DEPUTY COMMISSIONER OF INCOME TAX v. NAGARJUNA AGRO TECH LTD
[Citation -2008-LL-0204-12]

Citation 2008-LL-0204-12
Appellant Name DEPUTY COMMISSIONER OF INCOME TAX
Respondent Name NAGARJUNA AGRO TECH LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 04/02/2008
Assessment Year 1994-95
Judgment View Judgment
Keyword Tags principles of natural justice • prima facie adjustment • sales tax liability • revenue expenditure • specific provision • adequate evidence • bona fide mistake • state government • tax audit report • additional tax • crucial date • tax payment • net loss
Bot Summary: The Assessing Officer, by way of prima facie adjustment, disallowed in terms of section 43B an amount of Rs. 31,29,350 being sales tax debited to Profit Loss Account but not paid, and consequently levied, in relation thereto, additional tax of Rs. 3,59,875 under section 143(1A) of the Act. Since the deferred sales tax liability has been converted into loan repayable after 10 years without interest, of which necessary evidences are available on record, the CIT(A) concluded that there was no justification for any disallowance under section 43B. As it is evident from the order of the CIT(A) impugned herein that the final eligibility certificate issued by the Government of Andhra Pradesh with reference to the claim of the assessee for deferment of sales tax liability is dated 1-3-1994, which falls within the previous year relevant to assessment year 1994- 95, even as per the Circular of the CBDT No. 674, dated 29-12-1993, sales tax deferred payments converted into loans should be considered for deduction only in the assessment year 1994-95. ' 2.2 Annexure-4 of the tax audit report mentions the following remark against sales tax of Rs. 31,29,350:- On account of sales tax deferment vide GO Ms. 117 Department dated 17-3-1993, the sales tax collected during the year is not payable. The deferred sales tax liability, according to the Assessing Officer was converted into loan by the sales tax authorities, vide their letter dated 28-6-1995, a date which fell beyond the accounting year, the provisions of section 43B were applicable and sales tax claim was to be disallowed. No tax on sum of Rs. 31,29,350 was raised and only additional tax was demanded from the assessee under section 143(1A). CIT(A) noted the submission of the assessee that the assessee became entitled for sales tax deferment under the order of the Government of Andhra Pradesh and sales tax payable became converted into loan payable after ten years from the year of first loan as per the terms of the Deferment Scheme. At any rate, there is no scope to levy additional tax, which has been held to be equal to penalty by their Lordships of Supreme Court in the earlier decision in the case of Hindustan Electro Graphites Ltd. There was no justification on the part of the Assessing Officer to make adjustments under section 143(1)(a) or impose additional tax on the assessee.


This is appeal of revenue challenging order dated 29-5-2003 of CIT(A)-V, Hyderabad, as erroneous. 2.1 Facts of case as gathered from record are briefly these: assessee is closely-held company. It filed return of income for assessment year 1994-95 on 29-11-1994, declaring net loss of Rs. 3,45,985. said return was processed under section 143(1)(a), vide intimation dated 30-3-1995. While doing so, Assessing Officer, by way of prima facie adjustment, disallowed in terms of section 43B amount of Rs. 31,29,350 being sales tax debited to Profit & Loss Account but not paid, and consequently levied, in relation thereto, additional tax of Rs. 3,59,875 under section 143(1A) of Act. 2.2 Against said intimation, assessee carried matter in first appeal. It was case of assessee that as per Final Eligibility Certificate issued by Additional Director of Industries, AP, Hyderabad, sales tax was deferred and should be repaid at end of 10th year without interest, out of sanctioned amount of Rs. 43,65,520. During financial year 1993-94, amount of Rs. 31,09,656 has become payable, but same has been deferred by sales tax authorities. It was therefore, pleaded that there was no liability for payment of sales tax during year relevant for assessment year 1994- 95 and as such, no disallowance under section 43B was called for. CIT(A), by his order dated 10-10-1995, dismissed appeal of assessee. On further appeal, Tribunal, vide its order dated 23-6-2000, in ITA No. 1907/Hyd./95, has set aside said order, and restored matter to file of CIT(A) for fresh examination in light of decision of Apex Court in CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48. 