The department adjusted my return under section 143(1)(a) simply because I did not attach proof of my claims. Can it do that?
No. The Delhi High Court held that an adjustment under the first proviso to section 143(1)(a) can be made only where the claim is prima facie inadmissible on the information available in the return, the accounts or the accompanying documents. The conclusion must flow from the return as filed. No power is given to disallow a claim merely because proof has not been furnished. If the officer wants proof he must ask for it, which means issuing a notice under section 143(2). The intimation was quashed.
Decided by the High Court (Delhi High Court - B.N. Kirpal, J) on 1991-10-25, reported as 1992 RLR 1. It bears on section 143(1)(a), section 143(2), section 154 of the Income Tax Act 1961, in Assessment & Scrutiny matters.
This is the decision that fixed the boundary between summary processing and scrutiny, and it is still the reasoning courts use when a processing adjustment strays into examining the merits of a claim. It makes two points that recur. The first is that the power is analogous to rectification: the inadmissibility must be evident from the material on record, not arrived at by weighing evidence that is absent. The second is that an assessee is not required to file all his books and original documents with the return, so absence of proof at that stage proves nothing. The Court supports its reading with the Board's own Circular No. 549, whose examples are all of errors visible on the face of the return.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner, a charitable trust, filed its return for assessment year 1989-90 declaring a loss of Rs 53,850. On 29 October 1990 the Income-tax Officer sent an intimation under section 143(1)(a) with an explanation slip, computing total income at Rs 2,81,500. Five items had been added: a corpus donation of Rs 1,62,500, which the trust had treated as not taxable because it was a receipt towards corpus, and four claimed expenses - retainership fee of Rs 76,950, medicine expenses of Rs 23,550, rent of Rs 9,600 and maintenance expenses of Rs 8,910. The sole reason for the additions was that no proof of the claims had been filed with the officer. After the writ petition was filed, the officer passed an order under section 154 on 12 August 1991 rectifying the adjustments and putting the income at nil, and the Revenue argued the petition had become infructuous. The petitioner replied that its grievance survived, because its returned loss had been converted to nil, that the rectification order gave no reasons, and that a ruling on the provision was needed.
The writ petition was allowed and the intimation of 29 October 1990 was quashed, with no order as to costs. Under clause (iii) of the first proviso to section 143(1)(a), the Income-tax Officer may disallow a loss carried forward, deduction, allowance or relief claimed in the return only where, on the basis of the information available in the return, accounts or documents, it is prima facie inadmissible. The conclusion that the claim is inadmissible must flow from the return as filed. No power is given to disallow a claim on the ground that no proof of it has been furnished. The clause is in a way analogous to section 154: only where inadmissibility is evident from the return and the documents accompanying it can an adjustment be made. Where the officer lacks proof his only course is to require the assessee to furnish it, which presupposes a notice under section 143(2). Neither the intimation nor the rectification order gave any reason for the additions. The Court also held that the writ petition had not become infructuous, since the returned loss stood converted to nil.
The Court read the proviso as a list of adjustments that can be made from the papers themselves - arithmetical errors rectified, a prima facie admissible claim not made in the return allowed, and a prima facie inadmissible claim disallowed - each keyed to the information available in the return, accounts or accompanying documents. Inadmissibility must therefore appear from that material; it is not something the officer reaches by finding the assessee's evidence wanting. The Court drew the analogy with rectification to make the point concrete: what may be corrected is what is evident on the record. It then supplied the practical reason why absence of proof cannot be a ground. An assessee is not obliged to file his entire books or other documents with the return; proof of a claim may lie in correspondence, in the books, or elsewhere, and the law does not require every original to be annexed. To treat the absence of such material as showing inadmissibility would convert a summary provision into an adjudication on evidence and would put the assessee out of court without a hearing. The statute provides the alternative: if the officer wants proof, he may call for it, and that is what a notice under section 143(2) is for. Finally, the Court found its construction confirmed by the department's own understanding in Circular No. 549, whose illustrations - a standard deduction wrongly computed, depreciation at a wrong rate, a loss set off against the wrong head, a deduction claimed in excess of the permissible limit - are all errors visible from the return or the documents with it, and none is a failure to prove a claim.
