10 June 2024


Judgments

Supreme Court

Rajasthan State Electricity Board, Jaipur v. The DY. Commissioner of Income Tax(assessment) & Anr.

MANU/SC/0333/2020

19.03.2020

Direct Taxation

Demand For Additional Tax Can Be Made Only If Assessee Intended To Evade Tax

Present appeal has been filed by the Assessee challenging the Division Bench judgment of the High Court by which Civil Special Appeal filed by the Revenue has been allowed upholding the demand of additional tax under Section 143(1-A) of the Income Tax Act, 1961.

Referring to Circular No.549 dated 30.10.1989 of Central Board of Direct Taxes, it is submitted 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 amendments brought by Finance Act, 1993 with retrospective effect i.e. from 01.04.1989 are fully attracted with regard to assessment in question i.e. for assessment year 1991-92. The substituted subsection (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.

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.

Present Court in K.P. Varghese v. ITO, held that provisions of Section 143(1-A) should be made to apply only to tax evaders. 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.

In facts of present case, 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 effect 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 has observed that whenever adjustment is made, additional tax has to be charged @ 20% of the tax payable on such excess amount.

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, 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. Present Court 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, 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. Mechanical application of Section 143(1-A) in the facts of the present case was uncalled for. The judgment of the Division Bench of the High Court as well as demand of additional tax is set aside. Appeal allowed.

Relevant

K.P. Varghese v. ITO, Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog Limited and another

Tags : Demand Additional tax Legality

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