1 REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.8590 of 2010 RAJASTHAN STATE ELECTRICITY BOARD JAIPUR APPELLANT(S) VERSUS DY. COMMISSIONER OF INCOME TAX(ASSESSMENT) & ANR. RESPONDENT(S) JUDGMENT ASHOK BHUSHAN, J. This appeal has been filed by assessee challenging Division Bench judgment dated 13.11.2007 of High Court of Judicature for Rajasthan at Jaipur Bench, Jaipur by which D.B. Civil Special Appeal (Writ) No.837 of 1993 filed by Revenue has been allowed upholding demand of additional tax under Section 143(1-A) of 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 assessee is Government Company as defined under Section 617 of Companies Act, 1956. assessee filed return on 30.12.1991 for assessment year 1991-92 showing loss amounting to Rs. (-)427,39,32,972/-. Due to bonafide mistake assessee claimed 100% depreciation of Rs. 333,77,70,317/- on written down value of assets instead of 75% depreciation. Under unamended Section 32(2) of Income Tax Act, 1961 assessee was entitled to claim 100% depreciation. However, after amendment depreciation could only be 75%. assessee supported 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 said return by assessee. No notice under Section 143(2) of Income Tax Act, 1961 was received by assessee. 3. intimation under Section 143(1)(a) of Income Tax Act, 1961 dated 12.02.1992 was issued by Assessing Officer disallowing 25% of depreciation, restricting depreciation to 75%. Additional tax under Section 143(1-A) of Income Tax Act, 1961 3 amounting to Rs.8,63,64,827/- was demanded. assessee filed application under Section 154 of Income Tax Act, 1961 dated 18.02.1992 praying for rectification of demand. assessee also filed petition under Section 264 of Income Tax Act, 1961 against demand of additional tax. In petition it was stated that even after allowing only 75% of depreciation income of assessee remained to be in loss to Rs.3,43,94,90,393/-. assessee prayed for quashing demand of additional tax. application filed under Section 154 of Income Tax Act, 1961 was rejected by Assessing Officer on 28.02.1992. revision petition under Section 264 of Income Tax Act, 1961 came to be dismissed by Commissioner of Income Tax by order dated 31.03.1992. Commissioner of Income Tax rejected revision petition by giving following reasoning: plain reading of provisions of Section 143(1-A) shows that whenever adjustment is made, additional tax has to be charged @ 20% of tax payable on such excess amount . excess amount refers to increase in income and by implication reduction in loss where even after addition there is negative income. explanation to Section 143(1-A)(b) provides that tax payable on such excess 4 means tax that would have been chargeable on amount of adjustment to total income. Where adjustment exceeds income determined. Clearly, therefore, in this case additional tax had to be charged on basis of tax chargeable on sum of Rs.83,44,42,579/- added by Assessing Officer. 4. Aggrieved by order of Commissioner of Income Tax challenging demand of additional tax which was reduced to amount of Rs.7,67,68,717/- Writ Petition No.2267 of 1992 was filed by assessee in High Court of Judicature for Rajasthan, Bench at Jaipur. Learned Single Judge vide judgment dated 19.01.1993 allowed writ petition quashing levy of additional tax under Section 143(1-A). Revenue aggrieved by judgment of learned Single Judge filed Special Appeal which has been allowed by Division Bench of High Court vide its judgment dated 13.11.2007 upholding demand of additional tax. assessee aggrieved by judgment of Division Bench has come up in this appeal. 5. We have heard Shri Arijit Prasad, learned senior counsel appearing for appellant and Shri Rupesh Kumar, learned counsel for 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 nature of penalty and can be levied only when assessee had intentionally sought to file incorrect return. It is submitted that such additional tax could only become payable in case where assessee was assessed to income for purpose of tax and could not apply where there was no income or there was loss. intent of Legislature in enacting provision of Section 143(1-A) was to ensure that assessee also declares his loss in return correctly and where 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 assessee had not reduced because of bonafide mistake committed by appellant in calculating depreciation. 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 Income Tax Act, 1961 was only to prevent evasion of tax. He submits that when additional tax had clear and specific imprint of penalty, Revenue could not be heard to say that levy of additional tax is automatic under Section 143(1-A) of Act. If additional tax could be levied in such circumstances, it would be punishing assessee for no fault of his and that too without giving him hearing. 7. Learned counsel for Revenue submits that provision of Section 143(1-A) demonstrates that it is not penal in nature. It is 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 Income Tax Act so that assessee may not be able to evade tax by resorting to method of showing loss first and then reducing loss. Learned counsel submits that Division Bench of High 7 Court has rightly allowed appeal of Revenue upholding demand of additional tax. 8. We have considered submissions of learned counsel for parties and perused records. 