No Additional Tax Demand u/s 143(1)(a) If there was No Intention to Evade Tax: Supreme Court [Read Judgment]

The Supreme Court has ruled that the additional tax under the provisions of Section 143(1)(a) cannot be imposed if there was no intention on the part of the assessee to evade tax.

In a case between Rajasthan State Electricity Board, Jaipur v. The Dy. Commissioner Of Income Tax & Anr the assessee, Rajasthan State Electricity Board,Jaipur filed return on 30.12.1991 for the assessment year 1991-92 showing a loss amounting to Rs. (-)427,39,32,972/-. Due to a bonafide mistake the assessee claimed 100% depreciation of Rs. 333,77,70,317/- on written down value of assets instead of 75% depreciation. Under the unamended Section 32(2) of the Income Tax Act, 1961 the assessee was entitled to claim 100% depreciation. However, after the amendment the depreciation could only be 75%.

An intimation under Section 143(1)(a) of the Income Tax Act, 1961 dated 12.02.1992 was issued by the Assessing Officer disallowing 25% of the depreciation, restricting the depreciation to 75%. Additional tax under Section 143(1-A) of the Income Tax Act, 1961 3 amounting to Rs.8,63,64,827/- was demanded. The assessee filed an application under Section 154 of the Income Tax Act, 1961 dated 18.02.1992 praying for rectification of the demand. The assessee also filed a petition under Section 264 of the Income Tax Act, 1961 against the demand of additional tax. In the petition it was stated that even after allowing only 75% of depreciation the income of the assessee remained to be in loss to Rs.3,43,94,90,393/-. The assessee prayed for quashing the demand of additional tax. The application filed under Section 154 of the Income Tax Act, 1961 was rejected by the Assessing Officer on 28.02.1992. The revision petition under Section 264 of the Income Tax Act, 1961 came to be dismissed by the Commissioner of Income Tax by order dated 31.03.1992. The Commissioner of Income Tax rejected the revision petition.

Aggrieved by the order of the Commissioner of Income Tax challenging the demand of additional tax which was reduced to amount of Rs.7,67,68,717/- a writ petition was filed by the assessee in the High Court of Judicature for Rajasthan. Learned Single Judge vide judgment dated 19.01.1993 allowed the writ petition quashing the levy of additional tax under Section 143(1-A)The Revenue aggrieved by the judgment of the learned Single Judge filed a Special Appeal which has been allowed by the Division Bench of the High Court vide its judgment dated 13.11.2007 upholding the demand of additional tax.

After hearing contentions of both the learned counsels, a two-judge Bench consisting of Justice Ashok Bhushan and Justice Mohan.M.Shantanagoudar noted that 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.

“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. We cannot mechanically apply the provisions of Section 143(1-A) in the facts of the present case,” the bench said.

The bench, while concluding, also observed that”….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 counsels considering the very same provision i.e. 19 Section 143(1-A), 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 has, in fact, attempted to evade tax lawfully payable by it. This Court in K.P. Varghese v. ITO 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.”