No power is given to the Income-tax Officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee.
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Handle my notice → Ask a CA on WhatsAppNo. The Delhi High Court held that an adjustment under the first proviso to section 143(1)(a) can be made only where the claim is prima facie inadmissible on the information available in the return, the accounts or the accompanying documents. The conclusion must flow from the return as filed. No power is given to disallow a claim merely because proof has not been furnished. If the officer wants proof he must ask for it, which means issuing a notice under section 143(2). The intimation was quashed. This was decided by the High Court (Delhi High Court - B.N. Kirpal, J) and bears on section 143(1)(a), section 143(2), section 154 of the Income Tax Act 1961. It is reported as 1992 RLR 1. This is the decision that fixed the boundary between summary processing and scrutiny, and it is still the reasoning courts use when a processing adjustment strays into examining the merits of a claim. It makes two points that recur. The first is that the power is analogous to rectification: the inadmissibility must be evident from the material on record, not arrived at by weighing evidence that is absent. The second is that an assessee is not required to file all his books and original documents with the return, so absence of proof at that stage proves nothing. The Court supports its reading with the Board's own Circular No. 549, whose examples are all of errors visible on the face of the return. If it applies to you, the first step is this: Challenge any processing adjustment that rests on absence of evidence rather than on something wrong on the face of the return, and say which limb of the proviso the officer claims to be acting under.
The petitioner, a charitable trust, filed its return for assessment year 1989-90 declaring a loss of Rs 53,850. On 29 October 1990 the Income-tax Officer sent an intimation under section 143(1)(a) with an explanation slip, computing total income at Rs 2,81,500. Five items had been added: a corpus donation of Rs 1,62,500, which the trust had treated as not taxable because it was a receipt towards corpus, and four claimed expenses - retainership fee of Rs 76,950, medicine expenses of Rs 23,550, rent of Rs 9,600 and maintenance expenses of Rs 8,910. The sole reason for the additions was that no proof of the claims had been filed with the officer. After the writ petition was filed, the officer passed an order under section 154 on 12 August 1991 rectifying the adjustments and putting the income at nil, and the Revenue argued the petition had become infructuous. The petitioner replied that its grievance survived, because its returned loss had been converted to nil, that the rectification order gave no reasons, and that a ruling on the provision was needed. The matter was decided on 1991-10-25 by the High Court (Delhi High Court - B.N. Kirpal, J). On those facts the High Court held as follows. The writ petition was allowed and the intimation of 29 October 1990 was quashed, with no order as to costs. Under clause (iii) of the first proviso to section 143(1)(a), the Income-tax Officer may disallow a loss carried forward, deduction, allowance or relief claimed in the return only where, on the basis of the information available in the return, accounts or documents, it is prima facie inadmissible. The conclusion that the claim is inadmissible must flow from the return as filed. No power is given to disallow a claim on the ground that no proof of it has been furnished. The clause is in a way analogous to section 154: only where inadmissibility is evident from the return and the documents accompanying it can an adjustment be made. Where the officer lacks proof his only course is to require the assessee to furnish it, which presupposes a notice under section 143(2). Neither the intimation nor the rectification order gave any reason for the additions. The Court also held that the writ petition had not become infructuous, since the returned loss stood converted to nil.
