J.k. Synthetics Limited v. Assistant Commissioner Of Income Tax

J.K. Mehra, J.

1. The present writ petition has been filed by the petitioner feeling aggrieved by an intimation issued under Section 143(1)(a) of the Income-tax Act whereby the department has raised a demand of additional tax of Rs. 55,33,240 purporting to be payable under Section 143(1A).

2. The assessee had returned a net loss of Rs. 86,13,36,452 whereas after adjustments which have been carried out by the department under Section 143(1)(a), the total loss stood reduced to Rs. 81,01,30,511. By some unexplicable logic the department has proceeded to levy the additional tax leviable under Section 143(1A)(a) Sub-clause (1). For convenience Section 143(IA) of the Income-tax Act is reproduced hereunder:

"Section 143(1A)(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 (1) 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).

(b) Where as a result of an order under Sub-section (3) of this Section or Section 154 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264, the amount on which additional Income-tax is payable under Clause (a) has been increased or reduced, as the case may be, the additional Income-tax shall be increased or reduced accordingly, and,

(i) in a case where the additional Income-tax is increased the Assessing Officer shall serve on the assessee a notice of demand under Section 156:

(ii) in a case where the additional Income-tax is reduced, the excess amount paid, if any, shall be refunded.

Explanation: For the purposes of this Sub-section; "tax payable on such excess amount means,

(i) in any case where the amount of adjustments made under the first proviso to Clause (a) of Sub-section (1) exceed the total income, the tax that would have been chargeable had the amount of the adjustments been the total income:

(ii) in any other case, the difference between the tax on the total income and the that would have been chargeable had such total income been reduced by the amount of adjustments."

3. Thus, it is clear according to this provision that, in case the total income of any assessee exceeds the total income declared by him after adjustments by any amount, the Assessing Officer would be entitled to increase the amount of tax payable under Sub-section (1) by an additional Income-tax calculated at the rate of 20% of .the tax payable on such excess amount. This, would obviously mean that there, has to be an increase in the Income-tax payable as a result of such adjustments and only in that situation, the tax payable has to be further enhanced by a sum equal to 20% of such increased tax liability.

4. In the present case, what has happened is that as a consequence of adjustment the total loss returned by the assessee has come down by more than Rs, 5 crores but even after such reduction on account of adjustment the said intimation still shows a loss of over, Rs. 81 crores.

5. The Income-tax is payable only on income which in a business venture would imply profit after, deducting therefrom deductible expenses and not loss. If after determining the liability of the assessee after the process of adjustment not result is still loss, there cannot be any question of any further tax liability accruing and as such, no tax would be payable muchless any additional tax on the amount by which the losses stood reduced.

6. Mr. Rajendra appearing for the department has drawn my attention to Clause (ii) of the Explanation to the aforesaid provision and has said that the situation like the present one would be deemed to have been covered by Clause (ii) of the Explanation. I am unable to accept this because even this clause lays down the principle that "the difference between the tax on total income and the tax that would have been chargeable at such total income had been reduced by the amount of adjustment". So, even under this Explanation, it is not the reduction in loss which has not resulted in converting the return into one of profit to attract any tax. Mr. Rajendra contends that if Sub-clause (a)(ii) of (1-A) of Section 143 of, the is read with Clause (ii) of the Explanation the reduction in loss would also become liable to additional tax. I am unable to accept this argument also. Sub-clause (ii) of Sub-section (1-A)(a) considers a case where the refund is due which could only be the case if the excess tax had earlier been deposited on the basis of certain estimated profits and the profits stood reduced after adjustments.

7. The department would be fully justified in resorting to this levy in case the adjustments result in changing a return from negative to positive return showing loss to one showing profit. That is not the case here.

8. My. attention has been drawn to the case of Modi Cement India Limited v. Union of India and Others, reported as 123 (1992) ITR 91 decided by a Division Bench of this Court expressing the similar opinion.

9. At this stage, Mr. Rajendra has also brought to my notice a judgment of a Division Bench of this Court in G.W. No. 2123/92 decided on 7.7.1992 wherein the Division Bench has taken cognizance of the amendment introduced in the Finance Act, 1992 wherein the assessee has been provided with an alternative remedy under Section 154 of the Income-tax Act and also under Section 264 by providing for a revision petition, to my mind that amendment is prospective in operation. Nothing has been shown to me which makes the operation of such amendment retrospective. Mr. Rajendra has further submitted that the assessee should deposit the amount and if no tax is found payable the amount shall be refunded. I am unable to accede to this request also.

10. In the circumstances, I allow the petition and quash the impugned order levying additional tax of Rs. 55,30,240 and direct the department to refund the same to the petitioner. No order as to costs.