Telangana High Court

Commr Of Income Tax,Api,Hyd vs M/S.Gvk Industries Ltd.,Hyd on 23 November, 2022

Bench: Ujjal Bhuyan, C.V. Bhaskar Reddy

       THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                                         AND
         THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY
                               I.T.T.A.No.24 of 2003
JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)

        Heard Ms. K.Mamata Choudary, learned counsel for the

appellant and Mr. Challa Gunaranjan, learned counsel for the

respondent.

2. This appeal has been preferred under Section 260A of

the Income Tax Act, 1961 (briefly 'the Act' hereinafter)

assailing the order dated 21.08.2001 passed by the Income Tax

Appellate Tribunal, Hyderabad Bench 'B', Hyderabad (briefly

'the Tribunal' hereinafter) in I.T.A.No.1845/Hyd/1996 for the

assessment year 1995-96.

3. On 02.11.2022, learned counsel for the appellant made a

submission that the disputed tax may be below the limit of

one crore. She therefore, prayed for time to obtain

instructions.

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4. On instructions received, today learned counsel for the

appellant submits that disputed tax would be above one crore

outer limit. Therefore, the appeal would have to be heard on

merits.

5. Though this appeal was admitted for hearing

on 24.02.2003, no substantial question of law was framed.

However, from the memo of appeal we find that

appellant/revenue has proposed the following question as a

substantial question of law:

Whether on the facts and in the circumstances of the case, Tribunal was justified in upholding the order of the first appellate authority setting aside the intimation of the assessing officer under Section 143(1)(a) of the Act on the ground that issue was debatable at the time of issuance of the intimation ?

6. It may be mentioned that respondent is an assessee

under the Act having the status of a company. For the

assessment year 1995-96, it filed return of income ::3::

on 29.11.1995. Assessing Officer in the intimation under

Section 143(1)(a) of the Act dated 27.03.1996 disallowed

interest on deposits, deduction of which was claimed by the

respondent.

7. In the intimation, assessing officer noted that the

interest income of Rs.2,06,77,948.00 was added to the income

of the respondent under the head 'income from other sources'

in view of the binding nature of the following decisions of this

Court:

CIT v. Darco Cooling Coils Ltd1.

Andhra Pradesh Carbides Limited v. CIT2 Godavari Fertilisers & Chemicals Ltd. v. CIT3

8. Aggrieved by the same, respondent preferred appeal

before the first appellate authority i.e., Commissioner of

Income Tax (Appeals)-I, Hyderabad (briefly 'CIT(A)'

hereinafter).

196 ITR 375

198 ITR 386

198 ITR 388 ::4::

9. One of the issues considered by CIT(A) was whether

disallowing adjustment of interest on deposits made by the

respondent could be construed as a prima facie adjustment so

that the same could be carried out under Section 143(1)(a) of

the Act. By the order dated 15.07.1996, CIT(A) allowed the

appeal of the respondent by declaring that such prima facie

adjustment could not have been carried out by the assessing

officer while issuing intimation under Section 143(1)(a) of the

Act.

10. Revenue carried the matter in further appeal before the

Tribunal. By the order dated 21.08.2001, Tribunal dismissed

the appeal of the revenue. Hence, this appeal.

11. Learned Senior Standing Counsel for the appellant

submits that set-off of adjustment of interest earned by the

respondent against interest paid for borrowed funds was no

longer a debatable issue inasmuch as the said issue was

conclusively determined by this Court in the three decisions ::5::

referred to and relied upon by the assessing officer which was

also urged before the Tribunal. The same no longer being a

debatable issue could be disallowed by the assessing officer as

a prima facie adjustment under Section 143(1)(a) of the Act. In

support of her contentions, she has placed reliance on a

Division Bench judgment of the Delhi High Court in Samtel

Color Ltd. v. Union of India4 which was subsequently

followed by the Delhi High Court in S.R.Grover v. Assistant

Commissioner of Income Tax5.

12. On the other hand, learned counsel for the respondent

has referred to Section 143(1)(a) of the Act, more particularly

to the first proviso thereto and submits that the disallowance

of adjustment of interest on deposits by the assessing officer

would not come within the illustrations given in the said

proviso. As a matter of fact, he submits that claim of the

respondent was covered by the decision of this Court in CIT

258 ITR 1 (Delhi)

280 ITR 580 ::6::

v. Nagarjuna Steels Ltd.6 which was holding the field when

the intimation was issued by the assessing officer. Ofcourse at

a subsequent stage, the decision in CIT v. Nagarjuna Steels

Ltd. (6 supra) was overruled by the Supreme Court in CIT v.