9. Only question to be answered in this appeal is as to whether demand of additional tax under provisions of Section 143(1-A) in facts of present case was justified or not. 10. Before we enter into rival submissions of learned counsel for parties, it is relevant to have look on statutory scheme under Section 143 and 143(1-A). Section 143(1)(a) reads thus: 143. (1)(a) Where return has been made under Section 139, or in response to notice under sub-section (1) of Section 142, (i) if any tax or interest is found due on 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 provisions of sub-section (2), intimation shall be sent to assessee specifying sum so payable, and such intimation shall be deemed to be notice of demand issued under Section 156 and all provisions of this Act shall apply accordingly; and 8 (ii) if any refund is due on basis of such return, it shall be granted to assessee: Provided that in computing tax or interest payable by, or refundable to, assessee, following adjustments shall be made in income or loss declared in return, namely (i) any arithmetical errors in return, accounts or documents accompanying it shall be rectified; (ii) any loss carried forward, deduction, allowance or relief, which, on basis of information available in such return, accounts or documents, is prima facie admissible but which is not claimed in return, shall be allowed; (iii) any loss carried forward, deduction, allowance or relief claimed in return, which, on basis of information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed: Provided further that where adjustments are made under first proviso, intimation shall be sent to assessee, notwithstanding that no tax or interest is found due from him after making said adjustments: Provided also that intimation under this clause shall not be sent after expiry of two years from end of 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 case of any person, total income, as result of adjustments made under first proviso to clause (a) of sub-section (1), exceeds total income declared in return by any amount, Assessing Officer shall, (i) further increase amount of tax payable under sub-section (1) by additional income tax calculated at rate of twenty per cent of tax payable on such excess amount and specify additional income tax in 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 amount of such refund by amount equivalent to additional income tax calculated under sub-clause (i). 12. Sub-section (1-A) was amended by Finance Act, 1993 with effect from 1-4-1989, which was date upon which sub-section (1-A) had been introduced into Act. substituted sub-section (1-A) read thus: 143. (1-A)(a) Where as result of adjustments made under first proviso to clause (a) of sub-section (1), (i) income declared by any person in return is increased; or (ii) loss declared by such person in return is reduced or is converted into income, 10 Assessing Officer shall, (A) in case where increase in income under sub-clause (i) of this clause has increased total income of such person, further increase amount of tax payable under sub-section (1) by additional income tax calculated at rate of twenty per cent on difference between tax on total income so increased and tax that would have been chargeable had such total income been reduced by amount of adjustments and specify additional income tax in intimation to be sent under sub- clause (i) of clause (a) of sub-section (1); (B) in case where loss so declared is reduced under sub-clause (ii) of this clause or aforesaid adjustments have effect of converting that loss into income, calculate sum (hereinafter referred to as additional income tax) equal to twenty per cent of tax that would have been chargeable on amount of adjustments as if it had been total income of such person and specify additional income tax so calculated in 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 amount of such refund by amount equivalent to additional income tax calculated under sub-clause (A) or sub-clause (B), as case may be. 13. 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. substituted sub- section (1-A) makes it clear that where loss declared by assessee had been reduced by reason of adjustments made under sub-section(1)(a), provisions of sub-section (1-A) would apply. As noted above Commissioner of Income Tax while rejecting revision petition of petitioner has taken view that whenever adjustment is made, additional tax would be charged @ 20% of tax payable on such excess amount. excess amount refers to increase in income and by implication reduction in loss where even after addition there is negative income. Whether there should be levy of additional tax in all circumstances and cases where loss is reduced, is question to be answered in present case. 14. By Taxation Laws (Amendment) Act, 1991 in Section 32 third proviso was inserted to following effect: Provided also that, in respect of previous year relevant to assessment year on 1st day of April, 1991, deduction in relation to any block of assets under this clause shall, in case of company, be restricted to seventy-five per cent of amount calculated at percentage, on written down value of such assets, prescribed 12 under this Act immediately before commencement of Taxation Laws (Amendment) Act, 1991. 15. Prior to insertion of above proviso depreciation was not restricted to 75% of amount calculated at percentage on written down value of such assets. return was filed by assessee on 31.12.1991, prior to which date Taxation Laws (Amendment) Act, 1991 had come into operation. It was due to bonafide mistake and oversight that assessee claimed 100% depreciation instead of 75%. 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 depreciation loss remained to extent of Rs.(-)3,43,94,90,393/-. Even as per reduction of 25% depreciation return of loss income of assessee remained. In claiming 100% depreciation assessee claims that there was no intention to evade tax and said claim was only bonafide mistake. As noted above by Finance Act, 1993 Section 143(1-A) was substituted with retrospective effect from 01.04.1989. memorandum explaining provisions 13 of Finance Bill with retrospective effect was to following effect: provisions of Section 143(1-A) of Income Tax Act provide for levy of twenty per cent additional income tax where total income, as result of adjustments made under first proviso to Section 143(1)(a), exceeds total income declared in return. These provisions seek to cover cases of returned income as well as returned loss. Besides its deterrent effect, purpose of levy of additional income tax is to persuade all assesses to file their returns of income carefully to avoid mistakes. In two recent judicial pronouncements, it has been held that provisions of Section 143(1-A) of Income Tax Act, as these are worded, are not applicable in loss cases. Bill, therefore, seeks to amend Section 143(1-A) of Income Tax Act to provide that where as result of adjustments made under first proviso to Section 143(1)(a), income declared by any person in return is increased, assessing officer shall charge additional income tax at rate of twenty per cent, on difference between tax on increased total income and tax that would have been chargeable had such total income been reduced by amount of adjustments. In cases where loss declared in return has been reduced as result of aforesaid adjustments or aforesaid adjustments have effect of 14 converting that loss into income, Bill seeks to provide that assessing officer shall calculate sum (referred to as additional income tax) equal to twenty per cent of tax that would have been chargeable on amount of adjustments as if it had been total income of such person. 