2017 (7) TMI 744 - HC - Income Tax

Disallowance of interest expense - Held that - As decided in assessee s own case 2017 (7) TMI 745 - GUJARAT HIGH COURT noted that the advances were made by the assessee to one Kanak Castor Products Private Limited. Kanak Castor was declared as the highest bidder for purchase of assets of a company in liquidation by the Gujarat High Court. To facilitate the purchase, the assessee had also purchased 4.79 crores shares out of 500 crores shares of the company i.e. Kanak Castor. The Tribunal, therefore, found that such advances were made for the purpose of business. We do not find any error in the view of the Tribunal. This question is, therefore, not considered. Disallowing set off of speculation loss (F & O) - amount not claimed in the original return but claimed in revised return where the case attracts the provisions of Section 139(3) - Held that - Sub-section (5) of Section 139, therefore, gives right to an assessee who has furnished a return under sub-section (1) or sub-section (4) to revise such return on discovery of any omission or a wrong statement. Such revised return, however, can be filed before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. This is precisely what the assessee did while exercising the right to revise the return. Sub-section (5) of Section 139 does not envisage a situation whereupon revising the return if a case for loss arises which the assessee wishes to carry forward, the same would be impermissible. In terms, sub-section (5) of Section 139 allows the assessee to revise the return filed under subsection (1) or sub-section (4) as long as the time frame provided therein is adhered to and the requirement of the revised return has arisen on discovery of any omission or a wrong statement in the return originally filed. Accepting the contention of the revenue would amount to limiting the scope of revising the return already filed by the assessee flowing from sub-section (5). No such language or intention flows from such provision. Appellate Tribunal has not erred in in facts and circumstances in deleting the addition made by the Assessing Officer by disallowing set off of speculation loss (F & O) as the same was not claimed in the original return but claimed in revised return Revenue appeal dismissed.

Summary

Issues:
1. Disallowance of interest expense by the Appellate Tribunal.
2. Disallowance of speculation loss set off by the Assessing Officer and the subsequent ruling by the Appellate Tribunal.

Issue 1: Disallowance of Interest Expense
The High Court refused to interfere with the Appellate Tribunal's decision regarding the disallowance of interest expense. The Tribunal found that the advances made by the assessee were for business purposes, particularly to facilitate the purchase of assets of a company in liquidation. The Court upheld the Tribunal's view that the interest expenditure was allowable as it was related to business activities. The Court highlighted that the Tribunal's decision was based on valid reasoning and hence, dismissed the revenue's appeal challenging the disallowance.

Issue 2: Disallowance of Speculation Loss Set Off
The dispute revolved around the carry forward of speculation loss not claimed in the original return but later included in a revised return. The Assessing Officer disallowed the set off of the speculation loss, arguing that it was not claimed in the original return. However, both the CIT(A) and the Tribunal ruled in favor of the assessee. The Tribunal held that once a return is revised under Section 139(5) of the Act within the prescribed time, the original return filed under Section 139(1) ceases to exist. The Court analyzed the provisions of Section 139, emphasizing that an assessee has the right to revise a return under subsection (5) upon discovering any omission or wrong statement. The Court cited precedents from the Allahabad High Court and the Madras High Court to support the interpretation that a revised return replaces the original for assessment purposes. Consequently, the Court upheld the Tribunal's decision, dismissing the revenue's appeal and affirming the right of the assessee to revise the return to claim the speculation loss set off.

In conclusion, the High Court upheld the decisions of the Appellate Tribunal on both issues, dismissing the revenue's appeal in each case. The judgment provided detailed analysis of the legal provisions and precedents to support the rulings, ensuring clarity and consistency in the application of tax laws.