Judgment:
1. This appeal filed by the Revenue is directed against the order of the learned CIT(A)-I, Raipur, dt. 27th Feb., 2001, and in a solitary ground raised therein, the Revenue has challenged the action of the learned CIT(A) in allowing relief of Rs. 44,99,417 out of the disallowance made by the AO under Section 43B on account of unpaid sales-tax liability by making prima facie adjustment.
2. The relevant facts of the case giving rise to this appeal are that a return of income filed by the assessee for asst. yr. 1997-98 declaring a net loss of Rs. 29,65,817 was initially processed by the AO under Section 143(1)(a) on 9th Feb., 1998, making a prima facie adjustments to the tune of Rs. 25,752. Subsequently it was noticed by the AO that the assessee-company had not paid outstanding sales-tax amount of Rs. 44,99,417 shown under the head "deferred payment credit" in the balance sheet before the due date as required by first proviso to Section 43B whereas as per Note No. 8 in Schedule 'U' annexed to the balance sheet filed with the return of income, the initial exemption granted to the assessee-company from sales-tax liability had already expired on 17th Oct., 1993. He, therefore, was of the opinion that there was a mistake in not disallowing the said amount by way of prima facie adjustment in the intimation issued under Section 143(1)(a) and since the same was apparent from record, he sought to rectify the same by way of rectification under Section 154. Accordingly a notice under Section 154 was issued by him to the assessee-company on 29th June, 1999 in reply to which, the following submission was made on behalf of the assessee-company : (i) the assessee-company being a sick industrial unit is- eligible for deferment of sales-tax as per M.P. Deferment of Tax Rule, 1986.
(ii) The CBDT is also of the opinion that the deferred scheme notified by the State Government Orders meets the requirement of the Board Circular No. 496, dt. 25th Sept., 1987, in effect though in a different form (Circular No. 674, dt. 29th Dec., 1993).
(iii) The State Government also specified and declared the "sick industrial unit" as relief undertaking under the M.P. Sahayta Upakaram (Vishesh Upabandh) Adhniniyam, 1978. The assessee-company has got renewal of such declaration from 7th Jan., 1996 to 7th Jan., 1997.
(iv) As the assessee-company is sick industrial unit and also declared as relief undertaking by the State Government, therefore, a sum of Rs. 44,99,417.90 debited to the P&L a/c under the head sales-tax and credited "deferred payment credit account" in the balance sheet (See Note No. 8 to the accounts as per Schedule 'U').
In view of the circulars of the CBDT as stated, the above amount has not been added to income of the assessee-company under Section 43B.3. After considering the submission made on behalf of the assessee-company, the AO was of the opinion that the assessee-company, being not a relief undertaking as on 31st March, 1997, i.e., at the end of the year under consideration, it was not eligible for deferment of taxes or other benefits available to it as a relief undertaking as on that date. He accordingly held that the unpaid sales-tax liability of Rs. 44,99,417, therefore, ought to have been disallowed by way of prima facie adjustment since the assessee had failed to pay the said amount before the due date of filing of return and there being mistake in not making such adjustment under Section 143(1)(a) which was apparent from record, he rectified the intimation issued under Section 143(1)(a) disallowing the said amount. Aggrieved by the rectification so made by the AO under Section 154(1)(b), the assessee-company preferred an appeal before the learned CIT(A) and after considering the submission made on behalf of the assessee-company, the learned CIT(A) cancelled the order passed under Section 154(1)(b) by the AO for the following reasons given in para No. 10 of his impugned order : "In the instant case, it is most evident that the so-called prima facie adjustment made by the AO by taking the course to Section 154(1)(b) was based on change of opinion on the same set of facts obtaining from the return because in the intimation under Section 143(1)(a) dt. 9th Feb., 1998, no such prima facie adjustment was made. This apart, the so-called prima facie adjustment made by the AO in the impugned order under consideration, in my considered opinion, is also in total disregard to the Circular No. 689, dt.
24th Aug., 1994, of the CBDT wherein it has been mentioned in unambiguous terms that any adjustment over and above those specified therein should not be made without obtaining prior approval of the CIT. In this case no such approval seems to have been obtained by the AO. Record evidences the fact that in proceedings under Section 154 all the needed information was furnished on the basis of which the claim of the assessee for at least the first three quarters, totalling to Rs-. 34,48,041 was clearly allowable on the basis of documents in respect of the balance also, it was very clearly explained that the extension from the State Government was awaited.