2.3 Thereupon, CIT(A) redecided this issue afresh, by his order dated 19-4-2002 impugned herein, whereby, after detailed consideration of contentions of assessee, concluding that disallowance made while processing return under section 143(1)(a) was not correct. He accordingly deleted same. Relevant findings of CIT(A) in this behalf, are as under:-6. basic question to be answered is whether outstanding sales tax liability could be disallowed as prima facie adjustment while processing return under section 143(1)(a) of Income-tax Act. During financial year relevant to assessment year 1994-95 amount of Rs. 31,09,656 became payable to sale tax authorities but same was deferred by sales tax authorities vide their letter dated 28-6-1995. According to appellant since there was no liability for payment of sales tax during year relevant to assessment year 1994-95 same could not be disallowed under section 43B of Income-tax Act. claim for deferment was approved by Government of Andhra Pradesh, while final eligibility certificate is dated 1-3-1994 i.e., before date of previous year 1993 relevant to assessment year 1994-95. Supreme Court in case of CIT v. Hindustan Electro Graphites Ltd. (supra) has held that return filed by assessee was correct as per law applicable on date of which it was filed. In instant case, return for assessment year 1994-95 was filed on 25-11-1994 declaring loss of Rs. 3,45,985. amount of Rs. 31,29,350 was shown as outstanding being sales tax deferment and included among unsecured loans shown in balance sheet. Therefore, in my opinion, t h e Assessing Officer was not correct in disallowing claim under section 143(1)(a) of Income-tax Act. In this case, deferred sales tax liability has been converted into loan repayable after 10 years without interest of which necessary evidences are available on record. In such circumstances, I am of opinion that disallowance made was not correct while processing return under section 143(1)(a) and same is hereby deleted.' Aggrieved therefore, by above order of CIT(A), revenue has preferred this appeal before us. 3. learned representative for revenue submitted in brief that; CBDT's Circular No. 674, dated 29-12-1993 is very clear in its wording that sales tax deferred payments converted into loans should be considered as deductions only in previous year in which such conversion as loan is intimated by Sales tax authorities. Appellate Commissioner has erred both on facts and in law in granting relief to assessee by deleting disallowance under section 43B, being sales tax deferred payment. Reliance is placed on decisions following- (a)Prudential Construction Co. Ltd. v. Asstt. CIT [2000] 75 ITD 338 (Hyd.). (b)Mold Tek Plastics Ltd. v. Dy. CIT [2002] 81 ITD 251 (Hyd.). 4. learned counsel for assessee on other hand countered, to say in brief, by defending order impugned, besides submitting THAT: issue before us relates to permissibility or otherwise of disallowance in terms o f section 43B made by Assessing Officer, by way of prima facie adjustment while processing return under section 143(1)(a). That being so, in view of decision of Supreme Court in case of Hindustan Electro Graphites Ltd. (supra), it is correctness of factual and legal position with regard to claim made by assessee at time of filing of return, that is material. If matter is viewed from that angle, disallowance made by Assessing Officer by way of prima facie adjustment, cannot be sustained, and as such same was correctly deleted by CIT(A). Besides distinguishing case-law relied upon by learned Departmental Representative noted above, reliance is placed on decisions following- (a)Khatau Junkar Ltd. v. K.S. Pathania, Dy. CIT [1992] 196 ITR 55 (Bom.). (b)CIT v. K.N. Oil Industries [1997] 226 ITR 547 (MP). 5.1 Rival submissions heard and relevant papers read including orders impugned herein and case-law relied upon by both parties before us. After doing so, we find that there is substantial force in defence of assessee, unlike stand of revenue for reasons following- 5.2 substantial issue for consideration before us is not with regard to correctness of disallowance on account of deferment of sales tax liability, made under section 43B on merits, but dispute is more or less confined to permissibility of such disallowance by way of adjustment while processing return under section 143(1)(a), as directed by Tribunal in its earlier order dated 23-6-2000, wherein CIT(A) was directed to re-examine this aspect in light of decision of Supreme Court in case of Hindustan Electro Graphites Ltd. (supra). 