(1.) "Whether the Tribunal was correct in law in holding that litigation expenses amounting to Rs. 55,100 claimed by the assessee under s. 57 of IT Act could be disallowed by taking recourse to the provisions of s. 143(1)(a) of IT Act, 1961 -
(2.) READING the question, it is very clear that the issue is not that she could claim the deduction, but whether it could be disallowed by taking recourse to the provisions of s. 143(1)(a) of the IT Act, 1961 (hereinafter referred to as "the Act"). The appellant filed a statement of income along with the return. In the statement, the appellant submitted a computation of salary income as well as income from other sources comprising of interest of NSC, FDRs, savings bank account, Rural Electrification Bonds and NTPC Bonds. The appellant submitted details of legal expenses to the extent of Rs. 55,100 along with a note stating that the appellant had entered into 'an agreement to sell' for sale of her plot of land up for the execution of the deed. The appellant invested the advance received against the agreement in the FDR in the bank. Since various matters in connection with the above litigation were going on, the appellant was forced to incur the legal expenses of Rs. 55,100 to earn the interest income of Rs. 1,07,318. The appellant claimed that the amount which she had received was kept in a fixed deposit and while litigating to protect the said amount, she incurred expenditure to the tune of Rs. 55,100. She claimed that the said amount is covered under s. 57(iii) of the Act. The Court is not required to examine whether the assessee was entitled to get the shelter of s. 57(iii) of the Act or not, but the moot question is whether the ITO could have exercised the powers under s. 143(1)(a) of the Act to disallow the amount under the pretext that it is a mere adjustment. Sec. 143(1)(a) as applicable at the relevant time is required to be reproduced here :
(3.) THUS , it is very clear that in making an assessment of total income of the assessee, the AO is entitled to make the adjustments to the income or loss declared in the return. However, that adjustment is required to be made only for the items included in the sub -cl. (b) of sub -s. (1) of s. 143 of the Act. He can rectify any arithmetical errors in the written accounts and documents referred to in cl. (a) or he can give due effect to certain items indicated in sub -cl. (iv) of cl. (b). Sec. 57 is not mentioned therein. If the ITO was of the opinion that the assessee has claimed the amount which she is not entitled, then it was for him to initiate appropriate proceedings and assess the assessee instead of making adjustments in the manner which he has done. The Court is only required to answer that whether the ITO was justified in making adjustments under s. 143(1)(a) of the Act or not. Thus, in the opinion of the Court, the answer is required to be given in negative in favour of the assessee and against the Revenue.