Instruction No
:
1832
Date of Issue
:
29.12.1989
Section(s) Referred
:
143
Statute
:
Income-Tax Act


Subject: Provision of section 143(1),143(1A) charge of Additional income-tax and issue of intimation in case of loss return.

A question has been raised whether in a case where as a result of adjustments made under the proviso to section 143 (1) (a) loss as declared in a return of income is reduced or results in income below taxable limit so that no tax is found due on the income determined after making the said adjustments additional tax can be levied under the provisions of clause (i) of the explanation in sub-section (1A) of sec. 143 in respect of the adjustments made and whether an intimation can be sent u/s.143(1)(a))i) for such demand on account of additional income- tax.

2. In this connection, the following provisions in the I.T.Act, as amended by the Direct Tax Laws (Amendment) Act, 1987 the Direct Tax Laws (Amendment) Act, 1989 and the Direct Tax laws (2nd amendment) Act, 1989 need to be referred to:-

i. under the provisions of section 143(1)(a)(i) where a return has been filed, if any tax or interest is found due on the basis of such return .. an intimation shall be sent to the assessee specifying the sum so in sec. 143(1)(a)(i) would include additional Income-tax also. This will be clear from the following:

a). It is specifically mentioned in sub-sec.(1A) of the section that the additional income-tax charged as per the provisions of that sub-section shall be specified in the intimation to be sent u/s.143(1)(a)(i).

b). Section 4 of the Act relating to charge of income-tax also stands amended so that charge of additional income-tax is also included in the charge of income-tax.

ii. First proviso to section 143 (1)(a) enables the department to make certain adjustments in the returned income or loss while computing the tax or interest payable by the assessee.

iii. The 2nd proviso to section 143 (1)(a) as introduced by Direct Tax Laws(2nd amendment) Act, 1989, enables the department to issue intimation to the assessee where adjustments are made under the first proviso, notwithstanding that no tax or interest is found due from the assessee after making the said adjustments.

iv. A new sub-section (1A) in section 143 inserted by the Direct Tax laws (Amendment)Act, 1989 provides that where the total income as a result of adjustments made under the proviso to section 143(1)(a) exceeds the returned income by any amount an additional income tax equal to 20% of the TAX PAYABLE ON SUCH EXCESS AMOUNT shall be levied and the same shall be specified in the intimation to be sent under section 143(1)(a)(i).

v. Clause (i) of the explanation in the said sub-section (1A) provides that for the purposes of levy of additional income-tax under the sub-section, TAX PAYABLE ON SUCH EXCESS AMOUNT means where the amount of adjustments made exceed the total income, the tax that would have been chargeable had the amount of adjustments been the total income.

Thus the provisions of the said clause (i) provides for levy of additional income-tax in a situation where loss declared in a return is reduced or converted into profit as a result of an adjustment made to the returned loss. These provisions are on the same lines as the provisions for levy of penalty u/s.271(1)(c) for concealment of income in the case of loss returns, as contained in clause (a) of explanation 4 to section 271(1).

3.1 From the above provisions it clearly follows that under the provisions of clause (i) of the explanation in section 143 (1A), additional income-tax can be levied even in cases where, as result of adjustments made under the proviso to section 143 (1)(a) the loss declared in a return is reduced or converted into income below taxable limit and also that an intimation can be sent under section 143(1)(a)(i) for such demand on account of additional income-tax. Where the total amount of adjustments itself is below the income liable to tax in a particular case, the additional income-tax chargeable will be nil. Even in such cases it will not be possible to issue an intimation to the assessee under the 2nd proviso to section 143(1)(a) inserted by the Direct Tax Laws (2nd Amendment) Act, 1989.

3.2 The position explained above will be clear from the following examples in the case of an individual, in whose case no tax is leviable upto an income of Rs. 18,000/-


                           Example 1
------------------------------------------------------------------
Loss declared in return                  Rs.  (-) 50,000
Amount of adjustments under
proviso to section 143(1)(a)                      25,000
Net Loss                                 Rs.  (-) 25,000
Income-tax on Rs. 25,000                 Rs.        1750
Therefore, additional
income-tax at 20%                        Rs.         350
------------------------------------------------------------------
                           Example 2
------------------------------------------------------------------
Loss declared in return                  Rs.  (-) 50,000
Amount of adjustments under
proviso to section 143(1)(a)                      60,000
Net Loss                                 Rs.  (+) 10,000
Income-tax on Rs. 60,000                 Rs.      13,250 
Therefore, additional
income-tax at 20%                        Rs.       2,650  
------------------------------------------------------------------
                            Example 3
------------------------------------------------------------------
Loss declared in return                  Rs.  (-) 50,000
Amount of adjustments under
proviso to section 143(1)(a)                  (+) 15,000
Net Loss                                 Rs.  (-) 35,000
Income-tax on Rs. 15,000                            Nil
Therefore, additional
income-tax at 20%                                   Nil
------------------------------------------------------------------

3.3 Thus, in cases at Example (1) and (2), it will be possible to determine the correct loss by making adjustments to the returned loss and issue intimation for additional tax payable. In example 3 also, although no additional income-tax would be chargeable, it will be possible to issue intimation after making necessary adjustments to determine the correct loss.

4. The above instructions may kindly be brought to the notice of all officers working in your region.

[F. No 244/26/89 - ITA-II dated 29/12/1989 from CBDT]