5.3 It is undisputed fact that during previous year relevant to assessment year 1994-95, amount of Rs. 31,09,656 became payable to sales tax authorities, but same was deferred by sales tax authorities vide their letter dated 28-6-1995. According to assessee claim for deferment was approved by Government of Andhra Pradesh, while final eligibility certificate is dated 1-3-1994, which falls within previous year relevant to assessment year 1994-95. amount of Rs. 31,29,350 was shown as outstanding being sales tax deferment and included among unsecured loans in balance sheet as at end of previous year viz., 31-3-1994. Since deferred sales tax liability has been converted into loan repayable after 10 years without interest, of which necessary evidences are available on record, CIT(A) concluded that there was no justification for any disallowance under section 43B. As it is evident from order of CIT(A) impugned herein that final eligibility certificate issued by Government of Andhra Pradesh with reference to claim of assessee for deferment of sales tax liability is dated 1-3-1994, which falls within previous year relevant to assessment year 1994- 95, even as per Circular of CBDT No. 674, dated 29-12-1993, sales tax deferred payments converted into loans should be considered for deduction only in assessment year 1994-95. decision of Hon'ble Madhya Pradesh High Court in case of K.N. Oil Industries (supra) relied upon by learned counsel for assessee, clearly supports action of CIT(A). We find no infirmity in view taken by CIT(A). 5.4 In any even, it is beyond scope of prima facie adjustments permissible while processing return under section 143(1)(a) of Act. We are fortified in this behalf by decision of Bombay High Court in case of Khatau Junkar Ltd. (supra), wherein it is held as follows-In absence of any specific provision in Income-tax Act which disallows deduction because specific document specified in that section is not annexed to return, Income-tax Officer cannot, under clause (iii) of proviso to section 143(1)(a) disallow claim or deduction merely because, in his view, adequate evidence in support of such claim or deduction is not before him. He can disallow acclaim for deduction only if he is satisfied, on basis of material which is before him, that assessee is not entitled to such deduction. use of phrase 'prima facie admissible' in clause (ii) to proviso and 'prima facie inadmissible' in clause (iii) to proviso, also lend support to this interpretation. If anything more is read into power to make adjustments under section 143(1)(a), such power would be grossly arbitrary and unreasonable and in total violation of principles of natural justice, because section 143(1)(a) does not provide for any notice being given to assessee, nor does it provide for any hearing being given to assessee before disallowing claim made by him.' 5.5 It is evident from impugned orders of lower authorities that basis for disallowance made under section 43B of Act, is entries as to sales tax liability in Profit & Loss Account and as to loan on account of conversion of such sales tax liability into loan in Balance Sheet as at end of previous year relevant to assessment year 1994-95. Merely on basis of those entries, and in absence of any other material forming part of return on record before Assessing Officer, it cannot be said in light of ratio decidendi of Hon'ble Bombay High Court extracted above that claim of assessee for deduction on account of sales tax is prima facie inadmissible within scope of provisions of section 143(1)(a). 5.6 As for decisions of Hyderabad Bench decisions of Tribunal relied upon by revenue and cited supra, though ultimate conclusions, based on facts and circumstances of those cases, were against assessees therein, ratios laid down therein explaining scope of provisions of section 143(1)(a) and prima facie adjustments permissible thereunder, rather support case of assessee herein. In case of Prudential Construction Co. Ltd. (supra) it has been held as follows-The scope of adjustments to be made under section 143(1)(a) is limited only to specified items mentioned therein. Only such errors, which are prima facie found from return, documents, accompanying return can be adjusted as per provisions of section 143(1)(a) and all those issues which involve prolonged arguments or agree debatable in nature fall outside scope of prima facie adjustments mentioned under section 143(1)(a)' 5.7 In case of Mold Tek Plastics Ltd. (supra) explaining scope of section 143(1)(a) observed, as per relevant portion of head note as under-. . . assessee did not make any alternate claim to write off three items in question, as revenue expenditure. While processing return under section 143(1)(a), Assessing Officer has not been empowered to beyond return and statements accompanying return. In statement accompanying return, assessee claimed depreciation on three items in question at specified rates. So, while processing return, Assessing Officer could go into