THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.241 OF 1996 Dated:30.11.2011 Between: Commissioner of Income Tax, A.P.-II, Hyderabad .. Applicant And Shri N.Bhaskara Rao, Ramagundam .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.241 OF 1996 ORDER: (Per Hon’ble Sri Justice V.V.S.Rao) The reference under Section 256(1) of the Income Tax Act, 1961 (the Act), made by the Income Tax Appellate Tribunal, Hyderabad at the instance of the Revenue requires the opinion of this Court on the following question. Whether on the facts and in the circumstances of the case, the ITAT is correct in holding that the disallowance of deduction claimed from incentive bonus which formed part of salary as per the jurisdictional High Court’s decision in 152 ITR 163 and 183 ITR 29 and R.C.No.30 of 1991, dated 08.03.1995, is a debatable issue and hence out of the purview of prima facie adjustment u/s.143(1)(a)? The notice sent by the Registry to the assessee was returned with the postal endorsement that the addressee is not available in the house. As held by the Supreme Court in C.C.Alavi Haji v Palapetty Muhammed [1] , such postal endorsement leads to presumption of due service of notice. None appears for the assessee. To appreciate the issue, it is necessary to brieﬂy notice the fact of the matter as summarized in the statement of case. The respondent/assessee, who was a Development Oﬃcer, ﬁled his return of income for the assessment year 1989-1990 disclosing an income of Rs.37,000/-. It was processed on 21.12.1989 under Section 143(1)(a) of the Act. The assessee received incentive bonus to the tune of Rs.27,414/- and in the return claimed deduction of 40% of incentive bonus towards expenses for earning the said bonus. The Income Tax Oﬃcer, while making adjustments under Section 143(1)(a) of the Act, disallowed the claim deduction of 40% of incentive bonus and added the same for the purpose of computation for levying additional tax. The assessee thereafter ﬁled an application under Section 154 of the Act for rectiﬁcation, which was rejected. Aggrieved by which, the assessee ﬁled appeal before the Commissioner of Income Tax (Appeals), who allowed the appeal. For doing so, the appellate authority relied on K.A.Chowdary v Commissioner of Income Tax[2]. But the assessee’s contention that under Section 143(1)(a) the Assessing Oﬃcer is not entitled to make adjustments was not accepted. Aggrieved by the order of the appellate authority, the Revenue preferred appeal which was dismissed following the decision in K.A.Chowdary. The Tribunal also held that the question whether the assessee’s claim for deduction of 40% of incentive bonus cannot be sustained or cannot be the subject matter of prima facie adjustment under Section 143(1)(a). Thereafter, the Revenue sought the reference and the question noticed hereinabove has been referred. Section 143(1)(a) of the Act enables the Assessing Oﬃcer to process the return of income in the manner provided therein. The total income or loss shall have to be completed by the Assessing Oﬃcer after making the adjustments namely (i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return. By the time the Assessing Oﬃcer made adjustments disallowing the incentive bonus, the decision of this Court in K.A.Chowdary was available and in any event the question was debatable. Therefore, the Assessing Oﬃcer could not have made adjustments. In that view of the matter, the Tribunal was correct in taking a similar view. In view of the above, the question referred to this Court is answered in the aﬃrmative against the Revenue and in favour of the assessee. The Referred Case shall stand disposed of accordingly. ________________ (V.V.S. RAO, J) _____________________ (B.N.RAO NALLA, J) 30.11.2011 KH [1] (2007) 6 SCC 555 [2] (1990) 183 IT R 29