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REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO.8590 of 2010  

RAJASTHAN STATE ELECTRICITY BOARD  

JAIPUR             ...APPELLANT(S)   

VERSUS  

THE DY. COMMISSIONER OF INCOME  

TAX(ASSESSMENT) & ANR.      ...RESPONDENT(S)   

J U D G M E N T  

ASHOK BHUSHAN, J.  

This appeal has been filed by the assessee  

challenging the Division Bench judgment dated  

13.11.2007 of the High Court of Judicature for  

Rajasthan at Jaipur Bench, Jaipur by which D.B. Civil  

Special Appeal (Writ) No.837 of 1993 filed by the  

Revenue has been allowed upholding the demand of  

additional tax under Section 143(1-A) of the Income Tax  

Act, 1961.   

2. Brief facts necessary to be noted for deciding this  

appeal are:

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The assessee is a Government Company as defined  

under Section 617 of the Companies Act, 1956. The  

assessee filed return on 30.12.1991 for the assessment  

year 1991-92 showing a loss amounting to Rs.               

(-)427,39,32,972/-.  Due to a bonafide mistake the  

assessee claimed 100% depreciation of Rs.  

333,77,70,317/- on written down value of assets instead  

of 75% depreciation. Under the unamended Section 32(2)  

of the Income Tax Act, 1961 the assessee was entitled  

to claim 100% depreciation. However, after the  

amendment the depreciation could only be 75%. The  

assessee supported the returns with provisional revenue  

account, balance sheet as on 31.03.1991, details of  

gross fixed assets, computation chart and depreciation  

chart. No tax was payable on the said return by the  

assessee. No notice under Section 143(2) of the Income  

Tax Act, 1961 was received by the assessee.   

3. 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(1-A) of the Income Tax Act, 1961

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amounting 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. The Commissioner  

of Income Tax rejected the revision petition by giving  

following reasoning:  

“A plain reading of the provisions of  

Section 143(1-A) shows that whenever  

adjustment is made, additional tax has to be  

charged @ 20% of the tax payable on such  

‘excess amount’. The ‘excess amount’ refers  

to the increase in the income and by  

implication the reduction in loss where even  

after the addition there is negative income.  

The explanation to Section 143(1-A)(b)  

provides that the tax payable on such excess

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means the tax that would have been chargeable  

on the amount of adjustment to the total  

income. Where the adjustment exceeds the  

income determined. Clearly, therefore, in  

this case the additional tax had to be  

charged on the basis of the tax chargeable  

on the sum of Rs.83,44,42,579/- added by the  

Assessing Officer.”  

4. 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(1-A). 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.  

5. We have heard Shri Arijit Prasad, learned senior  

counsel appearing for the appellant and Shri Rupesh  

Kumar, learned counsel for the respondents.  

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6. Shri Arijit Prasad referring to Circular No.549  

dated 30.10.1989 of Central Board of Direct Taxes  

submits that 20% additional tax sought to be imposed  

under Section 143(1-A) of 1961 Act is in the nature of  

penalty and can be levied only when the assessee had  

intentionally sought to file an incorrect return. It  

is submitted that such additional tax could only become  

payable in case where assessee was assessed to an  

income for the purpose of tax and could not apply where  

there was no income or there was loss. The intent of  

the Legislature in enacting provision of Section   

143(1-A) was to ensure that the assessee also declares  

his loss in the return correctly and where the assessee  

deliberately or intentionally filed false returns, he  

was liable to pay additional Income Tax. It is  

submitted that unabsorbed losses and unabsorbed  

depreciation were to be carried forward to future years  

to be set off against profits and it did not in any  

manner affect business loss. He submits that business  

loss suffered by the assessee had not reduced because  

of the bonafide mistake committed by the appellant in  

calculating the depreciation. The assessee was in loss

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and continued to be in loss. Reduction in depreciation  

from 100% to 75% did not amount to reduction in loss  

and additional tax under Section 143(1-A) of the Income  

Tax Act, 1961 was only to prevent evasion of tax. He  

submits that when additional tax had clear and specific  

imprint of penalty, the Revenue could not be heard to  

say that the levy of additional tax is automatic under  

Section 143(1-A) of the Act. If additional tax could  

be levied in such circumstances, it would be punishing  

the assessee for no fault of his and that too without  

giving him a hearing.   

7. Learned counsel for the Revenue submits that  

provision of Section 143(1-A) demonstrates that it is  

not penal in nature. It is the device to check evasion  

of tax. It is submitted that challenge to vires of  

Section 143(1-A) has been repelled by different High  

Courts and this Court.  Section 143(1-A) has been  

inserted in the Income Tax Act so that the assessee may  

not be able to evade tax by resorting to the method of  

showing loss first and then reducing the loss. Learned  

counsel submits that the Division Bench of the High

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Court has rightly allowed the appeal of the Revenue  

upholding the demand of additional tax.  