question relating to claim for depreciation, considering (a) whether asset in question was depreciable; (b) if so, block in which particular asset fell; and (c) rate of depreciation applicable and if said rate had to be restricted in terms of proviso to section 32(1) for use for less than 180 days. Only these questions could be gone into for making any adjustments, while processing return under section 143(1)(a), provided it was not debatable nature. It is too much to expect Assessing Officer to consider whether claim of assessee could be allowed under section 37 s revenue expenditure, if he came to conclusion that depreciation as claimed was not allowable. provisions of clause (ii) of proviso to section 143(1)(a), on which assessee, relied did not cast any such obligation or duty on Assessing Officer.' 5.8 In facts and circumstances of case, on basis of return or documents accompanying thereto, it cannot be said that deduction in respect of sales tax liability converted by State Government as loan, is prima facie inadmissible. In that view of matter, adjustment made by Assessing Officer cannot be sustained. 5.9 In light of foregoing discussion, order of CIT(A) impugned herein is upheld, rejecting contentions of revenue in this appeal. 6. In result, revenue's appeal is dismissed hereby. Per B.K. Haldar, Accountant Member. - I have gone through order of hon'ble Vice President wherein it was held by him that on basis of return and documents accompanying thereto it cannot be said that deduction in respect of sales tax liability converted by State Government as loan is prima facie inadmissible under section 143(1)(a) of Act. 2.1 It is clear from section 43B of Income-tax Act, 1961 that above section does not permit any deduction unless tax, duty etc. have been paid within specified period mentioned therein. Thus, deduction, if any, allowable in present case is allowed as per CBDT Circular No. 674, dated 29-12-1993. last four lines of para-3 of above Circular are as under:- Accordingly, Board has decided that amount of sales tax liability converted into loan may be allowed as deduction in assessment for previous year in which such conversion has been permitted by or under Government Orders.' Therefore, what is material is date when such conversion has been permitted and not date of Government order by which general permission was granted to all such conversions. ld. CIT(A) whose order dated 10-10- 1995 was set aside by Hon'ble Tribunal vide its order dated 23-6-2000 in ITA No. 1907/Hyd./95 with direction that issue be decided by ld. CIT(A) afresh by considering Hon'ble Supreme Court's case in Hindustan Electro Graphites Ltd.'s case (supra), clearly mentioned in para-3 of order and I quote:- In instant case, return of income was filed on 29-11-1994. Processing was done on 30-3-1995 and Government order has been communicated on 28-6-1995. If date of letter by Government dated 28-6- 1995 is date of permission by Government, assessee's claim of deduction of amount converted can be entertained for accounting year 1995-96 relevant to assessment year 1996-97. This is not entertainable for assessment year 1994-95 under our consideration.' 2.2 Annexure-4 of tax audit report mentions following remark against sales tax of Rs. 31,29,350:- On account of sales tax deferment vide GO Ms. 117 (IFR) Department dated 17-3-1993, sales tax collected during year is not payable.' Thus, date 17-3-1993 is date of Govt. Order Ms and not date of permission. There was no evidence accompanying return which showed that permission under above GO Ms was allowed by Government during financial year 1993-94. In this view of matter condition laid down in Board's Circular No. 674 supra has clearly not been fulfilled by assessee. Also GO Ms does not have same effect as that of amendment of Sales Tax Act which clearly provides that such sales tax is not payable. Thus, appellant can neither claim above deduction as per provisions of section 43B nor as per Board Circular mentioned supra. assessee is only entitled to claim such amount as deduction under section 43B only in financial year when such permission was granted by Government in terms of Board Circular supra. In this view of matter, I am of considered opinion that assessee is not entitled to deduction of Rs. 31,29,350 being sales tax debited to Profit and Loss Account; but not paid under section 43B of Act read with Board Circular No. 674, dated 29-12-1993. 3. In result, appeal of revenue is allowed. ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 We, having differed in our opinion on issue involved in above appeal filed by Department, refer following point of difference to Hon'ble President, under section 255(4) of Income-tax Act, 1961, for hearing on such point by one or more of other Members of Tribunal as President may nominate:- Whether on facts and in circumstances of case, claim of assessee for deduction of Rs. 31,29,350 representing Sales Tax liability of assessee converted into sales tax loan, is clearly inadmissible under of section 43B, and disallowance made by way of prima facie adjustment while processing return for assessment year 1994-95 under section 143(1)(a) of Act is just and proper?' THIRD MEMBER ORDER Per Vimal Gandhi, President. -On account of difference between ld. Judicial Member and ld. Accountant Member of Hyderabad Bench of Appellate Tribunal, this matter has been referred to me under section 255(4) of Income-tax Act, 1961 ('the Act').Whether on facts and in circumstances of case, claim of assessee for deduction of Rs. 31,29,350 representing sales tax liability of assessee converted into sales tax loan, is clearly inadmissible under section 43B and disallowance made by way of prima facie adjustment while processing return for assessment year 1994-95 under section 143(1)(a) of Act is just and proper.' This is second inning of parties before Appellate Tribunal, as earlier order of ld. CIT(A) in this case was set aside by 'B' Bench of ITAT, vide order dated 26-6-2000, directing as under:- This appeal is filed by assessee. Relevant assessment year is 1994- 95. assessee has raised following ground in this appeal. 1. ld. CIT(A) ought not to have confirmed disallowance of sales tax payment deferred under provisions of section 43B of Income-tax Act. 2. ld. CIT(A) ought to have noted that liability for payment of sales tax during year relevant to assessment year 1994-95 existed in view of deferment by Sales Tax authorities. 3. We considered matter. In view of decision of Hon'ble Supreme Court in case of CIT v. Hindustan Electro Graphites Ltd. in 243 ITR 48, we find that matter has to be considered afresh by ld. CIT(A). In view of this matter, we set aside his order and send back file to him to dispose appeal afresh in view of judgment and after giving assessee opportunity of being heard. For statistical purposes, appeal is treated as allowed. Sd/ Sd/ (H.S. Sidhu) (Dr. O.K. Narayanan) Judicial Member Accountant Member 2. matter was taken up by ld. CIT(A) as per directions of Tribunal and arguments of both parties were heard. ld. CIT(A) noted that short question in dispute was whether sales tax liability of Rs. 31,29,350 for period ending 31-3-1994 could be disallowed under section 43B of Act when above amount was shown as loan under Deferment Scheme of Sales Tax Department promulgated vide G.O. Ms No. 117 ( I F R ) Department dated 17-3-1993. Assessing Officer, while making adjustments under section 143(1)(a) of Act, disallowed above amount, as according to him, sales tax liability was not converted into loan in year under consideration as required by scheme of Government. deferred sales tax liability, according to Assessing Officer was converted into loan by sales tax authorities, vide their letter dated 28-6-1995, date which fell beyond accounting year, provisions of section 43B were applicable and sales tax claim was to be disallowed. However, no tax on sum of Rs. 31,29,350 was raised and only additional tax was demanded from assessee under section 143(1A). 3. In fresh hearing, appellant-assessee contended before ld. CIT(A) that issue involved was highly debatable and therefore did not fall within scope of prima facie adjustments permissible under section 143(1)(a) of Act. In above circumstances, ITAT had set aside order of his predecessor and directed re-examination of matter in light of decision of Hon'ble Supreme Court in case of Hindustan Electro Graphites Ltd. (supra). As per above decision, question of imposition of additional tax was required to be seen as per law on date of filing of return. revenue cannot impose additional tax, which had imprint of penalty, when there was no default at time of filing of return. Accordingly, ld. CIT(A) noted submission of assessee that assessee became entitled for sales tax deferment under order of Government of Andhra Pradesh and sales tax payable became converted into loan payable after ten years from year of first loan as per terms of Deferment Scheme. eligibility under above scheme was allowed to assessee with effect from 1-3-1994. ld. CIT(A) accepted contention advanced on behalf of assessee. As per law prevailing on 25-11-1994, he held that amount of Rs. 31,29,350 could not have been disallowed. He deleted addition in dispute. 