There is absolutely no dispute with regard to the fact that the assessee opted for the Sales-tax Deferment Scheme and in all the preceding years no such prima facie adjustment burdening the assessee with levy of additional tax, was made. Subsequent events, such as the return for the subsequent assessment year, in my considered view, could not constitute basis for carrying out the rectification in the year under consideration, as done by the AO in the instant case. The settled position of law is that the consequences of a rectification under Section 154 do not result in the payment of additional income-tax whereas an adjustment under Section 143(1)(a) did, as decided by the Calcutta High Court in the case of Modem Fibotex India Ltd. v. Dy. CIT (1995) 212 ITR 496 (Cal), In any case, the issue involved, being highly controversial and debatable, in my considered view, is in the given facts and circumstances of the case, the AO was not justified in disallowing the above sum by taking recourse to Section 154(1)(b), and all that has been done by the AO in this regard is opposed to the CBDT circular and the various judicial pronouncements, mentioned above and hence the impugned order under consideration, being unsustainable on facts and in law, is cancelled and so also all the consequential levies." Aggrieved by the above relief given by the learned CIT(A), the Revenue is in appeal before us.
4. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the alleged mistake in the intimation issued under Section 143(1)(a) in not disallowing the unpaid sales-tax liability under Section 43B by way of prima facie adjustments was noticed by the AO primarily from Note No. 8 in Schedule 'U' annexed to the balance sheet filed along with the return of income by the assessee-company which is reproduced below: "The initial exemption to the company from sales-tax liability expires on 17th Oct., 1993, but the company has not provided sales-tax liability of earlier years upto 31st March, 1995 on the expectation of awarding pioneer status. However, the company has now provided a sum of Rs. 44,99,417.90 (previous year Rs. 56,15,915.85) towards sales-tax liability for the current year which has been kept under the head "deferred payment current year which has been kept under the head "deferred payment credit"." 5. From the perusal of the aforesaid note, it is evident that although it was mentioned in the said note that the initial exemption to the assessee-company, from sales-tax liability had already expired on 17th Oct., 1993, nothing was mentioned in the said note about the further extension of the said exemption. Moreover, it was specifically mentioned in the said note that the assessee-company is expecting a 'pioneer status' under the sales-tax exemption scheme and again there was nothing in the said note to indicate the progress on this front as at the end of the relevant previous year. In these circumstances, we find that further investigation/enquiry in the relevant facts of the case was called for to find out the exact position as to whether initial exemption granted to the assessee-company was further extended or not and whether the pioneer status as sought by the assessee-company was awarded to it, especially when the sales-tax amount payable by the assessee-company was shown by it as 'deferred payment credit' in the balance sheet. That apart, in reply to a notice issued by the AO under Section 154, it had been clearly brought to his notice by the assessee-company that its status as "relief undertaking" under the scheme was extended upto 7th Jan., 1997 which by itself was sufficient to show that the assessee-company was entitled to defer the sales-tax liability at least for the period from 1st April, 1996 to 7th Jan., 1997 of the year under consideration. The AO, however, appears to have overlooked this material aspect and proceeded to disallow the entire sales-tax liability for the year under consideration holding that the assessee-company not being a 'relief undertaking' as on 31st March, 1997, it was not eligible for deferment of taxes or other benefits available under the scheme. It is observed that this conclusion drawn by the AO was not supported by any legal or factual basis and no finding in this regard was given by him in his order passed under Section 154. In any case, this issue was highly debatable inasmuch as further investigation into facts as well as the relevant provisions of the law was warranted to decide the disallowance on account of unpaid sales-tax liability under Section 43B. In the case of Khatau Junkar v.K.S. Pathania (1992) 196 ITR 55 (Bom), the Hon'ble Bombay High Court has held that if. any further information or any further evidence is required by the AO for satisfying with the claim of the assessee for any deduction, he is bound to follow the procedure prescribed under Section 143(2) and it is not open to him to disallow such claim under Section 143(1)(a). As such, considering the facts of the case and keeping in view the decision of Hon'ble Bombay High Court in the case of Khatau Junkar (supra), we are of the view that the disallowance on account of sales-tax liability made by the AO by rectifying the intimation issued under Section 143(1)(a) was outside the scope of prima facie adjustment permissible under the said provisions as further clarified by the CBDT vide its Circular No. 689, dt. 24th Aug., 1994, and the AO was not justified in making the same vide his order passed under Section 154(1)(b). The learned CIT(A), therefore, was fully justified in cancelling the same and his impugned order, in our opinion, does not call for any interference.