2024 (9) TMI 135 - AT - Income Tax

Treatment to revised return - Disallowance of expenditure on interest paid on borrowed capital u/s 57 - claim has been wrongly made u/s 57 while computing the income under the head income from other sources instead of claiming the same under the head Business income HELD THAT - In the present case, the assessee has filed the original return of income under sub-section (4) of section 139 of the Act and in terms of sub- section (5) of section 139 as amended by the Finance Act, 2016 relevant for the impugned assessment year 2017-18, it provides that if any person, having furnished a return under sub-section (1) or sub-section (4) of section 139 discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Therefore, the return of income filed u/s 139(4) can be revised in the instant case and as such there is no bar in revising the return of income. It is an admitted position that claim has been wrongly made u/s 57 while computing the income under the head income from other sources instead of claiming the same under the head Business income , the return of income originally filed can be revised and has in fact been duly revised by the assessee within the stipulated time frame. The revised return of income so filed therefore needs to be considered to examine the claim of deduction so made by the assessee. Given that the CIT(A) has decided the matter on merits of the case without affording an opportunity to the assessee and even during the course of hearing, we felt that all facts necessary for examining the claim of deduction need to be thrashed out, we deem it appropriate to set-aside the matter to the file of the CIT(A) to decide the same afresh as per law after providing reasonable opportunity to the assessee. Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Appeal against disallowance of expenditure on interest paid on borrowed capital under section 57 of the Income Tax Act, erroneous claim of deduction under the wrong head, misinterpretation of Section 139(5) of the Income Tax Act, excessive addition to total income, and treatment of revised return as infructuous.

Analysis:
The assessee filed an appeal against the order of the Ld. CIT(A) pertaining to Assessment Year 2017-18, challenging the disallowance of expenditure on interest paid on borrowed capital under section 57. The AO disallowed the deduction as the original return was filed under Sub Section (4) to Section 139, and the revised return claiming the deduction under the correct head was filed under Sub Section (5) of Section 139. The AO considered the revised return infructuous, leading to an addition of Rs. 27,47,508 to the taxable income.

The Ld. CIT(A) upheld the AO's decision, stating that a belated return cannot be revised, and expenses to earn exempt income cannot be allowed. The assessee argued that the return was revised before the completion of assessment, as allowed under Section 139(5) post-amendment by the Finance Act, 2016. The Ld. CIT(A) failed to consider this amendment, leading to an incorrect decision. The assessee requested a fair opportunity to contest the findings.

Upon hearing the contentions, the Tribunal noted that the return filed under section 139(4) could be revised as per the amended Section 139(5) applicable for A.Y. 2017-18. The revised return was filed within the stipulated timeframe, correcting the erroneous claim under section 57. As the Ld. CIT(A) did not provide a fair opportunity to the assessee and decided the matter without thorough examination, the Tribunal set aside the decision and remanded the case to the Ld. CIT(A) for a fresh decision after affording a reasonable opportunity to the assessee.

In conclusion, the appeal of the assessee was allowed for statistical purposes, emphasizing the importance of considering the revised return and providing a fair opportunity for examination before making a decision.