The Commissioner of Income Tax, V. Sri C.V. Ramana Rao

RC/102/1996

AI Insights

The case revolves around a dispute between the Commissioner of Income Tax, Visakhapatnam, and Sri C.V.Ramana Rao, a Development Officer at the Life Insurance Corporation of India, concerning the disallowance of 40% of an incentive bonus claimed by the assessee for the assessment year 1990-1991. Initially, the Assessing Officer made adjustments under Section 143(1)(a) of the Income Tax Act, 1961, which were contested by the assessee through an application under Section 154 and subsequent appeals. The Tribunal found the issue to be highly debatable and ruled that such a matter could not be subject to prima facie adjustments under Section 143(1)(a). The Revenue, aggrieved by this decision, sought a reference to the High Court, which upheld the Tribunal's decision based on the Supreme Court's ruling in a similar case.

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 719209 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 20-12-2011
• Assessment Year: misc
• Other Referred Cases: 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: Assessment year 1990-1991; Disallowance; Incentive bonus; Income Tax; Prima-facie adjustment
• Section: 154; 143(1)(a); 256(1)

Judgement Text

"THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.102 of 1996 Dated:20.12.2011 Between: Commissioner of Income Tax, Visakhapatnam. …Applicant and Sri C.V.Ramana Rao, Rajahmundry. …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE R. KANTHA RAO REFERRED CASE No.102 of 1996 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 Tribunal was justified in holding that the prima facie adjustments in respect of disallowance of expenditure on incentive bonus cannot be done u/s.143(1)(a)? The brief fact of the matter is as follows. The respondent/assessee, who was a Development Officer in the Life Insurance Corporation of India, filed his returns for the assessment year 1990-1991, which was processed under Section 143(1)(a) of the Act, inter alia, making adjustments on account of 40% of incentive bonus. The assessee’s application under Section 154 of the Act for deletion of the same was rejected by the Assessing Officer. The appeal before the Commissioner of Income Tax (Appeals) was also dismissed. Aggrieved by the same, the assessee filed further appeal before the Tribunal. The Tribunal upheld the plea of the assessee and held that issue in question is a highly debatable issue and cannot be the subject matter of prima facie adjustment under Section 143(1)(a) of the Act, and as such, the Assessing Officer could not have made the impugned addition by disallowing the claim of the assessee for deduction of 40% of incentive bonus while processing the return under Section 143(1)(a) of the Act. Aggrieved by the same, the Revenue sought reference of the question 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[1], 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] (2008) 305 ITR 103 (SC) "