Tuticorn Alkali Chemicals and Fertilizers Ltd.7, which

decision was rendered on 08.07.1997 whereas the intimation

was issued on 27.03.1996. Therefore, on 27.03.1996,

assessing officer could not have made prima facie adjustment

and ought to have issued notice under Section 143(2) of the

Act to the respondent.

13. Submissions made by learned counsel for the parties

have received the due consideration of the Court.

14. Short point for consideration is whether the assessing

officer could have made prima facie adjustment by disallowing

the claim of adjustment of interest on deposits by the

[1988] 171 ITR 663 (AP)

227 ITR 172 ::7::

respondent/assessee at the stage of issuance of intimation

under Section 143(1)(a) of the Act ?

15. To appreciate the rival contentions, we may advert to

the order passed by the CIT(A). CIT(A) held that in the guise

of prima facie adjustment, assessing officer cannot adjudicate

upon debatable issues. Reliance was placed on the decision of

the Madhya Pradesh High Court in Kamal Textiles v. ITO8

as well as on the decision of the Calcutta High Court in

Modern Fibotex India Ltd. v. DCIT9. Thereafter, CIT(A)

held as follows:

In the present case the decision rendered by the jurisdictional High Court in the case of Godavari Fertilizers & Chemicals Ltd. v. CIT (198 ITR

388) has been appealed against and that the appeal is pending before the Supreme Court. Therefore, there cannot be any shadow of doubt if it is said that the issue is highly debatable on which two opinions are clearly possible and that it will not be fair and appropriate to carry out a prima facie adjustment on a highly debatable issue without

189 ITR 339

212 ITR 496 ::8::

giving the appellant an opportunity of being heard. It is, indeed, true that the Assessing Officer has obtained prior approval of the CIT, AP-I before passing the aforesaid adjustment. However, the approval so accorded is only administrative in nature and there is no shackle placed upon the powers of the CIT (Appeals) not to judge the issue in an impartial and judicial manner. Therefore, having regard to all the facts and circumstances of the case, more particularly, the fact that in the present case the interest payment sought to be set off against the interest receipts are having the same origin namely Borrowed Funds, I am of the view that the prima facie adjustment carried out by the Assessing Officer is not sustainable in law. Therefore, I delete the prima facie adjustment carried out to the tune of Rs.2,06,77,948/-.

16. CIT(A) noted that the decision of this Court in

Godavari Fertilizers and Chemicals Limited v. CIT (3

supra) on which heavy reliance is placed by the revenue was

appealed against before the Supreme Court and the appeal was

pending. CIT(A) held that the issue was highly debatable on

which two opinions were clearly possible and on such a highly

debatable issue, prima facie adjustment ought not to have been ::9::

carried out by the assessing officer. Taking the view that

interest payments sought to be set off against interest receipts

having the same origin namely borrowed funds, CIT(A) set

aside the prima facie adjustment made by the assessing officer.

17. In further appeal before the Tribunal, Tribunal held that

order passed by the CIT(A) was a well reasoned one which did

not warrant interference in further appeal. Tribunal further

noted that decision of the Supreme Court in CIT v. Tuticorn

Alkaline Chemicals and Fertilisers Ltd. (7 supra) was not

available at the time of making prima facie adjustment by the

assessing officer.

18. As already noted above, Supreme Court had

pronounced the decision in CIT v. Tuticorn Alkaline

Chemicals and Fertilisers Ltd. (supra) on 08.07.1997

whereas the intimation was issued by the Assessing Officer

much earlier on 27.03.1996.

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19. At this stage, we may refer to the provisions of

Section 143(1)(a) of the Act as it stood then, which is

extracted hereunder:

Assessment:

143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:-

(a) The total income or loss shall be computed after making the following adjustments, namely:-

(i) any arithmetical error in the return:

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(iii) disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139;

(iv) disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account ::11::

in computing the total income in the return;

(v) disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C- Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or

(vi) addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return;

Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode.

20. We are of the view that the above provision clearly

mentions the circumstances in which prima facie adjustment can

be carried out under Section 143(1)(a) of the Act. The

prima facie adjustment sought to be carried out by the assessing ::12::

officer in the instant case does not fall within any of the

illustrations mentioned above.

21. In the circumstances, we do not find any error or

infirmity in the view taken by the CIT(A) as affirmed by the

Tribunal. That being the position, the substantial question of

law as framed above, is answered in the affirmative and in

favour of the respondent.

22. Appeal is accordingly dismissed. No costs.