Landmark Judgements of Supreme Court on Section 143 [Assessment]

Additional tax – The object of Section 143(1A) is the prevention of evasion of tax- The burden of proving that the assessee has so attempted to evade tax is on the Revenue which may be discharged 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 - Section 143(1A) can only be invoked when lesser amount stated in return filed by assessee is a result of an attempt to evade tax lawfully payable by assessee, thus, where there was no observation to effect that claim of 100 per cent depreciation by assessee, was with intend to evade tax, section 143(1A) could not have been mechanically applied to assessee.Levy of additional tax was quashed

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(1A) of the Income Tax Act, 1961amounting 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. 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(1A). 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. On appeal to Supreme Court held that The object of section 143(1A) is the prevention of evasion of tax. As it has the deterrent effect of preventing tax evasion, it should be made to apply only to tax evaders. It 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 payable by the assessee. The burden of proving that the assessee has so attempted to evade tax is on the Revenue which may be discharged 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. Order of division bench is set aside and levy of addition tax was quashed [The Memorandum Explaining the Provisions of the Finance Bill (1993) 200 ITR (St.) 140)] (Related Assessment year : 1991-92) – [Rajasthan State Electricity Board v. DCIT (2020) 424 ITR 704 : 313 CTR 745 : 187 DTR 457 : 115 taxmann.com 330 (SC)]

Amendment made to section 143(1A) by Finance Act 1993, with retrospective effect from 01.04.1989, was constitutionally valid

The assessee filed its return declaring loss. The Assessing Officer passed assessment order levying additional tax under section 143(1A). The assessee filed writ petition to declare the provisions

of section 143(1A) as ultra vires and consequently, prayed for the quashing of the assessment order. The Single Judge upheld section 143(1A) as amended in 1993 prospectively but held that insofar as it operated with effect from 1989 on losses made by companies, the section was arbitrary and unreasonable and would, therefore, have to be struck down. The Division Bench upheld the order of Single Judge. On appeal to the Supreme Court:

It is clear that the object of section 143(1A) is the prevention of evasion of tax. By the introduction of this provision, persons who have 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 per cent as additional tax is payable on the difference between what is declared in the return and what is assessed to tax.

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 under section 139. It is clear, therefore, that the retrospective amendment made in year 1993 would only be clarificatory of the position that existed in year 1989 itself.

Section 143(1A) can be invoked only 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 payable by the assessee. The burden of proving that the assessee has so 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.

Subject to the aforesaid construction of section 143(1A), the retrospective clarificatory amendment of the said section is upheld. The judgment of the Division Bench of the High Court is set aside. - [CIT, Gauhati v. Sati Oil Udyog Ltd. (2015) 230 Taxman 521 : 56 taxmann.com 285 (SC)]

Impossibility of the assessee having earned such a huge amount of profit within a few months immediately after migration to India in the disturbed and unsettled conditions which then prevailed must, therefore, necessarily support the inference that the assessee must have brought these assets from Lahore

Section 143 of the Income-tax Act, 1961 [Corresponding to section 23 of Indian Income-tax Act, 1922] - Assessment - Additions to income - Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the revenue is entitled to treat it as taxable income.

Where nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by assessee, it is open to revenue to hold that it is income of assessee and no further burden lies on revenue to show that that income is from any particular source. Assessee - HUF introduced in books of account of its business certain capital which consisted of gold rawa, gold ornaments, stones and cash. Assessee explained that said assets had been brought by Karta of assessee. HUF when he migrated from Lahore in June 1947 where assessee carried on a reasonably large business in gold and jewellery. Tribunal rejected explanation regarding part of value of assets and assessed same as undisclosed income of assessee.