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Facts
For AY 2017-18, the assessee's return was processed under Section 143(1) with an addition to 'income from other sources' due to a mismatch between declared net interest income and gross receipts in Form 26AS. The assessee's rectification petition under Section 154 and revision petition under Section 264 were dismissed, leading to a significant delay of 1169 days in filing an appeal before the First Appellate Authority (FAA), which also dismissed it in limine.
Held
The Tribunal condoned the delay in filing the appeal before the FAA, recognizing 'sufficient cause' as the assessee was pursuing alternate remedies. On merits, the matter was remanded to the Assessing Officer to re-examine whether the claimed interest expenditure could be allowed as a deduction under Section 57.
Key Issues
1. Whether there was 'sufficient cause' to condone the delay in filing an appeal before the FAA after pursuing rectification and revision remedies. 2. Whether the assessee's claim for deduction of interest expenditure under Section 57 is allowable against gross interest receipts.
Sections Cited
56, 57, 143(1), 154, 250, 264
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
आदेश /O R D E R PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi dated 18.12.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2017-18.
2. The grounds raised by the assessee read as follows:-
1. For that the Order of the Ld. Addl. / JCIT (Appeals), Thane is contrary to the facts, law and circumstances of the case of the Appellant and is opposed to the principles of natural justice, equity and fair play.
For that the CPC while completing the assessment failed to take into consideration the details of Interest accrued on the Loans and advances held in the books of account by the Appellant and its effect of adjusting against the Interest Earned thereon, as net interest income for the purposes of taxation under section 56 & 57 of income tax act, 1961.
For that the Ld. AO (JAO) further erred in dismissing the petition under section 154 preferred against the same within the time-limit under the said provision, bringing the facts before the JAO for its rectification.
4. For that the Pr. CIT -8, Chennai, also erroneously dismissed the Petition u/s. 264 of the IT Act, 1961 which was preferred with the genuine intent of seeking justice on the facts that the interest paid on the unsecured loans as per the books of account maintained by the Appellant in violation of principles of natural justice.
For that the Addl. / JCIT (Appeals), Thane, erred in ignoring the time period covered under the above proceedings, and treated that the Appeal was filed belatedly ignoring the fact that the period covered under the above proceedings are excludable while computing the delay occurred in filing the appeal before the said authority through NEAC, rendering the entire basis of dismissal contrary to the provisions and powers under Section 250 of the IT Act, 1961.
For that the Ld. JAO, failed and brushed aside the facts that were placed on record for its verification along with the evidences, renders that the dismissal of Rectification Petition and passing order under section 154 of the Act, is in violation of the CBDT Circular No. 14 (XL – 35) dated 11.04.1955, which is mandatory and binding on the assessing authority.
7. For these above grounds or any other grounds that may be adduced by the Appellant craves for a leave to add or modify the same at any time during the proceedings under this appeal.
3. Brief facts of the case are as follows: The assessee is an individual deriving income from salary, interest from deposit, income from consultancy services. For the assessment year 2017-18, the return of income was filed on 02.03.2018 declaring total income of Rs.37,07,030/-. The return was processed u/s.143(1) of the Act and intimation was issued on 27.03.2019. In the said intimation, the assessee’s income was assessed at Rs.64,29,320/-. There was addition of Rs.27,32,290/- to the ‘income from other sources’ by considering the gross receipts reflected in Form 26AS.
The assessee filed a rectification petition u/s.154 of the Act on 28.04.2022 against the order of intimation issued u/s.143(1) of the Act. However, the same was rejected by the AO vide his order dated 10.05.2022. Aggrieved by the dismissal of order u/s.154 of the Act, the assessee filed revision petition u/s.264 of the Act before the PCIT on 16.11.2022. The PCIT dismissed the revision application u/s.264 of the Act vide order dated 21.03.2024.
5. After the aforesaid proceedings, the assessee still aggrieved by the intimation issued u/s.143(1) of the Act filed an appeal before the First Appellate Authority on 11.07.2024 with a delay of 1902 days. In the delay condonation application in Form 35, the assessee had stated that he was pursuing alternate remedy such as rectification application u/s.154 of the Act, revision application u/s.264 of the Act and hence there was a delay in filing appeal as against the intimation issued u/s.143(1) of the Act. In support of the assessee’s submission for condonation of delay, he had relied on the judicial pronouncements which are extracted at para 5.2 of the impugned order of the CIT(A). The CIT(A) however dismissed the appeal of the assessee in limine without condoning the delay in filing the appeal before him.
6. Aggrieved by the order of the CIT(A), the assessee has preferred the present appeal before the Tribunal. The assessee has filed a paper-book enclosing therein the statement of total income, order passed u/s.154 of the Act, various case laws relied on, etc. The Ld.AR submitted that the delay had occurred only on account of assessee pursuing alternate remedy for the same cause of action and the CIT(A) has erred in not condoning the delay. As regards the issue on merits, the Ld.AR submitted that assessee had declared in the return of income net interest income after setting off interest paid against the gross interest receipts. It was submitted that the interest expenditure is entitled to deduction u/s.57 of the Act and the return
The Ld.DR submitted that there is inordinate delay in filing the appeal before the FAA and the FAA has correctly dismissed the appeal in limine.
We have heard rival submissions and perused the material on record. There is a delay of 1169 days in filing the appeal before the CIT(A) after excluding the period during the Covid pandemic as per the Hon’ble Apex Court order in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 and in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022 (period excluded from 15.03.2020 to 31.03.2022). We notice that assessee had filed a rectification application u/s.154 of the Act for the same cause of action stating that interest expenditure ought to be allowed as deduction u/s.57 of the Act on 28.04.2022. The said application was rejected and thereafter the assessee filed revision petition u/s.264 of the Act and when the same was dismissed by the PCIT, the assessee within a reasonable time filed appeal before the FAA challenging the adjustment made in the intimation issued u/s.143(1) of the Act. The delay in filing the appeal before the FAA occurred primarily for the reason assessee was pursuing alternate remedy for the same course of action by filing a rectification application and thereafter revision petition. We note subsequent to the dismissal of revision petition u/s.264 of the Act, the assessee within a reasonable time had filed appeal before the FAA. Therefore, we are of the view that there was ‘sufficient cause’ for the delay in filing the appeal before the FAA.
Moreover, on merits the assessee has got a justifiable case. The assessee had received gross receipts of Rs.43,38,742/-. Against the said income, according to the assessee, he had incurred interest charges and set-off the same and declared net interest income in the return of income. The CPC in the intimation issued u/s.143(1) of the Act had held that net income disclosed in the ITR was short disclosure of interest income and hence, amount captured in Form No.26AS was brought to tax. From facts on record, it is not discernible whether the interest expenditure claimed by the assessee amounting to Rs.29,72,268/- is to be allowed as deduction u/s.57 of the Act or not. If the same is to be allowed as deduction u/s.57 of the Act, the disclosure of net interest income in the ITR will have the same effect. However, correct procedure was to have claimed interest expenditure as deduction u/s.57 of the Act. We are of the view the delay in filing the appeal before the FAA is to be condoned since the assessee was pursuing an alternate remedy. Since the delay in filing the appeal before the FAA is condoned, on merits the matter needs to be examined by the AO whether the amount of interest paid / other charges can be allowed as deduction u/s.57 of the Act. For the aforesaid purpose, the issues raised on merits is restored to the files of the AO. The AO shall afford a reasonable opportunity of hearing to the assessee before a decision is taken on the matter. It is ordered accordingly.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced in the open court on 12th June, 2025 at Chennai.