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Section 143 of the Income-tax Act, 1961 - Assessment - General - Whether provision of section 143(1A)(a)(B) is compensatory in nature and there is no unconstitutionality in said section - Held, yes FACTS The assessee had returned a net loss. After adjustments were made by the taxing authorities under the provisions of section 143(1)(a), the assessment of loss stood reduced. The taxing authorities sought to levy additional tax under the provisions of section 143(1A) upon the assessee in that behalf. The assessee challenged the constitutional validity of section 143(1A) in a writ petition, which was allowed by the Single Judge of the High Court vide his order dated 19-1-1993. On revenue's appeal to the Division Bench : HELD Constitutional validity of section 143(1A)(a )(B) was challenged in Sanctus Drugs Pharmaceuticals (P.) Ltd. v. Union of India[1997] 225 ITR 252/ 91 Taxman 246 (MP). The Division Bench held that Entry 82, List-1, of the Seventh Schedule of the Constitution of India, empowers the Parliament to enact the law on income-tax and when the Parliament is competent to enact the law prospectively, it can also lay down the law retrospectively. Under section 143(1A), prior to amendment by the Finance Act, 1993 with effect from 1-4-1989, what was being taxed was the difference between the income determined as a result of adjustments under section 143(1)(a ). But after the amendment, the actual reduction in the loss had been directly made taxable at 20 per cent of the tax payable as if such difference was the total income, as additional tax. The levy of tax was not on the loss. This device was to check evasion of tax by clever taxpayers. Hence, it was of a compensatory nature. Thus, there was no unconstitutionality in section 143(1A)(a)(B). [Para 10] A close look at the statutory provision under challenge demonstrated that it was not penal in nature. It was the device to check evasion of tax. It is no doubt true that a power under a taxing statute can be assailed if it is found to be arbitrary or lays down unreasonable restriction upon the freedom of trade, but in the instant matter, the restriction had been made for a justifiable reason in order to check…

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