2020 (12) TMI 809 - AT - Income Tax

Requirement of issuing notice u/s. 143(2) in response to the revised return of income filed - HELD THAT - Under the scheme of the Act, the assessing officer is entitled to assume jurisdiction to scrutinize the return of income filed by assessee only after the issue of notice u/s. 143(2) of the Act within the prescribed time limit. If the A.O. has validly assumed jurisdiction over the original return of income filed by the assessee by issuing notice u/s. 143(2) of the Act and if the assessee files any revised return of income after so assuming the jurisdiction, in our view, there is no requirement of issuing another notice u/s. 143(2) of the Act in response to the revised return of income, since there is no requirement of assuming jurisdiction again. It is well established proposition of law that the revised return of income filed within the prescribed time limit replaces the original return of income. In present case has issued notice u/s. 143(2) of the Act only after filing of revised return of income. As noticed earlier, the revised return of replaces the original return of income and hence, in the facts of the present case, the notice issued by the AO has to be treated as having been issued against the revised return of income only, since the revised return of income was only surviving return of income when the AO issued the notice u/s. 143(2) - No merit in the contentions of the assessee that the A.O. should have issued another notice u/s. 143(2) of the Act against the revised return of income - contention of the assessee that the interest free funds/own funds available with the assessee is more than the value of investment made in the partnership firm - HELD THAT - Disallowance u/s 14A r.w.r. 8D - contention of the assessee that the interest free funds/own funds available with the assessee is more than the value of investment made in the partnership firm - HELD THAT - As per decision rendered in the case of Micro Labs Limited 2011 (7) TMI 1152 - KARNATAKA HIGH COURT no disallowance out of interest expenditure is called for. However, as rightly pointed by Ld. D.R., the above said contention of the assessee requires to be examined on the basis of financial statements of the assessee. Hence, we are of the view that this issue may be restored to the file of the A.O. for examining the same afresh by duly considering the decision rendered by Hon'ble Karnataka High Court in the case of Micro Labs Ltd. (supra). Accordingly, we set aside the order passed by Ld. CIT(A) on the issue of disallowance made out of interest expenditure under rule 8D(ii) and restore the same to the file of the A.O. for examining it afresh.

Summary

Issues Involved:
1. Disallowance made under section 14A of the Income-tax Act, 1961.
2. Requirement of notice u/s. 143(2) of the Act in response to a revised return.

Issue 1: Disallowance under section 14A of the Act:
The appellant challenged the disallowance made by the Assessing Officer (AO) under section 14A of the Income-tax Act, 1961, read with Rule 8D(2)(ii) of the I.T. Rules, regarding interest expenditure. The AO disallowed an amount under Rule 8D(2)(ii) and Rule 8D(2)(iii) of the I.T. Rules, pertaining to the appellant's share income from a partnership firm claimed as exempt under section 10 of the Act. The AO made a disallowance of a specific amount, which was confirmed by the Ld. CIT(A), leading to the appellant's appeal before the tribunal. The appellant contended that no disallowance was necessary as the interest-free funds available exceeded the value of investments made in partnership firms, citing relevant case laws. The tribunal found merit in the appellant's argument and decided to set aside the order passed by the Ld. CIT(A) on the issue of disallowance made out of interest expenditure under Rule 8D(ii), directing the AO to reexamine the issue in accordance with the decision in a specific case.

Issue 2: Requirement of notice u/s. 143(2) of the Act for a revised return:
The appellant raised a legal ground contesting the AO's failure to issue a notice u/s. 143(2) of the Act concerning the revised return filed by the appellant. The appellant argued that the notice issued by the AO was related to the original return of income and should have been issued against the revised return. The tribunal examined the timeline of events, noting that the revised return was filed within 18 days of the original return and the notice u/s. 143(2) was issued after the revised return was filed. The tribunal held that once the AO validly assumed jurisdiction over the original return by issuing a notice u/s. 143(2) of the Act, there was no requirement for a new notice in response to the revised return. Citing legal precedents and established principles, the tribunal rejected the appellant's contention, affirming the validity of the notice issued by the AO against the revised return of income. The tribunal emphasized that the revised return filed within the prescribed time limit replaces the original return of income, supporting its decision with relevant case law.

In conclusion, the tribunal partially allowed the appeal filed by the appellant for statistical purposes, setting aside the disallowance made under section 14A of the Act and directing a fresh examination by the AO. The tribunal also rejected the appellant's argument regarding the requirement of a notice u/s. 143(2) of the Act for a revised return, citing legal principles and case law.