Rajasthan State Electricity … vs The Dy. Commissioner Of Income Tax … on 19 March, 2020


Supreme Court of India

Rajasthan State Electricity … vs The Dy. Commissioner Of Income Tax … on 19 March, 2020

Author: Ashok Bhushan

Bench: R. Banumathi, Ashok Bhushan, A.S. Bopanna

                                                           1


                                                                                        REPORTABLE

                                      IN THE SUPREME COURT OF INDIA
                                       CIVIL APPELLATE JURISDICTION

                                      CIVIL APPEAL NO.8590 of 2010

          RAJASTHAN STATE ELECTRICITY BOARD
          JAIPUR                                                            ...APPELLANT(S)

                                                     VERSUS

          THE DY. COMMISSIONER OF INCOME
          TAX(ASSESSMENT) & ANR.                                            ...RESPONDENT(S)



                                                 J U D G M E N T

ASHOK BHUSHAN, J.

This appeal has been filed by the assessee

challenging the Division Bench judgment dated

13.11.2007 of the High Court of Judicature for

Rajasthan at Jaipur Bench, Jaipur by which D.B. Civil

Special Appeal (Writ) No.837 of 1993 filed by the

Revenue has been allowed upholding the demand of

additional tax under Section 143(1-A) of the Income Tax

Act, 1961.

Signature Not Verified

2.
Digitally signed by
MAHABIR SINGH
Date: 2020.03.19
Brief facts necessary to be noted for deciding this
18:37:08 IST
Reason:

appeal are:

2

The assessee is a Government Company as defined

under Section 617 of the Companies Act, 1956. The

assessee filed return on 30.12.1991 for the assessment

year 1991-92 showing a loss amounting to Rs.

(-)427,39,32,972/-. Due to a bonafide mistake the

assessee claimed 100% depreciation of Rs.

333,77,70,317/- on written down value of assets instead

of 75% depreciation. Under the unamended Section 32(2)

of the Income Tax Act, 1961 the assessee was entitled

to claim 100% depreciation. However, after the

amendment the depreciation could only be 75%. The

assessee supported the returns with provisional revenue

account, balance sheet as on 31.03.1991, details of

gross fixed assets, computation chart and depreciation

chart. No tax was payable on the said return by the

assessee. No notice under Section 143(2) of the Income

Tax Act, 1961 was received by the assessee.

3. An intimation under Section 143(1)(a) of the Income

Tax Act, 1961 dated 12.02.1992 was issued by the

Assessing Officer disallowing 25% of the depreciation,

restricting the depreciation to 75%. Additional tax

under Section 143(1-A) of the Income Tax Act, 1961
3

amounting to Rs.8,63,64,827/- was demanded. The

assessee filed an application under Section 154 of the

Income Tax Act, 1961 dated 18.02.1992 praying for

rectification of the demand. The assessee also filed a

petition under Section 264 of the Income Tax Act, 1961

against the demand of additional tax. In the petition

it was stated that even after allowing only 75% of

depreciation the income of the assessee remained to be

in loss to Rs.3,43,94,90,393/-. The assessee prayed for

quashing the demand of additional tax. The application

filed under Section 154 of the Income Tax Act, 1961 was

rejected by the Assessing Officer on 28.02.1992. The

revision petition under Section 264 of the Income Tax

Act, 1961 came to be dismissed by the Commissioner of

Income Tax by order dated 31.03.1992. The Commissioner

of Income Tax rejected the revision petition by giving

following reasoning:

“A plain reading of the provisions of
Section 143(1-A) shows that whenever
adjustment is made, additional tax has to be
charged @ 20% of the tax payable on such
‘excess amount’. The ‘excess amount’ refers
to the increase in the income and by
implication the reduction in loss where even
after the addition there is negative income.
The explanation to Section 143(1-A)(b)
provides that the tax payable on such excess
4

means the tax that would have been chargeable
on the amount of adjustment to the total
income. Where the adjustment exceeds the
income determined. Clearly, therefore, in
this case the additional tax had to be
charged on the basis of the tax chargeable
on the sum of Rs.83,44,42,579/- added by the
Assessing Officer.”