4. On further appeal before ITAT, Hon'ble V.P. (Judicial Member) agreed with reasoning given by ld. CIT(A). In his view, substantial issue arising for consideration was not with regard to correctness of issue arising for consideration was not with regard to correctness of disallowance on account of deferment of sales tax liability made under section 43B but more or less confined to permissibility of such disallowance by way of adjustment while processing return under section 143(1)(a) of Act in light of directions of Tribunal dated 23-6-2000. ld. V.P. also referred to eligibility certificate issued to assessee under Deferment Scheme dated 1-3-1994. He also referred to Circulars of CBDT which were duly considered by Hon'ble Madhya Pradesh High Court in case of K.N. Oil Industries (supra), and issue decided in favour of assessee. 5. On question that issue involved was debatable point and beyond scope of prima facie adjustments permissible under section 143(1)(a) of Act, ld. Judicial Member relied upon decision of Bombay High Court in case of Khatau Junkar Ltd. (supra). He also considered decision of Hyderabad Benches relied upon by revenue. After considering all decisions, ld. Judicial Member agreed with view taken in impugned order. 6. ld. Accountant Member did not agree with above view. He was of view that deduction was to be allowed in light of Circular of CBDT N o . 674, dated 29-12-1993. last four lines of said Circular are reproduced hereunder for ready reference:-Accordingly, Board has decided that amount of sales tax liability converted into loan may be allowed as deduction in assessment for previous year in which such conversion has been permitted by or under Government orders.' ld. Accountant Member was of view that in earlier order dated 10-10-1995 (which was set aside by Tribunal subsequently on 23-6-2000), CIT(A) had recorded facts correctly. part of said order has been reproduced by ld. Accountant Member at end of Para 2.1 of his order. He has observed that Government Order [G.O. Ms. No. 117 (IFR), dated 17-3- 1993] did not provide that sales tax collected during year was not payable in said year. above order, according to ld. Accountant Member did not show date on which permission referred to in Circular of CBDT was granted to assessee. In light of documents accompanying return, Assessing Officer, according to ld. Accountant Member, was justified in holding that assessee was not entitled to deduction of sales tax amounting to Rs. 31,29,350 under section 43B of Act. In view of above dissenting proposed orders, matter has been referred to me under section 255(4) of Act. 7. I have heard both parties in this appeal. ld. Counsel for assessee again drew my attention to approval i.e., eligibility certificate granted to assessee on 1-3-1994 relating to application of Deferment Scheme of sales tax department. He argued that said date was crucial date for determination of year for which scheme of deferred sales tax of Government was made applicable in this case. Alternatively, he contended that Deferment Scheme was modified from time to time and even CBDT has issued more than one Circular. Consideration of above Circulars involved debatable points which cannot be considered in proceedings under section 143(1)(a) of Act. ld. Counsel accordingly relied upon and supported order of ld. Judicial Member. 8. ld. DR fully supported order of ld. Accountant Member. He pointed out that only additional tax of Rs. 3,59,875 was levied in this case by invoking provisions of section 143(1A) of Act. No tax has been levied on amount of Rs. 31,29,350 representing sales tax liability. Therefore, question before Third Member was limited one. However, having regard to documents available on record and filed with return, assessee was not able to establish that amount of Rs. 31,29,350 was not sales tax liability and became deferred loan as per scheme of sales tax department. He again drew my attention to Circular of CBDT No. 674, dated 29-12-1993 and emphasized that deduction was to be allowed in assessment of previous year in which conversion of sales tax liability was permitted to be converted into loan. No such permission for year ending 31-3-2004 was available and permission was received much after close of year. In these circumstances, deduction of liability having regard to scheme under question could not be allowed. But why above amount was not charged to tax and only additional tax was imposed was not clear from record. He also referred to decisions of Jurisdictional High Court in case of Gopi Krishna Granites India Ltd. v. Dy. CIT [2001] 251 ITR 337 (HP) as also of Hon'ble Gujarat High Court in case of Shree Digvijay Cement Co. Ltd. v. CIT Hon'ble Gujarat High Court in case of Shree Digvijay Cement Co. Ltd. v. CIT [2007] 289 ITR 250. In both above cases, it was held that section 43B could be applied in proceedings under section 143(1)(a) of Act. ld. DR, ITAT, Hyderabad, accordingly supported order of ld. Accountant Member. 