CIT vs. Sati Oil Udyog Ltd (Supreme Court)
S. 143(1A): As the object of s. 143 (1A) is to prevent tax evasion, it can apply only to tax evaders and not to honest assessees. The burden of proving that the assessee stated a lesser amount in the return in an attempt to evade tax is on the revenue.
Facts of the case
Section 143 (1A)(a) was substituted with retrospective effect by the Finance Act of 1993 from 1.4.1989 to provide that even a reduction of loss on account of a prima facie adjustment would entail levy of additional tax. The retrospective amendment was enacted to supercede the judgments of the Delhi High Court in Modi Cement Limited v. Union of India, (1992) 193 ITR 91 and JK Synthetics Limited v. Asstt. Commissioner of Income-Tax, (1993) 2000 ITR 594, and the Allahabad High Court in Indo Gulf Fertilizers & Chemicals Corpn. Ltd. v. Union of India, (1992) 195 ITR 485 which held that losses were not within the contemplation of Section 143(1A) prior to its amendment.
The assessee challenged the retrospective amendment as being arbitrary and ultra vires. This was upheld by the Gauhati High Court. The High Court held that the retrospective effect given to the amendment would be arbitrary and unreasonable in asmuch as the provision, being a penal provision, would operate harshly on assessees who have made a loss instead of a profit, the difference between the loss showed in the return filed by the assessee and the loss assessed to income tax having to bear an additional income tax at the rate of 20%. On appeal by the department to the
Supreme Court HELD reversing the High Court:
(i) The object of Section 143(1A) is the prevention of evasion of tax. By the introduction of this provision, persons who have filed returns in which they have sought to evade the tax properly payable by them is meant to have a deterrent effect and a hefty amount of 20% as additional income tax is payable on the difference between what is declared in the return and what is assessed to tax;
(ii) The definition of “income” in Section 2(24) of the Income Tax Act is an inclusive one. Further, it is settled law at least since 1975 that the word “income” would include within it both profits as well as losses. This is clear from Commissioner of Income Tax Central, Delhi v. Harprasad & Company Pvt. Ltd., (1975) 3 SCC 868;
(iii) Even on a reading of Section 143 (1)(a) which is referred to in Section 143 (1A), a loss is envisaged as being declared in a return made under Section 139. It is clear, therefore, that the retrospective amendment made in 1993 would only be clarificatory of the position that existed in 1989 itself. All assessees were put on notice in 1989 itself that the expression “income” contained in Section 143 (1A) would be wide enough to include losses also.
(iv) The object of Section 143 (1A) is the prevention of tax evasion. Read literally, both honest asessees and tax evaders are caught within its net, an example being Commissioner of Income Tax, Bhopal v. Hindustan Electro Graphites, Indore, (2000) 3 SCC 595. We feel that since the provision has the deterrent effect of preventing tax evasion, it should be made to apply only to tax evaders. In support of this proposition, we refer to the judgment in K.P. Varghese v. ITO, (1982) 1 SCR 629. Taking a cue from K.P. Varghese v. ITO, (1982) 1 SCR 629, we therefore, hold that 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 payable by the assessee. The burden of proving that the assessee has so 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. Subject to the aforesaid construction of Section 143 (1A), we uphold the retrospective clarificatory amendment of the said Section and allow the appeals.