Assessment – Intimation – Prima Facie Adjustments – Additional tax – Retrospective amendment made in 1993 was only clarificatory of the position that existed in 1989 and was valid but 143(1A) could be invoked only where it was found in facts that the lesser amount stated in the return filed by the assessee was a result of an attempt to avoid tax lawfully payable by the assessee.

The assessee, in its annual return for the assessment years 1989-90 and 1991-92, showed a loss of Rs.1,94,13,40 and Rs. 1,80,22,480 respectively. By an assessment order dated 14th December, 1992, the Assessing Officer levied an additional tax u/s. 143(1A) of Rs. 5,62,490 and Rs. 8,09,290, respectively, for the two assessment years in question calculated in the manner provided in the section.

Being aggrieved by the order dated 14th December, 1992, the respondent filed two separate writ petitions to declare the provisions of section 143(1A) as ultra vires and, consequently, prayed for the quashing of the order dated 14th December, 1992. The learned single judge who heard the two petitions upheld section 143(1A) as amended in 1993 prospectively but held that in so far as it operated with effect from 1989 on losses made by companies, the section is arbitrary and unreasonable and would, therefore, have to be struck down. The Division Bench agreed with single judge and dismissed the two writ appeals before it.

The Supreme Court held that on a cursory reading of the provision, it was clear that the object of section 143(1A) was the prevention of evasion of tax. By the introduction of this provision, persons who has 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.

The Supreme Court observed that a plain reading of the provision as it originally stood referred to the total income. Further, it was settled law that the word “income” would include within it both profits as well as losses. The Supreme Court further held that 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 u/s. 139. It was clear, therefore, that the retrospective amendment made in 1993 would only be clarificatory of the position that existed in 1989 itself.

According to the Supreme Court, 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. That being the case, on facts there was in fact no retrospective imposition of additional tax–such tax was imposable on losses as well from 1989 itself.

In the present case, the question that therefore arose before the Supreme Court also as to whether bona fide assesses are caught within the net of section 143(1A).

The Supreme Court after referring to its decisions in CIT vs. Hindustan Electric Graphites Ltd. (2000) 243 ITR 48(SC), Asst. CIT vs. J.K. Synthetics Ltd (2001) 251 ITR 200 (SC) and K. P. Varghese vs. ITO 131 ITR 579 (SC); held that section 143(1A) could only be invoked where it was found on facts that the lesser amount stated in the return filed by the assessee was a result of an attempt to evade tax lawfully payable by the assessee. The burden of proving that the assessee had so attempted to evade tax was on the Revenue which could be discharged by the Revenue by establishing facts and circumstances from which a reasonable inference can be drawn that the assessee had, in fact, attempted to evade tax lawfully payable by it. Subject to the aforesaid construction of section 143(1A), the Supreme Court upheld the retrospective clarificatory amendment of the said section and allowed the appeals.