M/S. IDEB PROJECTS PVT. LTD,,BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order of CIT(A) dated 30.12.2016 for the assessment year 2012-13 passed u/s 250 of the Income-tax Act,1961 ['the Act' for short]. The assessee has raised following grounds: 1. The order of the authorities below in so far as it is against the appellant is opposed to law, facts, equity, weight of evidence, probabilities and circumstances of the case.

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 2 of 9 Rs.3,55,443/- and the appellant has by itself inadvertently disallowed a sum of IRS. 23,92,391/- which is in excess of the amount debited and hence the entire disallowance deserves to be deleted in full.

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 3 of 9 proceedings filed by the appellant by a revised computation on the facts and circumstances of the case. The appellant filed a revised computation claiming the said expenditure which was disallowed in the AY 2011-12. In this regard we wish to place reliance on the judgment held in the case of CIT Vs. M/S Bharat Aluminum Co. Ltd (ITA No. 160/2005). The learned CIT (A) failed to appreciate that the claim is in the nature of claim for expenses which is allowable in terms of section 40 a(ia) (payment of TDS for which disallowance was made in the earlier year) for which no return of income needs to be filed. 11. The Hon'ble Commissioner of Income Tax Appeals erred in stating that the assesse is entitled to carry forward loss if it has been determined in pursuance of a return filed. The Hon'ble Commissioner of Income Tax Appeals failed to appreciate that the return has been filing within the time prescribed under the law and the revised computation is only in the nature of correction of the original return filed. 12. Without prejudice, if the claim of Rs.49,24,13,621/- is not allowed in the Assessment Year 2012-13 on the ground that there is no claim, the AO failed to appreciate the fact that the claim was made in the Assessment Year 2011-12, which was disallowed and therefore' the AO ought to have allowed the claim on his own in the relevant Assessment Year i.e. AY. 2012-13. 13. The appellant craves leave to add, alter, amend, substitute, change, delete any of the grounds of appeal. 14. For the above and other grounds that may be urged at the time of hearing of the appeal, the appellant prays that the appeals may be allowed and justice rendered.” 2. Ground Nos.1, 2, 13 & 14 are general in nature, which do not require any adjudication. Hence, not considered. 3. Ground Nos.3 & 4 are with regard to disallowance u/s 14A of the Act at Rs.2,38,687/-. 3.1 Facts of the issue are that the assessee incurred following expenditure as financial cost: Interest Expense - Rs.47,64,616/- Interest to Bank - Rs. 279/- Interest to Parties/Distributors (Net) - Rs. 3,55,164 Interest to Bank on vehicle loan - _______________ - Rs.51,20,059/-

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 4 of 9 3.2 The ld. AO was of the opinion that assessee has diverted the interest bearing funds to earn exempted income yielding investments. Hence, he invoked the provisions of section 14A of the Act read with Rule 8D of the I.T. Rules and computed the disallowance u/s 14A read with Rule 8D at Rs.26,31,078/-. Since the assessee has already voluntarily disallowed an amount of Rs.23,92,391/- while filing the return of income, he disallowed balance amount of Rs.2,38,687/-. Against this assessee went in appeal before ld. CIT(A), who has confirmed the disallowance. Against this assessee is in appeal before us. 3.3 Before us, the ld. A.R. relied on the judgement of jurisdictional High Court in the case of CCIT Vs. Sterling Developers Pvt. Ltd. (2021) (129 Taxmann.com 116) (Karn.) and submitted that the assessee has not earned any income exempted from tax. As such, section 14A of the Act cannot be applied. 4. The ld. D.R. relied on the order of lower authorities. 5. We have heard the rival submissions and perused the materials available on record. We also carefully gone through the computation of income filed by the assessee before ld. AO. The same has been considered for the purpose of determining the income of the assessee by ld. AO. In these assessment years, the provision of section 14A of the Act read with Rule 8D is applicable only if assessee earned income, which is exempted from tax. In our opinion, in the assessment year under consideration this is to be verified at the end of AO by seeing the financial statement of assessee for the relevant assessment year. If there is no exempted income earned by assessee in that circumstances, there cannot be any disallowance of Rs.2,38,687/- as disallowed by ld. AO in assessment order. In other words, we are confining our findings only to the extent of disallowance made by AO at Rs.2,38,687/- and the AO has to verify whether assessee has earned any exempt income in the assessment year under consideration. If there is no exempted income, then he