8. We have considered the submissions of the learned  

counsel for the parties and perused the records.  

9. Only question to be answered in this appeal is as  

to whether the demand of additional tax under the  

provisions of Section 143(1-A) in the facts of the  

present case was justified or not.  

10. Before we enter into the rival submissions of the  

learned counsel for the parties, it is relevant to have  

a look on the statutory scheme under Section 143 and  

143(1-A). Section 143(1)(a) reads thus:  

“143. (1)(a) Where a return has been made  

under Section 139, or in response to a notice  

under sub-section (1) of Section 142,—  

(i) if any tax or interest is found due on  

the basis of such return, after adjustment  

of any tax deducted at source, any advance  

tax paid and any amount paid otherwise by way  

of tax or interest, then, without prejudice  

to the provisions of sub-section (2), an  

intimation shall be sent to the assessee  

specifying the sum so payable, and such  

intimation shall be deemed to be a notice of  

demand issued under Section 156 and all the  

provisions of this Act shall apply  

accordingly; and

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(ii) if any refund is due on the basis of  

such return, it shall be granted to the  

assessee:  

Provided that in computing the tax or  

interest payable by, or refundable to, the  

assessee, the following adjustments shall be  

made in the income or loss declared in the  

return, namely—  

(i) any arithmetical errors in the  

return, accounts or documents  

accompanying it shall be rectified;  

(ii) any loss carried forward,  

deduction, allowance or relief, which,  

on the basis of the information  

available in such return, accounts or  

documents, is prima facie admissible but  

which is not claimed in the return,  

shall be allowed;  

(iii) any loss carried forward,  

deduction, allowance or relief claimed  

in the return, which, on the basis of  

the information available in such  

return, accounts or documents, is prima  

facie inadmissible, shall be  

disallowed:  

Provided further that where adjustments are  

made under the first proviso, an intimation  

shall be sent to the assessee, notwithstanding  

that no tax or interest is found due from him  

after making the said adjustments:  

Provided also that an intimation under this  

clause shall not be sent after the expiry of  

two years from the end of the assessment year  

in which income was first assessable.”  

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11. Sub-section (1-A), as it originally read, was thus:  

“143. (1-A)(a) Where, in the case of any  

person, the total income, as a result of the  

adjustments made under the first proviso to  

clause (a) of sub-section (1), exceeds the  

total income declared in the return by any  

amount, the Assessing Officer shall,—  

(i) further increase the amount of tax  

payable under sub-section (1) by an  

additional income tax calculated at the  

rate of twenty per cent of the tax  

payable on such excess amount and  

specify the additional income tax in the  

intimation to be sent under sub-clause  

(i) of clause (a) of sub-section (1);  

(ii) where any refund is due under  

sub-section (1), reduce the amount of  

such refund by an amount equivalent to  

the additional income tax calculated  

under sub-clause (i).”  

12. Sub-section (1-A) was amended by the Finance Act,  

1993 with effect from 1-4-1989, which was the date upon  

which sub-section (1-A) had been introduced into the  

Act. The substituted sub-section (1-A) read thus:  

“143. (1-A)(a) Where as a result of the  

adjustments made under the first proviso to  

clause (a) of sub-section (1),—  

(i) the income declared by any person in  

the return is increased; or  

(ii) the loss declared by such person in  

the return is reduced or is converted into  

income,

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the Assessing Officer shall,—  

(A) in a case where the increase in income  

under sub-clause (i) of this clause has  

increased the total income of such person,  

further increase the amount of tax payable  

under sub-section (1) by an additional income  

tax calculated at the rate of twenty per cent  

on the difference between the tax on the  

total income so increased and the tax that  

would have been chargeable had such total  

income been reduced by the amount of  

adjustments and specify the additional income  

tax in the intimation to be sent under sub-

clause (i) of clause (a) of sub-section (1);  

(B) in a case where the loss so declared  

is reduced under sub-clause (ii) of this  

clause or the aforesaid adjustments have the  

effect of converting that loss into income,  

calculate a sum (hereinafter referred to as  

additional income tax) equal to twenty per  

cent of the tax that would have been  

chargeable on the amount of the adjustments  

as if it had been the total income of such  

person and specify the additional income tax  

so calculated in the intimation to be sent  

under sub-clause (i) of clause (a) of sub-

section (1)  

(C) where any refund is due under sub-

section (1), reduce the amount of such refund  

by an amount equivalent to the additional  

income tax calculated under sub-clause (A)  

or sub-clause (B), as the case may be.”  

