Income Tax Act, 1961:
ss. 32(2) and 143 (I-A) – Additional tax – Levy of – Propriety – Assessee claiming 100% depreciation – As per amended s. 32(2) since the depreciation was restricted only upto 75%, Assessing Officer restricted the depreciation to 75% – Additional tax u/s. 143(I-A) imposed – Assessee’s application for rectification of demand was rejected – Revision Petition against the demand of additional tax was also dismissed – In Writ Petition filed by the assessee, levy of additional tax was quashed by Single Judge of High court – In special appeal, Division Bench upheld the levy – Appeal to Supreme Court – Held: Object of s. 143(I-A) was prevention of evasion of tax and can be invoked only when found that lesser amount stated in the return is a result of an attempt to evade tax lawfully by the assessee – Depreciation was restricted to 75% after amendment of the Act by Taxation Laws (Amendment) Act, 1991 – The return in the present case was filed by the assessee prior to the date when the Amendment Act of 1991 came into operation – 100% depreciation was claimed by the assessee due to bonafide mistake – Burden of proving assessee’s attempt to evade tax, is on the Revenue – In the present case Revenue failed to discharge such burden – Therefore, in the facts of the present case, provisions of s. 143 (I-A) are not applicable and hence demand of additional tax set aside.
Interpretation of Statutes:
Interpretation of Taxing Statute – Held: While interpreting a taxing statute, the purpose and object for which the statute have been enacted cannot be lost sight.
Allowing the appeal, the Court
HELD: 1. Sub-section (1-A) of s. 143 of Income Tax Act, 1961 was amended by the Finance Act, 1993 with effect from 1-4-1989, which was the date upon which sub-section (1A) had been introduced into the Act. 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. [Paras 12 & 13] [1002-E; 1003-E-F]
2. Object of Section 143(1-A) was the prevention of evasion of tax. The memorandum explaining the provisions of the Finance Bill was also to persuade to the assessee to file Income Tax Return carefully to avoid mistakes. Section 143(1A) 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. [Paras 16 & 19] [1005-D; 1007-B]
Commissioner of Income Tax, Gauhati v. Sati Oil Udyog Limited and Another (2015) 7 SCC 304 : [2015]
2 SCR 1099 ; K.P. Varghese v. ITO, (1981) 4 SCC
173 : [1982] 1 SCR 629 – relied on.
3. By Taxation Laws (Amendment) Act, 1991 in Section
32 third proviso was inserted. 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. [Paras 14 & 15] [1003-G-H; 1004B-D]
4. In the 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 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. [Para 21] [1007-D-E]
5. 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. 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. The Court cannot mechanically apply the provisions of Section 143(1-A) in the facts of the present case. [Para 22] [1007-F-H; 1008-A]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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