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 5 of 9 need not apply the provisions of section 14A read with Rule 8D. Thus, these grounds are remitted to the file of ld. AO for fresh consideration with above observations. These grounds of appeal of the assessee are partly allowed for statistical purposes. 6. Next ground No.5 is with regard to disallowance of Rs.38,50,996/- u/s 36(1)(iii) of the Act. 6.1 Facts of the case are that the ld. AO disallowed a sum of Rs.38,50,996/- stating that it has to be interest expenditure on account of diversion of investments to subsidiary companies. It was the submission of the assessee that no interest expenditure debited to profit & loss account and hence, question of disallowance of interest does not arise. According to assessee, assessee has debited bank charges at Rs.1,08,589/- and commission on bank guarantee at Rs.46,56,027/- as finance cost under the head “interest to bank”. According to him, it is allowable expenditure as incurred in the usual course of business of the assessee. 7. On the other hand, the ld. D.R. relied on the order of lower authorities. 8. We have heard the rival submissions and perused the materials available on record. In the present case, the assessee has charged following amount to the P&L account under finance cost. Interest Expense - Rs.47,64,616/- Interest to Bank - Rs. 279/- Interest to Parties/Distributors (Net) - Rs. 3,55,164/- Interest to Bank on vehicle loan - _______________ - Rs.51,20,059/- 8.1 The contention of ld. A.R. is that the above amount represents the expenditure incurred for the purpose of assessee’s business and it was not on account of any diversion of funds to other sister concerns. In our opinion, this has to be verified by ld. AO and if any bank charges or bank guarantee incurred on behalf of sister concern,

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 6 of 9 the charges to that extent to be disallowed. With this observation, we remit this issue to the file of ld. AO for fresh consideration. 9. Next ground Nos.6 & 7 are with regard to disallowance of loss from investment by treating it as a capital loss. 9.1 The ld. AO had a sum of Rs.16.5 crores being loss on sale of investments. The contention of ld. A.R. is that company was in business of construction contracts and real estate business and takes the contract from the special purpose vehicle (SPV) to IDEB Projects Pvt. Ltd. and shares the profit of real estate and contract both. Since the investment was made in the course of and for the purpose of business, the loss of sale of such investment is required to be treated as business loss and to be allowed as deduction while computing the income of the assessee. The ld. D.R. submitted that these are non-current investments made by assessee and sale of non- current investments to be treated as capital loss only even otherwise, the assessee kept the loss in investments and on sale of investment assessee has debited the loss in profit and loss account by selectively debiting loss in the profit & loss account, the assessee company trying to reduce its taxable profits for the assessment year under consideration, which cannot be allowed as a revenue deduction. 10. We have heard the rival submissions and perused the materials available on record. In this case, assessee made investments of Rs.37.00 crores in M/s. Grand Reality Pvt. Ltd., wherein GRPL had purchased Rs.23.44 acres of land in Wagoli, Pune and said investment came to be sold for Rs.23.50 crores due to slump in the real estate market and incurred a loss of Rs.16.5 crores. This investment of Rs.37 crores has been shown by assessee in capital field and it is not current asset or stock in trade. The loss incurred on realization of investments is not in a revenue field and same is in capital field. The loss also cannot be allowed while computing the income of the assessee, which is being capital loss and being so, the lower authorities have treated it as a capital loss and disallowed the