The Court read the proviso as a list of adjustments that can be made from the papers themselves - arithmetical errors rectified, a prima facie admissible claim not made in the return allowed, and a prima facie inadmissible claim disallowed - each keyed to the information available in the return, accounts or accompanying documents. Inadmissibility must therefore appear from that material; it is not something the officer reaches by finding the assessee's evidence wanting. The Court drew the analogy with rectification to make the point concrete: what may be corrected is what is evident on the record. It then supplied the practical reason why absence of proof cannot be a ground. An assessee is not obliged to file his entire books or other documents with the return; proof of a claim may lie in correspondence, in the books, or elsewhere, and the law does not require every original to be annexed. To treat the absence of such material as showing inadmissibility would convert a summary provision into an adjudication on evidence and would put the assessee out of court without a hearing. The statute provides the alternative: if the officer wants proof, he may call for it, and that is what a notice under section 143(2) is for. Finally, the Court found its construction confirmed by the department's own understanding in Circular No. 549, whose illustrations - a standard deduction wrongly computed, depreciation at a wrong rate, a loss set off against the wrong head, a deduction claimed in excess of the permissible limit - are all errors visible from the return or the documents with it, and none is a failure to prove a claim. In the words reproduced by the source cited on this page: "No power is given to the Income-tax Officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee."
It was decided by the High Court on 1991-10-25 and is reported as 1992 RLR 1. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 143(1)(a), section 143(2), section 154, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was allowed and the intimation of 29 October 1990 was quashed, with no order as to costs. Under clause (iii) of the first proviso to section 143(1)(a), the Income-tax Officer may disallow a loss carried forward, deduction, allowance or relief claimed in the return only where, on the basis of the information available in the return, accounts or documents, it is prima facie inadmissible. The conclusion that the claim is inadmissible must flow from the return as filed. No power is given to disallow a claim on the ground that no proof of it has been furnished. The clause is in a way analogous to section 154: only where inadmissibility is evident from the return and the documents accompanying it can an adjustment be made. Where the officer lacks proof his only course is to require the assessee to furnish it, which presupposes a notice under section 143(2). Neither the intimation nor the rectification order gave any reason for the additions. The Court also held that the writ petition had not become infructuous, since the returned loss stood converted to nil. It arises in Assessment & Scrutiny matters, on section 143(1)(a), section 143(2), section 154 of the Income Tax Act 1961, and was decided by Delhi High Court - B.N. Kirpal, J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Point to the Board's circular: every example it gives is an error apparent from the return or its accompanying documents, none is a failure to prove. Ask for the reasons; here neither the intimation nor the later rectification order gave any, and the Court treated that as part of the vice. Treat a notice calling for evidence as the proper route for the department, and answer it - the merits of the claim belong at that stage, not in summary processing.
Still good law. I read the whole judgment to its order quashing the intimation. It construes the first proviso to section 143(1)(a) as it stood for assessment year 1989-90, and both that provision and the processing machinery have been recast since. I checked no later authority or amendment in this session. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The batch line listed section 11; the judgment does not decide anything about the corpus donation or the exemption, only that it could not be added by summary adjustment, and I have taken the sections from the judgment. The provision construed is not the current section 143(1), so a reader must check the present text before applying the reasoning to a recent intimation. The harvested text renders assessee as assessed throughout, and I have read it accordingly, including in the key quote. The judgment names one judge although it speaks in the plural. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was allowed and the intimation of 29 October 1990 was quashed, with no order as to costs. Under clause (iii) of the first proviso to section 143(1)(a), the Income-tax Officer may disallow a loss carried forward, deduction, allowance or relief claimed in the return only where, on the basis of the information available in the return, accounts or documents, it is prima facie inadmissible. The conclusion that the claim is inadmissible must flow from the return as filed. No power is given to disallow a claim on the ground that no proof of it has been furnished. The clause is in a way analogous to section 154: only where inadmissibility is evident from the return and the documents accompanying it can an adjustment be made. Where the officer lacks proof his only course is to require the assessee to furnish it, which presupposes a notice under section 143(2). Neither the intimation nor the rectification order gave any reason for the additions. The Court also held that the writ petition had not become infructuous, since the returned loss stood converted to nil.
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