DCIT CIRCLE 1(3)(1), MUMBAI vs. RELIANCE UNICORN ENTERPRISES PRIVATE LIMITED, MUMBAI

Briefly stated, the assessee filed its original return of income on 28.01.2021 declaring a total loss of Rs.1,18,79,080/-. In the said return, the assessee had debited total interest expenditure of Rs.28,65,41,450/-. As per the original Tax Audit Report filed on 30.10.2020, the following amounts were reported as disallowable:

Subsequently, the assessee received Form 26A dated 25.03.2021 in terms of the first proviso to section 201(1) of the Act in respect of the amounts on which tax had not been deducted. In view of the second proviso to section

Thereafter, on 31.03.2021, the assessee filed its revised return of income, deleting the disallowance under section 40(a)(ia) of Rs.2,96,27,708/- and retaining the disallowance under section 43B(da) of Rs.18,77,82,425/-. Consequently, the assessee declared a revised loss of Rs.4,15,06,790/-.

While processing the revised return under section 143(1) of the Act on 23.12.2021, the CPC made a disallowance of Rs.8,59,73,619/- under section 40(a)(ia), computed with reference to the total interest expenditure of Rs.28,65,78,730/-, as under:

Thus, the total disallowance made under section 40(a)(ia) amounted to Rs.8,59,73,619/-. Consequently, the CPC determined the business income at Rs.4,44,32,650/- and did not allow the set-off of brought forward losses claimed by the assessee.

Aggrieved, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A), inter alia, directed the Assessing Officer to reprocess the return by taking into consideration the revised Tax Audit Report dated 30.03.2021 and the revised return dated 31.03.2021. The Ld. CIT(A) further directed deletion

Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.

The Ld. Departmental Representative (Ld. DR) relied upon the grounds of appeal and submitted that the revised Tax Audit Report was filed on 30.03.2021, beyond the extended due date of 15.01.2021, and was, therefore, rightly not considered by the CPC. It was further submitted that the Ld. CIT(A) deleted the disallowance under section 40(a)(ia) without providing the Assessing Officer an opportunity to verify the material relied upon by the assessee and, therefore, the provisions of Rule 46A(3) were not complied with. With regard to the third ground, the Ld. DR submitted that the direction to allow set-off of brought forward losses was issued without verification of the assessee’s claim.

Per contra, the Ld. Authorized Representative (Ld. AR) of the assessee supported the order of the Ld. CIT(A). He submitted that the revised Tax Audit Report was furnished before the revised return was filed and well before the processing of the return by the CPC. It was submitted that the revised report was necessitated by the subsequent receipt of Form 26A and correctly reflected the position under sections 201(1) and 40(a)(ia) of the Act. The Ld. AR further submitted that the documents relied upon before the Ld. CIT(A) were already available on the Income-tax e-filing portal and, therefore, there was no question of admission of any additional evidence so as to attract Rule 46A(3). With

We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities.

As regards Ground No. 1, the grievance of the Revenue is that the revised Tax Audit Report dated 30.03.2021 was furnished beyond the extended due date of 15.01.2021 and, therefore, ought not to have been considered.

We find that the assessee had furnished the original Tax Audit Report on 30.10.2020. Thereafter, on receipt of Form 26A dated 25.03.2021, the assessee furnished a revised Tax Audit Report on 30.03.2021 and filed the revised return on 31.03.2021. The revised Tax Audit Report and the revised return were, thus, available on record before the return was processed by the CPC on 23.12.2021.

The contention of the Revenue that the revised Tax Audit Report was liable to be rejected merely because it was furnished after the specified due date cannot, in the facts of the present case, be accepted in isolation. The revised report was furnished before the processing of the return and was accompanied by a corresponding revised return. The correction was also directly connected with the applicability of section 40(a)(ia), consequent upon the assessee obtaining Form 26A under section 201(1) of the Act.

We also note that section 143(1) of the Act, contemplates processing of the return with reference to the return and the accounts and documents accompanying it. Further, where an adjustment falling within the scope of

In these circumstances, we find no infirmity in the direction of the Ld. CIT(A) to reprocess the return after considering the revised Tax Audit Report and the revised return. Ground No. 1 raised by the Revenue is, accordingly, dismissed.

Ground No. 2 relates to the deletion of the disallowance of Rs.8,59,73,619/- made under section 40(a)(ia) of the Act. The said disallowance comprised two components, namely, Rs.2,96,27,707/- and Rs.5,63,34,727/-.

As regards the first component of Rs.2,96,27,707/-, the assessee had furnished Form 26A dated 25.03.2021 in respect of the relevant payments. The second proviso to section 40(a)(ia) provides that where the assessee is not deemed to be an assessee in default under the first proviso to section 201(1), the assessee shall be deemed to have deducted and paid the tax on the date of furnishing of the return of income by the resident payee. In view of the Form 26A furnished by the assessee, thus the Ld. CIT(A) was justified in holding that the corresponding disallowance under section 40(a)(ia) was not warranted.

The second component of Rs.5,63,34,727/- represents 30% of Rs.18,77,82,425/-, being the amount already disallowed under section 43B(da). The same amount had been retained as a disallowance under section 43B(da) even in the revised return. Thus, making a further disallowance of 30% of the 6

The Revenue has further alleged violation of Rule 46A(3). We are unable to accept this contention. Rule 46A is attracted where an assessee seeks to produce before the first appellate authority evidence which was not produced before the Assessing Officer and such evidence is admitted under the circumstances specified in Rule 46A(1). Sub-rule (3) requires that, where such additional evidence is admitted, the Assessing Officer must be afforded a reasonable opportunity to examine the evidence or to rebut the same. It does not require a remand in a case where the appellate authority decides the appeal on the basis of material already forming part of the record.

In the present case, the revised return, revised Tax Audit Report and Form 26A were stated to have been furnished on the Income-tax e-filing portal before the CPC processed the return. The Revenue has not brought on record any specific material to establish that the Ld. CIT(A) admitted any fresh evidence falling within the ambit of Rule 46A(1). The issue before the Ld. CIT(A) was essentially whether the CPC had correctly made the impugned adjustment on the basis of the material available on record. Accordingly, the question of mandatory remand under Rule 46A(3) does not arise.

We, therefore, find no infirmity in the order of the Ld. CIT(A) in deleting the disallowance under section 40(a)(ia). Ground No. 2 raised by the Revenue is dismissed.

Ground No. 3 relates to the direction of the Ld. CIT(A) regarding set- off of brought forward losses of Rs.308,29,87,897/-.

Consequently, the issue of set-off of brought forward losses is, in the facts of the present case, rendered academic. Nevertheless, the direction of the Ld. CIT(A) to allow the brought forward losses in accordance with law cannot be said to cause any prejudice to the Revenue, since any such set-off can arise only against income otherwise chargeable to tax and after verification of the eligible losses in accordance with the provisions of the Act. Ground No. 3 is, therefore, dismissed.

Ground No. 4 is general in nature and does not require separate adjudication.

In the result, the appeal filed by the Revenue is dismissed.