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 7 of 9 same. We do not find any infirmity in these findings of the lower authorities and the same is confirmed. These grounds of appeal of the assessee are rejected. 11. Next ground No.8 is with regard to loss on sale of project at Rs.4,68,38,650/-. 11.1 The contention of ld. A.R. is that the company was into the business of construction contracts as real estate and assessee has invested in a company called Patiala Malerkotla Pvt. Ltd., which was the project for construction of road from Patiala to Malerkotla. Since the project was sold, the assessee incurred a loss of Rs.4,68,38,650/- and not to be allowed as a deduction while computing income of the assessee. 12. The ld. D.R. relied on the orders of lower authorities. 13. We have heard the rival submissions and perused the materials available on record. As discussed in earlier ground Nos.6 & 7, the assessee has invested the amount in Patiala Malerkotla Pvt. Ltd. in the capital field and that amount has been treated as investment in assessee’s balance sheet and it is not stock in trade as the assessee is not in the business of money lending to allow it as a deduction while computing the income of the assessee. Being so, we do not find any infirmity in the order of the lower authorities and the same is confirmed. This ground of assessee is dismissed. 14. Next ground Nos.9, 10, 11 & 12 are with regard to disallowance of an amount of Rs.49,24,13,621/-, which was claimed by assessee in its revised computation of income filed before ld. AO at the time of assessment. 14.1 The ld. A.R. submitted that assessee has filed a revised computation of income by claiming additional loss of Rs.49,24,13,621/- before ld. AO. Thus, the loss has been increased from Rs.14,59,21,825/- to the tune of Rs.63,83,35,447/- The ld. AO allowed the same. However, ld. CIT(A) observed that the assessee has not explained the legal basis for claiming such loss by way of a

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 8 of 9 revised computation without claiming the same in the original return of income. According to him, unless there is a valid revised return, loss cannot be determined, carried forward and set off. If the return of loss is not filed within time provided u/s 139(1) or 139(3) of the Act, the assessee is not entitled to carry forward such loss. According to him, section 80 of the Act clearly provides that loss which has not been determined in pursuance of a return filed, shall not be carried forward and set off under the provisions of the Act since the assessee has not claimed loss of Rs.49,24,13,621/- in the return filed by the assessee the same was disallowed. Against this assessee is in appeal before us. In the assessment year under consideration, assessee has filed the return of income on 11.9.2012 declaring loss at Rs.14,59,21,826/-. Later the assessee has filed a revised statement of income before ld. AO declaring loss of Rs.63,83,35,447/-. Thus claimed additional loss of Rs.49,24,13,621/- and to be allowed. 15. The contention of ld. D.R. is that said loss cannot be allowed in view of provisions of section 80 of the Act. 16. We have heard the rival submissions and perused the materials available on record. In our opinion, if the return of the assessee is filed within time provided u/s 139(1) or 139(3) of the Act r.w.s. 80 of the Act, the claim of the assessee towards loss in revised return to be allowed by ld. AO. In the present case, there was no revised return. As such, ld. AO cannot consider the additional loss filed by the assessee by way of statement/application before him. However, first appellate authority has the right to consider the additional claim made by assessee in view of the judgement of Hon’ble Supreme Court in the case of Goetze India Ltd. Vs. CIT (284 ITR 323), wherein held that “claim for deduction by way of application cannot be entertained by AO. The AO cannot entertain claim for deduction otherwise than by filing a revised return. However, it does not in any way impinge on the power of the Tribunal u/s 254 of the Act.” Being so, we remit this issue to the file of AO for reconsideration

ITA No.529/Bang/2017 M/s. IDEB Projects Pvt. Ltd., Bangalore Page 9 of 9 as he has not given finding on merit of the claim of the assessee in his order. On the other hand, he straight away considered the loss declared by the assessee by way of application before him, which is not proper. He should independently examine the claim of the additional loss by assessee on merit and decide this issue afresh. These grounds of appeal of the assessee are partly allowed for statistical purposes. 17. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 7th Nov, 2023

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 7th Nov, 2023. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.