Case: RAJASTHAN STATE ELECTRICITY BOARD JAIPUR Vs. THE DY. COMMISSIONER OF INCOME TAX(ASSESSMENT) &amp; ANR

2. Brief facts necessary to be noted for deciding this appeal are:The assessee is a Government Company as defined under Section 617 of the Companies Act, 1956. The assessee 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%. The assessee supported the 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 the said return by the assessee. No notice under Section 143(2) of the Income Tax Act, 1961 was received by the assessee3. 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 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 by giving following reasoning:A plain reading of the provisions of Section 143(1-A) shows that whenever adjustment is made, additional tax has to be charged @ 20% of the tax payable on such excess amount. The excess amount refers to the increase in the income and by implication the reduction in loss where even after the addition there is negative income. The explanation to Section 143(1-A)(b) provides that the tax payable on such excess means the tax that would have been chargeable on the amount of adjustment to the total income. Where the adjustment exceeds the income determined. Clearly, therefore, in this case the additional tax had to be charged on the basis of the tax chargeable on the sum of Rs.83,44,42,579/- added by the Assessing Officer4. 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/- Writ Petition No.2267 of 1992 was filed by the assessee in the High Court of Judicature for Rajasthan, Bench at Jaipur. 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. The assessee aggrieved by the judgment of the Division Bench has come up in this appeal.

Reasoning:
13. The amendments brought by Finance Act, 1993 with retrospective effect i.e. from 01.04.1989 are fully attracted with regard to assessment in question i.e. for assessment year 1991-92. The substituted sub- section (1-A) makes it clear that where the loss declared by an assessee had been reduced by reason of adjustments made under sub-section(1)(a), the provisions of sub-section (1-A) would apply. As noted above the Commissioner of Income Tax while rejecting the revision petition of the petitioner has taken the view that whenever adjustment is made, additional tax would be charged @ 20% of the tax payable on such excess amount. The excess amount refers to the increase in the income and by implication the reduction in loss where even after the addition there is negative income15. Prior to insertion of the above proviso the depreciation was not restricted to 75% of the amount calculated at the percentage on the written down value of such assets. 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. As noted above by the Finance Act, 1993 Section 143(1-A) was substituted with retrospective effect from 01.04.198916. Learned counsel for the Revenue has rightly submitted that object of Section 143(1-A) was the prevention of evasion of tax.The memorandum explaining the provisions of the Finance Bill as noted above was also to persuade to the assessee to file Income Tax Return carefully to avoid mistakes19. This Court in the above 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 assessee21. We have seen from the facts, as noted above, that even after dis-allowing 25% of the depreciation, the assessee in the return remained in loss and the 100% depreciation was claimed by the assessee in the return due to a bonafide mistake. By Taxation Laws (Amendment) Act, 1991, the depreciation in the case of Company was restricted to 75% which due to oversight was missed by the assessee while filing the return. The Commissioner of Income Tax by deciding the revision petition has also not made any observation to the effact that 100% depreciation claimed by the assessee was with intend to evade payment of tax lawfully payable by the assessee, rather the Commissioner in his order dated 31.03.1992 has observed that whenever adjustment is made, additional tax has to be charged @ 20% of the tax payable on such excess amount22. 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 considering the very same provision i.e. 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 assessee has, in fact, attempted to evade tax lawfully payable by it. 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 and in view of the 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 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. In view of the above, we hold that mechanical application of Section 143(1-A) in the facts of the present case was uncalled for.