4. Aggrieved by the order of the Commissioner of

Income Tax challenging the demand of additional tax

which was reduced to amount of Rs.7,67,68,717/- Writ

Petition No.2267 of 1992 was filed by the assessee in

the High Court of Judicature for Rajasthan, Bench at

Jaipur. Learned Single Judge vide judgment dated

19.01.1993 allowed the writ petition quashing the levy

of additional tax under Section 143(1-A). The Revenue

aggrieved by the judgment of the learned Single Judge

filed a Special Appeal which has been allowed by the

Division Bench of the High Court vide its judgment

dated 13.11.2007 upholding the demand of additional

tax. The assessee aggrieved by the judgment of the

Division Bench has come up in this appeal.

5. We have heard Shri Arijit Prasad, learned senior

counsel appearing for the appellant and Shri Rupesh

Kumar, learned counsel for the respondents.
5

6. Shri Arijit Prasad referring to Circular No.549

dated 30.10.1989 of Central Board of Direct Taxes

submits that 20% additional tax sought to be imposed

under Section 143(1-A) of 1961 Act is in the nature of

penalty and can be levied only when the assessee had

intentionally sought to file an incorrect return. It

is submitted that such additional tax could only become

payable in case where assessee was assessed to an

income for the purpose of tax and could not apply where

there was no income or there was loss. The intent of

the Legislature in enacting provision of Section

143(1-A) was to ensure that the assessee also declares

his loss in the return correctly and where the assessee

deliberately or intentionally filed false returns, he

was liable to pay additional Income Tax. It is

submitted that unabsorbed losses and unabsorbed

depreciation were to be carried forward to future years

to be set off against profits and it did not in any

manner affect business loss. He submits that business

loss suffered by the assessee had not reduced because

of the bonafide mistake committed by the appellant in

calculating the depreciation. The assessee was in loss
6

and continued to be in loss. Reduction in depreciation

from 100% to 75% did not amount to reduction in loss

and additional tax under Section 143(1-A) of the Income

Tax Act, 1961 was only to prevent evasion of tax. He

submits that when additional tax had clear and specific

imprint of penalty, the Revenue could not be heard to

say that the levy of additional tax is automatic under

Section 143(1-A) of the Act. If additional tax could

be levied in such circumstances, it would be punishing

the assessee for no fault of his and that too without

giving him a hearing.

7. Learned counsel for the Revenue submits that

provision of Section 143(1-A) demonstrates that it is

not penal in nature. It is the device to check evasion

of tax. It is submitted that challenge to vires of

Section 143(1-A) has been repelled by different High

Courts and this Court. Section 143(1-A) has been

inserted in the Income Tax Act so that the assessee may

not be able to evade tax by resorting to the method of

showing loss first and then reducing the loss. Learned

counsel submits that the Division Bench of the High
7

Court has rightly allowed the appeal of the Revenue

upholding the demand of additional tax.

8. We have considered the submissions of the learned

counsel for the parties and perused the records.

9. Only question to be answered in this appeal is as

to whether the demand of additional tax under the

provisions of Section 143(1-A) in the facts of the

present case was justified or not.

10. Before we enter into the rival submissions of the

learned counsel for the parties, it is relevant to have

a look on the statutory scheme under Section 143 and

143(1-A). Section 143(1)(a) reads thus:

“143. (1)(a) Where a return has been made
under Section 139, or in response to a notice
under sub-section (1) of Section 142,—

(i) if any tax or interest is found due on
the basis of such return, after adjustment
of any tax deducted at source, any advance
tax paid and any amount paid otherwise by way
of tax or interest, then, without prejudice
to the provisions of sub-section (2), an
intimation shall be sent to the assessee
specifying the sum so payable, and such
intimation shall be deemed to be a notice of
demand issued under Section 156 and all the
provisions of this Act shall apply
accordingly; and
8

(ii) if any refund is due on the basis of
such return, it shall be granted to the
assessee:

Provided that in computing the tax or
interest payable by, or refundable to, the
assessee, the following adjustments shall be
made in the income or loss declared in the
return, namely—

(i) any arithmetical errors in the
return, accounts or documents
accompanying it shall be rectified;

(ii) any loss carried forward,
deduction, allowance or relief, which,
on the basis of the information
available in such return, accounts or
documents, is prima facie admissible but
which is not claimed in the return,
shall be allowed;

