Delhi High Court
Smt. Shanta Chopra vs Income Tax Officer And Ors. on 6 July, 2004
Equivalent citations: (2004)190CTR(DEL)452
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed
JUDGMENT
B.C. Patel, C.J.
1. The following question framed on 10th Sept., 2003, is to be determined by this Court :
“Whether the Tribunal was correct in law in holding that litigation expenses amounting to Rs. 55,100 claimed by the assessed under Section 57 of IT Act could be disallowed by taking recourse to the provisions of Section 143(1)(a) of IT Act, 1961 ?”
2. Reading the question, it is very clear that the issue is not that she could claim the deduction, but whether it could be disallowed by taking recourse to the provisions of Section 143(1)(a) of the IT Act, 1961 (hereinafter referred to as “the Act”). The appellant filed a statement of income along with the return. In the statement, the appellant submitted a computation of salary income as well as income from other sources comprising of interest of NSC, FDRs, savings bank account, Rural Electrification Bonds and NTPC Bonds. The appellant submitted details of legal expenses to the extent of Rs. 55,100 along with a note stating that the appellant had entered into ‘an agreement to sell’ for sale of her plot of land on 26th Oct., 1988. The appellant had received an advance of Rs. 9,50,000 from the vendee. The vendee did not turn up for the execution of the deed. The appellant invested the advance received against the agreement in the FDR in the bank. Since various matters in connection with the above litigation were going on, the appellant was forced to incur the legal expenses of Rs. 55,100 to earn the interest income of Rs. 1,07,318. The appellant claimed that the amount which she had received was kept in a fixed deposit and while litigating to protect the said amount, she incurred expenditure to the tune of Rs. 55,100. She claimed that the said amount is covered under Section 57(iii) of the Act. The Court is not required to examine whether the assessed was entitled to get the shelter of Section 57(iii) of the Act or not, but the moot question is whether the ITO could have exercised the powers under Section 143(1)(a) of the Act to disallow the amount under the pretext that it is a mere adjustment. Section 143(1)(a) as applicable at the relevant time is required to be reproduced here :
“143. Assessment–(1)(a) Where a return has been made under Section 139, the AO may, without requiring the presence of the assessed or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessed after making such adjustments to the income or loss declared in the return as are required to be made under Clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and for the purpose of the adjustments referred to in Sub-clause (iv) of Clause (b), also with reference to the record of the assessments, if any, of past years, and determine the sum payable by the assessed or refundable to him on the basis of such assessment.
(b) In making an assessment of the total income or loss of the assessed under Clause (a), the AO shall make the following adjustments to the income or loss declared in the return, that is to say, he shall,
(i) rectify any arithmetical errors in the return, accounts and documents, referred to in Clause (a)
(ii) ***
(iii) ***
(iv) give due effect to the allowance referred to in Sub-section (2) of Section 32, the deduction referred to in Clause (ii) of Sub-section (3) of Section 32A or Clause (ii) of Sub-section (2) of Section 33 or Clause (ii) of Sub-section (2) of Section 33A or Clause (i) of Sub-section (2) of Section 35 or Sub-section (1) of Section 35A or Sub-section (1) of Section 35D or Sub-section (1) of Section 35E or the first proviso to Clause (ix) of Sub-section (1) of Section 36, any loss carried forward under Sub-section (1) of Section 72 or Sub-section (2) of Section 73 or Sub-section (1) or Sub-section (3) of Section 74 or Sub-section (3) of Section 74A and the deficiency referred to in Sub-section (3) of Section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years.”
Thus, it is very clear that in making an assessment of total income of the assessed, the AO is entitled to make the adjustments to the income or loss declared in the return. However, that adjustment is required to be made only for the items included in the Sub-clause (b) of Sub-section (1) of Section 143 of the Act. He can rectify any arithmetical errors in the written accounts and documents referred to in Clause (a) or he can give due effect to certain items indicated in Sub-clause (iv) of Clause (b). Section 57 is not mentioned therein. If the ITO was of the opinion that the assessed has claimed the amount which she is not entitled, then it was for him to initiate appropriate proceedings and assess the assessed instead of making adjustments in the manner which he has done. The Court is only required to answer that whether the ITO was justified in making adjustments under Section 143(1)(a) of the Act or not. Thus, in the opinion of the Court, the answer is required to be given in negative in favor of the assessed and against the Revenue.