assessment years 1990-1991, 1991-1992, and 1992-1993. The return was processed under Section 143(1)(a) of the Income Tax Act, 1961, where the deduction was initially disallowed. The Appellate Deputy Commissioner later allowed the claim, deeming the issue debatable. The Revenue's appeal against this decision was dismissed, leading to the reference of the question to the High Court.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719193 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 29-12-2011
• Assessment Year: misc
• Other Referred Cases: Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers P. Ltd., Kvaverner John Brown Engg. (India) P. Ltd. v Asst. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Deduction Disallowance; Incentive bonus; Income Tax; Prima-facie adjustment; Salary income
• Section: 143(1)(a); 256(1)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.39 OF 2001 Dated:29.12.2011 Between: Commissioner of Income Tax, Vijayawada .. Applicant And Sri M.Krishna Murthy, Development Officer, LIC of India, Chittoor .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.39 OF 2001 ORDER: (Per the Hon’ble Sri Justice V.V.S.Rao) The Income Tax Appellate Tribunal, Hyderabad Bench ‘B’ referred the following question under Section 256(1) of the Income Tax Act, 1961 (the Act, for brevity) for the opinion of the Court at the instance of the Revenue. Whether on the facts and in the circumstances of the case, the ITAT was correct in holding that in view of the fact that the judgment of A.P.High Court in 214 ITR 368 was rendered subsequent to the finalization of returns for the years 1991-92 and 1992-93 the incentive bonus could be added to salary income by disallowing the deduction claimed while processing the return under S.143 (1)(a) of the Income Tax Act? The assessee is a Development Officer in Life Insurance Corporation of India. In his return of income for the assessment years 1990-1991, 1991-1992 and 1992-1993, he claimed 40% of the incentive bonus as a revenue deduction. The return was processed under Section 143(1)(a) of the Act. In purported prima facie adjustments, 40% deduction claimed was disallowed. The Appellate Deputy Commissioner allowed the claim observing that the issue is one which could not be disallowed as it was a debatable one. The appeal by the Revenue was dismissed whereupon they sought the reference. The question whether the assessing officer can make adjustments which are debatable is no more res integra. In Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers P. Ltd.[1], it was held as under. What were permissible under the first proviso to section 143(1)(a) to be adjusted were, (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance of relief, which was prima facie admissible on the 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 available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief. (emphasis supplied) The above view was reiterated in Kvaverner John Brown Engg. (India) P. Ltd. v Asst. CIT [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 of cases of arithmetical errors or in cases where any loss carried forward or deduction or allowance 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 the appellant was not liable to pay additional tax under section 143 (1A) of the 1961 Act. In view of the above, the question 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) _____________________ (B.N.RAO NALLA, J) 29.12.2011 KH [1] (2007) 291 ITR 500 (SC) [2] (2008) 305 ITR 103 (SC) "