(iii) any loss carried forward,
deduction, allowance or relief claimed
in the return, which, on the basis of
the information available in such
return, accounts or documents, is prima
facie inadmissible, shall be
disallowed:

Provided further that where adjustments are
made under the first proviso, an intimation
shall be sent to the assessee, notwithstanding
that no tax or interest is found due from him
after making the said adjustments:

Provided also that an intimation under this
clause shall not be sent after the expiry of
two years from the end of the assessment year
in which income was first assessable.”
9

11. Sub-section (1-A), as it originally read, was thus:

“143. (1-A)(a) Where, in the case of any
person, the total income, as a result of the
adjustments made under the first proviso to
clause (a) of sub-section (1), exceeds the
total income declared in the return by any
amount, the Assessing Officer shall,—

(i) further increase the amount of tax
payable under sub-section (1) by an
additional income tax calculated at the
rate of twenty per cent of the tax
payable on such excess amount and
specify the additional income tax in the
intimation to be sent under sub-clause

(i) of clause (a) of sub-section (1);

(ii) where any refund is due under
sub-section (1), reduce the amount of
such refund by an amount equivalent to
the additional income tax calculated
under sub-clause (i).”

12. Sub-section (1-A) was amended by the Finance Act,

1993 with effect from 1-4-1989, which was the date upon

which sub-section (1-A) had been introduced into the

Act. The substituted sub-section (1-A) read thus:

“143. (1-A)(a) Where as a result of the
adjustments made under the first proviso to
clause (a) of sub-section (1),—

(i) the income declared by any person in
the return is increased; or

(ii) the loss declared by such person in
the return is reduced or is converted into
income,
10

the Assessing Officer shall,—

(A) in a case where the increase in income
under sub-clause (i) of this clause has
increased the total income of such person,
further increase the amount of tax payable
under sub-section (1) by an additional income
tax calculated at the rate of twenty per cent
on the difference between the tax on the
total income so increased and the tax that
would have been chargeable had such total
income been reduced by the amount of
adjustments and specify the additional income
tax in the intimation to be sent under sub-
clause (i) of clause (a) of sub-section (1);

(B) in a case where the loss so declared
is reduced under sub-clause (ii) of this
clause or the aforesaid adjustments have the
effect of converting that loss into income,
calculate a sum (hereinafter referred to as
additional income tax) equal to twenty per
cent of the tax that would have been
chargeable on the amount of the adjustments
as if it had been the total income of such
person and specify the additional income tax
so calculated in the intimation to be sent
under sub-clause (i) of clause (a) of sub-
section (1)

(C) where any refund is due under sub-
section (1), reduce the amount of such refund
by an amount equivalent to the additional
income tax calculated under sub-clause (A)
or sub-clause (B), as the case may be.”

13. The amendments brought by Finance Act, 1993 with

retrospective effect i.e. from 01.04.1989 are fully
11

attracted with regard to assessment in question i.e.

for assessment year 1991-92. The substituted sub-

section (1-A) makes it clear that where the loss

declared by an assessee had been reduced by reason of

adjustments made under sub-section(1)(a), the

provisions of sub-section (1-A) would apply. As noted

above the Commissioner of Income Tax while rejecting

the revision petition of the petitioner has taken the

view that whenever adjustment is made, additional tax

would be charged @ 20% of the tax payable on such excess

amount. The excess amount refers to the increase in the

income and by implication the reduction in loss where

even after the addition there is negative income.

Whether there should be levy of additional tax in all

circumstances and cases where loss is reduced, is the

question to be answered in the present case.

14. By Taxation Laws (Amendment) Act, 1991 in Section

32 third proviso was inserted to the following effect:

“Provided also that, in respect of the
previous year relevant to the assessment year
on the 1st day of April, 1991, the deduction
in relation to any block of assets under this
clause shall, in the case of a company, be
restricted to seventy-five per cent of the
amount calculated at the percentage, on the
written down value of such assets, prescribed
12

under this Act immediately before the
commencement of the Taxation Laws (Amendment)
Act
, 1991.”