13. The amendments brought by Finance Act, 1993 with  

retrospective effect i.e. from 01.04.1989 are fully

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attracted with regard to assessment in question i.e.  

for assessment year 1991-92. The substituted sub-

section (1-A) makes it clear that where the loss  

declared by an assessee had been reduced by reason of  

adjustments made under sub-section(1)(a), the  

provisions of sub-section (1-A) would apply. As noted  

above the Commissioner of Income Tax while rejecting  

the revision petition of the petitioner has taken the  

view that whenever adjustment is made, additional tax  

would be charged @ 20% of the tax payable on such excess  

amount. The excess amount refers to the increase in the  

income and by implication the reduction in loss where  

even after the addition there is negative income.  

Whether there should be levy of additional tax in all  

circumstances and cases where loss is reduced, is the  

question to be answered in the present case.  

14. By Taxation Laws (Amendment) Act, 1991 in Section  

32 third proviso was inserted to the following effect:  

“Provided also that, in respect of the  

previous year relevant to the assessment year  

on the 1st day of April, 1991, the deduction  

in relation to any block of assets under this  

clause shall, in the case of a company, be  

restricted to seventy-five per cent of the  

amount calculated at the percentage, on the  

written down value of such assets, prescribed

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under this Act immediately before the  

commencement of the Taxation Laws (Amendment)  

Act, 1991.”  

15. Prior to insertion of the above proviso the  

depreciation was not restricted to 75% of the amount  

calculated at the percentage on the written down value  

of such assets. The return was filed by the assessee  

on 31.12.1991, prior to which date the Taxation Laws  

(Amendment) Act, 1991 had come into operation. It was  

due to bonafide mistake and oversight that the assessee  

claimed 100% depreciation instead of 75%. The 100%  

depreciation of Rs.333,77,70,317/- was claimed on  

written down value of assets, 25% depreciation was,  

thus, disallowed restricting it to 75% and after  

reducing 25% of the depreciation loss remained to the  

extent of Rs.(-)3,43,94,90,393/-. Even as per reduction  

of 25% depreciation the return of loss income of the  

assessee remained. In claiming 100% depreciation the  

assessee claims that there was no intention to evade  

tax and the said claim was only a bonafide mistake. As  

noted above by the Finance Act, 1993 Section 143(1-A)  

was substituted with retrospective effect from  

01.04.1989. The memorandum explaining the provisions

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of the Finance Bill with retrospective effect was to  

the following effect:  

“The provisions of Section 143(1-A) of  

the Income Tax Act provide for levy of  

twenty per cent additional income tax  

where the total income, as a result of  

the adjustments made under the first  

proviso to Section 143(1)(a), exceeds  

the total income declared in the return.  

These provisions seek to cover cases of  

returned income as well as returned loss.  

Besides its deterrent effect, the  

purpose of the levy of the additional  

income tax is to persuade all the  

assesses to file their returns of income  

carefully to avoid mistakes.  

In two recent judicial  

pronouncements, it has been held that the  

provisions of Section 143(1-A) of the  

Income Tax Act, as these are worded, are  

not applicable in loss cases.  

The Bill, therefore, seeks to amend  

Section 143(1-A) of the Income Tax Act  

to provide that where as a result of the  

adjustments made under the first proviso  

to Section 143(1)(a), the income  

declared by any person in the return is  

increased, the assessing officer shall  

charge additional income tax at the rate  

of twenty per cent, on the difference  

between the tax on the increased total  

income and the tax that would have been  

chargeable had such total income been  

reduced by the amount of adjustments. In  

cases where the loss declared in the  

return has been reduced as a result of  

the aforesaid adjustments or the  

aforesaid adjustments have the effect of

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converting that loss into income, the  

Bill seeks to provide that the assessing  

officer shall calculate a sum (referred  

to as additional income tax) equal to  

twenty per cent of the tax that would  

have been chargeable on the amount of the  

adjustments as if it had been the total  

income of such person.  

The proposed amendment will take  

effect from 1-4-1989 and will,  

accordingly, apply in relation to  

Assessment Year 1989-1990 and subsequent  

years.”  

16. Learned counsel for the Revenue has rightly  

submitted that object of Section 143(1-A) was the  

prevention of evasion of tax. The memorandum explaining  

the provisions of the Finance Bill as noted above was  

also to persuade to the assessee to file Income Tax  

Return carefully to avoid mistakes.   

17. This Court in Commissioner of Income Tax, Gauhati  

vs. Sati Oil Udyog Limited and another, (2015) 7 SCC  

304, had occasion to consider elaborately the  

provisions of Section 143(1-A), its object and  

validity. There was a challenge to the retrospectivity  

of the provisions of Section 143(1-A) as introduced by  

Finance Act, 1993. The Gauhati High Court had held that

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retrospective effect given to the amendment would be  

arbitrary and unreasonable. The appeal was filed by the  

Revenue in this Court in which appeal, this Court had  

occasion to examine the constitutional validity of the  

provisions. This Court in the above judgment held that  

object of Section 143(1-A) was the prevention of  

evasion of tax. In paragraph 9 of the judgment  

following has been laid down:  

“9. On a cursory reading of the provision,  

it is clear that the object of Section 143(1-

A) 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% as additional income tax is  

payable on the difference between what is  

declared in the return and what is assessed to  

tax.”  