9. I have given careful thought to rival submissions of parties and examined them in light of material available on record. ld. DR, ITAT, Hyderabad is right that in present case, only additional tax has been levied by Assessing Officer. No tax has been levied on amount of Rs. 31,29,350, claimed to be added in prima facie adjustments. ld. CIT(A) having regard to earlier decision of Tribunal dated 23-6-2000, has held that matter was required to be seen on date on which return was filed and whether on said date, assessee acted in accordance with law or not. In case Hindustan Electro Graphites Ltd., their Lordships held as under:- Held, dismissing appeal, that where return is filed law applicable would be law as it stood on date of filing of return. In instant case, there was not even bona fide mistake and in fact it was not case where under some mistaken belief assessee did not disclose cash compensatory support received by it. It is true that income by way of cash compensatory support became taxable retrospectively with effect from 1-4-1967, but that was by amendment of section 28 by Finance Act of 1990, which amendment could not have been known before Finance Act came into force. Levy of additional tax bears all characteristics of penalty. Additional tax was levied as assessee did not in his return show income by way of cash compensatory support. After assessee had filed its return of income, which was correct as per law on date of filing of return, cash compensatory support also came within sway of section 28. When additional tax has imprint of penalty revenue cannot say that levy of additional tax is automatic under section 143(1A) of Act. If additional tax could be levied in such circumstances it will be punishing assessee for no fault of his. That cannot ever be legislative intent. In circumstances of present case, levy of additional tax taking into account income by way of cash compensatory support was not warranted. Decision of Madhya Pradesh High Court in CIT v. Hindustan Electro Graphite Ltd. [1998] 229 ITR 16 affirmed.'Applying ratio of above case, I find that no material has been brought on record to show that assessee did not act in accordance with law and therefore was liable to pay additional tax. Even otherwise, after considering facts and circumstances of case, I do not see any merit in this appeal of revenue. There is no dispute that assessee became eligible under Deferred Scheme with effect from 1-3-1994 i.e., date on which eligibility certificate was admittedly issued to assessee. After above date, sales tax payable by assessee was shown as converted into loan under Scheme of State Government in books. scheme admittedly was applicable for period of ten years. aforesaid conversion into loans as per scheme needed approval. It is possible that entries relating to conversion into loan under Scheme were accepted and permission as envisaged in Scheme granted after end of relevant previous year. But from above it cannot follow that loan was permitted to be converted only on date on which permission letter was issued. permission letter whenever issued, would relate back to date on which liability was converted into loan by assessee. This is more than evident from ultimate agreement entered into by assessee with State Government dated 10-4-1997 as per Scheme. said agreement as per para 2 clearly records that assessee is permitted to convert all sales tax payable by him for period of ten years ending 7-4-2003. It is therefore clear that sales tax liabilities converted into loans and up to last date mentioned above have been permitted. No change was made under scheme. assessee is also shown to be liable to repay loan after 7-4-2003. There is no material on record to establish that conversion into loan shown by assessee was incorrect. Thus, Circular of CBDT has been shown to be fully applicable in this case. Assuming for sake of argument that some other view is also possible, matter is highly debatable and question of making adjustments under section 143(1)(a) of Act could not arise in this case. At any rate, there is no scope to levy additional tax, which has been held to be equal to penalty by their Lordships of Supreme Court in earlier decision in case of Hindustan Electro Graphites Ltd. (supra). There was no justification on part of Assessing Officer to make adjustments under section 143(1)(a) or impose additional tax on assessee. For all above reasons, I agree with view taken by ld. Judicial Member. 10. matter now may be placed before regular Bench. *** DEPUTY COMMISSIONER OF INCOME TAX v. NAGARJUNA AGRO TECH LTD.
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