15. Prior to insertion of the above proviso the

depreciation was not restricted to 75% of the amount

calculated at the percentage on the written down value

of such assets. The return was filed by the assessee

on 31.12.1991, prior to which date the Taxation Laws

(Amendment) Act, 1991 had come into operation. It was

due to bonafide mistake and oversight that the assessee

claimed 100% depreciation instead of 75%. The 100%

depreciation of Rs.333,77,70,317/- was claimed on

written down value of assets, 25% depreciation was,

thus, disallowed restricting it to 75% and after

reducing 25% of the depreciation loss remained to the

extent of Rs.(-)3,43,94,90,393/-. Even as per reduction

of 25% depreciation the return of loss income of the

assessee remained. In claiming 100% depreciation the

assessee claims that there was no intention to evade

tax and the said claim was only a bonafide mistake. As

noted above by the Finance Act, 1993 Section 143(1-A)

was substituted with retrospective effect from

01.04.1989. The memorandum explaining the provisions
13

of the Finance Bill with retrospective effect was to

the following effect:

“The provisions of Section 143(1-A) of
the Income Tax Act
provide for levy of
twenty per cent additional income tax
where the total income, as a result of
the adjustments made under the first
proviso to Section 143(1)(a), exceeds
the total income declared in the return.
These provisions seek to cover cases of
returned income as well as returned loss.
Besides its deterrent effect, the
purpose of the levy of the additional
income tax is to persuade all the
assesses to file their returns of income
carefully to avoid mistakes.

In two recent judicial
pronouncements, it has been held that the
provisions of Section 143(1-A) of the
Income Tax Act
, as these are worded, are
not applicable in loss cases.

The Bill, therefore, seeks to amend
Section 143(1-A) of the Income Tax Act
to provide that where as a result of the
adjustments made under the first proviso
to Section 143(1)(a), the income
declared by any person in the return is
increased, the assessing officer shall
charge additional income tax at the rate
of twenty per cent, on the difference
between the tax on the increased total
income and the tax that would have been
chargeable had such total income been
reduced by the amount of adjustments. In
cases where the loss declared in the
return has been reduced as a result of
the aforesaid adjustments or the
aforesaid adjustments have the effect of
14

converting that loss into income, the
Bill seeks to provide that the assessing
officer shall calculate a sum (referred
to as additional income tax) equal to
twenty per cent of the tax that would
have been chargeable on the amount of the
adjustments as if it had been the total
income of such person.

The proposed amendment will take
effect from 1-4-1989 and will,
accordingly, apply in relation to
Assessment Year 1989-1990 and subsequent
years.”

16. Learned counsel for the Revenue has rightly

submitted that object of Section 143(1-A) was the

prevention of evasion of tax. The memorandum explaining

the provisions of the Finance Bill as noted above was

also to persuade to the assessee to file Income Tax

Return carefully to avoid mistakes.

17. This Court in Commissioner of Income Tax, Gauhati

vs. Sati Oil Udyog Limited and another, (2015) 7 SCC

304, had occasion to consider elaborately the

provisions of Section 143(1-A), its object and

validity. There was a challenge to the retrospectivity

of the provisions of Section 143(1-A) as introduced by

Finance Act, 1993. The Gauhati High Court had held that
15

retrospective effect given to the amendment would be

arbitrary and unreasonable. The appeal was filed by the

Revenue in this Court in which appeal, this Court had

occasion to examine the constitutional validity of the

provisions. This Court in the above judgment held that

object of Section 143(1-A) was the prevention of

evasion of tax. In paragraph 9 of the judgment

following has been laid down:

“9. On a cursory reading of the provision,
it is clear that the object of Section 143(1-
A) is the prevention of evasion of tax. By the
introduction of this provision, persons who
have filed returns in which they have sought
to evade the tax properly payable by them is
meant to have a deterrent effect and a hefty
amount of 20% as additional income tax is
payable on the difference between what is
declared in the return and what is assessed to
tax.”

18. Relying on earlier judgment of this Court in K.P.

Varghese v. ITO, (1981) 4 SCC 173, this Court in the

above case held that provisions of Section 143(1-A)

should be made to apply only to tax evaders. In

paragraphs 21 and 25 following was laid down:

“21. In the present case, the question
that arises before us is also as to
16

whether bona fide assessees are caught
within the net of Section 143(1-A). We
hasten to add that unlike in J.K.