18. Relying on earlier judgment of this Court in K.P.  

Varghese v. ITO, (1981) 4 SCC 173, this Court in the  

above case held that provisions of Section 143(1-A)  

should be made to apply only to tax evaders. In  

paragraphs 21 and 25 following was laid down:  

“21. In the present case, the question  

that arises before us is also as to

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whether bona fide assessees are caught  

within the net of Section 143(1-A). We  

hasten to add that unlike in J.K.  

Synthetics case, Section 143(1-A) has in  

fact been challenged on constitutional  

grounds before the High Court on the facts  

of the present case. This being the case,  

we feel that since the provision has the  

deterrent effect of preventing tax  

evasion, it should be made to apply only  

to tax evaders. In support of this  

proposition, we refer to the judgment in  

K.P. Varghese v. ITO. The Court in that  

case was concerned with the correct  

construction of Section 52(2) of the  

Income Tax Act: (K.P. Varghese case, SCC  

p. 179, para 4 : SCR p. 639)  

“52. (2) Without prejudice to the  

provisions of sub-section (1), if in  

the opinion of the Income Tax Officer  

the fair market value of a capital  

asset transferred by an assessee as on  

the date of the transfer exceeds the  

full value of the consideration  

declared by the assessee in respect of  

the transfer of such capital asset by  

an amount of not less than fifteen per  

cent of the value declared, the full  

value of the consideration for such  

capital asset shall, with the previous  

approval of the Inspecting Assistant  

Commissioner, be taken to be its fair  

market value on the date of its  

transfer.”  

25. Taking a cue from Varghese case, we  

therefore, hold that Section 143(1-A) 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

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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(1-A), we uphold the  

retrospective clarificatory amendment of  

the said section and allow the appeals.  

The judgments of the Division Bench2 of  

the Gauhati High Court are set aside.  

There will be no order as to costs.”  

19. This Court in the above case upheld the  

constitutional validity of Section 143(1-A) (as  

inserted by the Finance Act, 1993) subject to holding  

that Section 143(1-A) 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 by the assessee.   

20. Applying the ratio of the above judgment in the  

present case, we need to find out as to whether 100%  

depreciation as mentioned in return filed by the  

assessee was a result of an attempt to evade tax  

lawfully payable by the assessee.  

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19. We have seen from the facts, as noted above, that  

even after dis-allowing 25% of the depreciation, the  

assessee in the return remained in loss and the 100%  

depreciation was claimed by the assessee in the return  

due to a bonafide mistake. By Taxation Laws (Amendment)  

Act, 1991, the depreciation in the case of Company was  

restricted to 75% which due to oversight was missed by  

the assessee while filing the return. The Commissioner  

of Income Tax by deciding the revision petition has  

also not made any observation to the effact that 100%  

depreciation claimed by the assessee was with intend  

to evade payment of tax lawfully payable by the  

assessee, rather the Commissioner in his order dated  

31.03.1992 has observed that whenever adjustment is  

made, additional tax has to be charged @ 20% of the tax  

payable on such excess amount.   

20. It is true that while interpreting a Tax  

Legislature the consequences and hardship are not  

looked into but the purpose and object by which taxing  

statutes have been enacted cannot be lost sight. This  

Court while considering the very same provision i.e.

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Section 143(1-A), its object and purpose and while  

upholding the provision held that the burden of proving  

that the assessee has 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. In the present case, not even whisper, that  

claim of 100% depreciation by the assessee, 25% of  

which was disallowed was with intend to evade tax. We  

cannot mechanically apply the provisions of Section  

143(1-A) in the facts of the present case and in view  

of the categorical pronouncement by this Court in  

Commissioner of Income Tax, Gauhati vs. Sati Oil Udyog  

Limited and another(supra), where it is held that  

Section 143(1-A) can only be invoked when 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. In view of the above, we hold that  

mechanical application of Section 143(1-A) in the facts  

of the present case was uncalled for.   

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21. In the result, we allow the appeal, set aside the  

judgment of the Division Bench of the High Court as  

well as demand of additional tax dated 12.02.1992 as  

amended on 28.02.1992.   

............................J.  

                             ( ASHOK BHUSHAN )  

............................J.  

                          ( MOHAN M.SHANTANAGOUDAR )  

New Delhi,  

March 19, 2020.