MERLIN LAND & HOUSING PVT. LTD.,DELHI vs. ITO WARD-16(4), NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

“1. That the order of the ld. CIT(A) is bad in law and preserve as the same has been passed without considering the submission of the Appellant and into account various factual aspects.

2. That the ld. CIT(A) has erred in law in confirming the disallowance made while sending the intimation to the appellant amounting to Rs.89,83,900/-.

2 Merlin Land & Housing Pvt. Ltd. 3. Heard the arguments of both the parties and perused the material available on record.

4.1 Ground of appeal No, 1 challenges the not allowing of set-off of current year business loss, of Rs. 89,83,253/- under the head "Profits and gains of business or profession" from income under the head "Income from other sources" in accordance with the provisions of section 71.

4.1.1. I have considered the impugned intimation and thus omissions of the appellant. I have also perused tire copy of the return of income which has been furnished. From the return of income it is seen that interest income of Rs. 89,83,901/-has been shown under the head income from other sources. Further, interest expense of Rs. 89,84,549/- has been shown in the debits to profit and loss account (SI. No. 43ii). From the intimation it is apparent that interest expenditure of Rs. 89,84,549/- has not been allowed as a deduction in computing the income under the head "Profits and gains of business or profession". Since the same has not been allowed as deduction, the question of allowing set off as per the provisions of section 71 does not arise. It is also seen from the return of income that there are no long-term borrowings or short-term borrowings disclosed in the return of income. The appellant is not an investment company. No business income has been earned by the assessee company.

4.1.2 For claiming any deduction under sections 30 to 43D in computing the income of the assessee, the condition precedent is that the income from the connected receipts is computed under the head 'Profits and gains from business or profession'. According to the Scheme of the Income Tax Act, all incomes of the assessee are to be classified under various heads described, under section 14 and then income is to be computed under those very heads in accordance with the provisions contained under those very heads. If the receipt falls under a particular head, then, the income from such receipt must be computed In accordance with the provisions under the very head, irrespective of the nature of receipts. The receipts and the expenditure having nexus with each other must be considered

3 Merlin Land & Housing Pvt. Ltd. under one head only. If the expenditure incurred by the assessee is not allowable under that head, then it cannot be allowed even if it has been incurred by die assessee.

4.1.2 Relevant portion of section 143(1)(a) is reproduced as under:

“(1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner, namely:

(a) the total income or loss shall be computed after making the following adjustments, namely: - (i) any arithmetical error in the return; or (ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;..."

The Explanation to sub-section (1) defines the expression “an incorrect claim apparent from any information in the return" as under:

"Explanation - For the purposes of this sub-section, - (a) "an incorrect claim apparent from any information in the return shall mean a claim, on the basis of an entry, in the return, - (i) of an item, which is inconsistent with another entry of the same or some other item in such return; (ii) in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or (iii) in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction;...

4.1.3 In view of the above, it is apparent that any claim of deduction which is inconsistent with any claim made in the return of income will constitute "an incorrect claim apparent from any information in the return" as defined in the Explanation to section 143(1). It is settled law that adjustments to income or loss declared in the return can be made if, on the basis of tire information available in such return accounts or documents, the deduction, allowance, claimed by the assessee is 4 Merlin Land & Housing Pvt. Ltd. inadmissible. It has also been held that the claim of the assessee is inadmissible must necessarily flow from the return as filed.

4.1.4 In the case under consideration, there is no income under the head "Profits and gains of business or profession", interest income has been shown under the head "Income from other sources" and there are no long- term or short-term borrowings on which interest could have been paid, there appears to be no infirmity in the order of the CPC in not allowing deduction interest expenditure of Rs. 89,84,549/-. Ground of appeal No. 1 is dismissed.

4.2 Ground of appeal No. 2 states that the appellant craves leave to add, delete, modify or vary any of the grounds of appeal. No such option has been exercised during the appellate proceedings. Hence, this ground of appeal is considered to be a dismissed ground for statistical purposes.”

5. From the record, we find that the amount of “interest has been received from HUDA on account of enhanced compensation and the said compensation amount was transferred to M/s Orris Infrastructure Pvt. Ltd. as per the agreement between the assessee and the said concern. From the order of ld. CIT(A), we find that this issue has not been examined as to who is the real recipient of the monies. Hence, in the fitness of things, the matter is being remanded to the file of the ld. CIT(A) to examine the agreement, business loss incurred and taxability of the amounts in the hands of the assessee.