Synthetics case, Section 143(1-A) has in
fact been challenged on constitutional
grounds before the High Court on the facts
of the present case. This being the case,
we feel that since the provision has the
deterrent effect of preventing tax
evasion, it should be made to apply only
to tax evaders. In support of this
proposition, we refer to the judgment in
K.P. Varghese v. ITO. The Court in that
case was concerned with the correct
construction of Section 52(2) of the
Income Tax Act: (K.P. Varghese case, SCC
p. 179, para 4 : SCR p. 639)

“52. (2) Without prejudice to the
provisions of sub-section (1), if in
the opinion of the Income Tax Officer
the fair market value of a capital
asset transferred by an assessee as on
the date of the transfer exceeds the
full value of the consideration
declared by the assessee in respect of
the transfer of such capital asset by
an amount of not less than fifteen per
cent of the value declared, the full
value of the consideration for such
capital asset shall, with the previous
approval of the Inspecting Assistant
Commissioner, be taken to be its fair
market value on the date of its
transfer.”

25. Taking a cue from Varghese case, we
therefore, hold that Section 143(1-A) can
only be invoked where it is found on facts
that the lesser amount stated in the
return filed by the assessee is a result
17

of an attempt to evade tax lawfully
payable by the assessee. The burden of
proving that the assessee has so
attempted to evade tax is on the Revenue
which may be discharged by the Revenue by
establishing facts and circumstances from
which a reasonable inference can be drawn
that the assessee has, in fact, attempted
to evade tax lawfully payable by it.

Subject to the aforesaid construction of
Section 143(1-A), we uphold the
retrospective clarificatory amendment of
the said section and allow the appeals.
The judgments of the Division Bench2 of
the Gauhati High Court are set aside.
There will be no order as to costs.”

19. This Court in the above case upheld the

constitutional validity of Section 143(1-A) (as

inserted by the Finance Act, 1993) subject to holding

that Section 143(1-A) can only be invoked where it is

found on facts that the lesser amount stated in the

return filed by the assessee is a result of an attempt

to evade tax lawfully by the assessee.

20. Applying the ratio of the above judgment in the

present case, we need to find out as to whether 100%

depreciation as mentioned in return filed by the

assessee was a result of an attempt to evade tax

lawfully payable by the assessee.

18

19. We have seen from the facts, as noted above, that

even after dis-allowing 25% of the depreciation, the

assessee in the return remained in loss and the 100%

depreciation was claimed by the assessee in the return

due to a bonafide mistake. By Taxation Laws (Amendment)

Act, 1991, the depreciation in the case of Company was

restricted to 75% which due to oversight was missed by

the assessee while filing the return. The Commissioner

of Income Tax by deciding the revision petition has

also not made any observation to the effact that 100%

depreciation claimed by the assessee was with intend

to evade payment of tax lawfully payable by the

assessee, rather the Commissioner in his order dated

31.03.1992 has observed that whenever adjustment is

made, additional tax has to be charged @ 20% of the tax

payable on such excess amount.

20. It is true that while interpreting a Tax

Legislature the consequences and hardship are not

looked into but the purpose and object by which taxing

statutes have been enacted cannot be lost sight. This

Court while considering the very same provision i.e.
19

Section 143(1-A), its object and purpose and while

upholding the provision held that the burden of proving

that the assessee has attempted to evade tax is on the

Revenue which may be discharged by the Revenue by

establishing facts and circumstances from which a

reasonable inference can be drawn that the assessee

has, in fact, attempted to evade tax lawfully payable

by it. In the present case, not even whisper, that

claim of 100% depreciation by the assessee, 25% of

which was disallowed was with intend to evade tax. We

cannot mechanically apply the provisions of Section

143(1-A) in the facts of the present case and in view

of the categorical pronouncement by this Court in

Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog

Limited and another(supra), where it is held that

Section 143(1-A) can only be invoked when the lesser

amount stated in the return filed by the assessee is a

result of an attempt to evade tax lawfully payable by

the assessee. In view of the above, we hold that

mechanical application of Section 143(1-A) in the facts

of the present case was uncalled for.
20

21. In the result, we allow the appeal, set aside the

judgment of the Division Bench of the High Court as

well as demand of additional tax dated 12.02.1992 as

amended on 28.02.1992.

……………………….J.

( ASHOK BHUSHAN )

……………………….J.

( MOHAN M.SHANTANAGOUDAR )
New Delhi,
March 19, 2020.



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