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 Revenue has rightly submitted that object of Section 143(1-A) was prevention of evasion of tax. memorandum explaining provisions of Finance Bill as noted above was also to persuade to 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 provisions of Section 143(1-A), its object and validity. There was challenge to retrospectivity of provisions of Section 143(1-A) as introduced by Finance Act, 1993. Gauhati High Court had held that 15 retrospective effect given to amendment would be arbitrary and unreasonable. appeal was filed by Revenue in this Court in which appeal, this Court had occasion to examine constitutional validity of provisions. This Court in above judgment held that object of Section 143(1-A) was prevention of evasion of tax. In paragraph 9 of judgment following has been laid down: 9. On cursory reading of provision, it is clear that object of Section 143(1- A) is prevention of evasion of tax. By introduction of this provision, persons who have filed returns in which they have sought to evade tax properly payable by them is meant to have deterrent effect and hefty amount of 20% as additional income tax is payable on difference between what is declared in 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 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 present case, question that arises before us is also as to 16 whether bona fide assessees are caught within 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 High Court on facts of present case. This being case, we feel that since provision has deterrent effect of preventing tax evasion, it should be made to apply only to tax evaders. In support of this proposition, we refer to judgment in K.P. Varghese v. ITO. Court in that case was concerned with correct construction of Section 52(2) of Income Tax Act: (K.P. Varghese case, SCC p. 179, para 4 : SCR p. 639) 52. (2) Without prejudice to provisions of sub-section (1), if in opinion of Income Tax Officer fair market value of capital asset transferred by assessee as on date of transfer exceeds full value of consideration declared by assessee in respect of transfer of such capital asset by amount of not less than fifteen per cent of value declared, full value of consideration for such capital asset shall, with previous approval of Inspecting Assistant Commissioner, be taken to be its fair market value on date of its transfer. 25. Taking cue from Varghese case, we therefore, hold that Section 143(1-A) can only be invoked where it is found on facts that lesser amount stated in return filed by assessee is result 17 of attempt to evade tax lawfully payable by assessee. burden of proving that assessee has so attempted to evade tax is on Revenue which may be discharged by Revenue by establishing facts and circumstances from which reasonable inference can be drawn that assessee has, in fact, attempted to evade tax lawfully payable by it. Subject to aforesaid construction of Section 143(1-A), we uphold retrospective clarificatory amendment of said section and allow appeals. judgments of Division Bench2 of Gauhati High Court are set aside. There will be no order as to costs. 19. This Court in above case upheld constitutional validity of Section 143(1-A) (as inserted by Finance Act, 1993) subject to holding that Section 143(1-A) can only be invoked where it is found on facts that lesser amount stated in return filed by assessee is result of attempt to evade tax lawfully by assessee. 20. Applying ratio of above judgment in present case, we need to find out as to whether 100% depreciation as mentioned in return filed by assessee was result of attempt to evade tax lawfully payable by assessee. 18 19. We have seen from facts, as noted above, that even after dis-allowing 25% of depreciation, assessee in return remained in loss and 100% depreciation was claimed by assessee in return due to bonafide mistake. By Taxation Laws (Amendment) Act, 1991, depreciation in case of Company was restricted to 75% which due to oversight was missed by assessee while filing return. Commissioner of Income Tax by deciding revision petition has also not made any observation to effact that 100% depreciation claimed by assessee was with intend to evade payment of tax lawfully payable by assessee, rather Commissioner in his order dated 31.03.1992 has observed that whenever adjustment is made, additional tax has to be charged @ 20% of tax payable on such excess amount. 20. It is true that while interpreting Tax Legislature consequences and hardship are not looked into but purpose and object by which taxing statutes have been enacted cannot be lost sight. This Court while considering very same provision i.e. 19 Section 143(1-A), its object and purpose and while upholding provision held that burden of proving that assessee has attempted to evade tax is on Revenue which may be discharged by Revenue by establishing facts and circumstances from which reasonable inference can be drawn that assessee has, in fact, attempted to evade tax lawfully payable by it. In present case, not even whisper, that claim of 100% depreciation by assessee, 25% of which was disallowed was with intend to evade tax. We cannot mechanically apply provisions of Section 143(1-A) in facts of present case and in view of 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 lesser amount stated in return filed by assessee is result of attempt to evade tax lawfully payable by assessee. In view of above, we hold that mechanical application of Section 143(1-A) in facts of present case was uncalled for. 20 21. In result, we allow appeal, set aside judgment of Division Bench of 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. Rajasthan State Electricity Board v. Dy. Commissioner of Income-tax (Assessment) & Anr