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Facts
The assessee, an individual engaged in trading X-ray films and chemicals, filed its return for AY 2015-16, declaring Rs.20,03,260/-. The CPC processed the return under Section 143(1) and made a disallowance of Rs.33,53,759/- due to an incorrect claim of interest, where '0' was entered in specific rows but a total amount was shown. The assessee challenged this before the Ld. Addl./JCIT(A), who upheld the CPC's power but restored the issue of merits to the Assessing Officer.
Held
The Tribunal dismissed the assessee's appeal, upholding the Ld. Addl./JCIT(A)'s decision. It confirmed that the CPC possessed the power under Section 143(1) to make adjustments for incorrect claims apparent from the return for AY 2015-16. The Tribunal also affirmed the direction to the Assessing Officer to verify TDS compliance under Section 40(a)(ia) for the interest expenditure, allowing the claim subject to such verification.
Key Issues
Whether the CPC had the power to make an adjustment under Section 143(1) for an incorrect claim of interest expenditure; and whether the CIT(A) was justified in directing the AO to verify TDS compliance under Section 40(a)(ia) for the claimed interest.
Sections Cited
143(1), 143(1)(a), 40(a)(ia), 194A, 139, 142, 10AA, Chapter VI-A, 90, 90A, 91
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R. K. PANDA & MS. ASTHA CHANDRA
This appeal filed by the assessee is directed against the order dated 05.07.2024 of the Ld. Addl./JCIT(A)-2, Chandigarh relating to assessment year 2015-16.
Facts of the case in brief, are that the assessee is an individual engaged in the trading activity in the field of X-ray films, chemicals etc. under the name and style as “Chitra Sales and Services. He filed its return of income on 30.09.2015 for A.Y. 2015-16 declaring the total income of Rs.20,03,260/-. The return was processed u/s. 143(1) of the Act by the CPC passing intimation dated 01.08.2016 wherein the CPC made disallowance of Rs.33,53,759/-.
Before the Ld. Addl./JCIT(A), it was submitted that the variance made by the CPC is due to the interest paid by the assessee. It was submitted that since there was no basis for disallowance, the assessee filed rectification petition, however, no such order was passed. The power of the CPC to makes such disallowance was also challenged before the Ld. Addl./JCIT(A).
However, the Ld. Addl./JCIT(A) was not satisfied with the arguments advanced by the assessee. So far as, the ground No. 1 challenging the power of CPC making the adjustment in intimation u/s 143(1) of the Act is concerned, the Ld. Addl./JCIT(A) dismissed the ground by observing as under : “5. Under this ground, the appellant has challenged the adjustment made by the CPC being beyond the prescribed additions under section 143(1) of the Act. I have considered the submission made by the appellant as reproduced in para 4 above and have also gone through the material available The submission is not found having any force. The provisions of section 143(1)(a) referred by the appellant providing for prior communication for proposed adjustment, consideration of the appellant's response thereto and mentioning the details of variance have been introduced with effect from 1-04-2017 and therefore, the same are not applicable to the case of the appellant as the assessment year involved here is A.Y.2015-16. As per sub-clause() of clause (a) of section 143(1) of the Act existing at the relevant time, the adjustment can be made in respect of an incorrect claim, if such incorrect claim is apparent from any information in the return. The different circumstances under which a claim will be considered as an incorrect claim apparent from any information in the return have been provided in Explanation to section 143(1) of the Act. Sub-clause (ii) of clause (a) of said explanation reads as under- "(a) an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return.- Of an item, which is inconsistent with another entry of the same or some other item in such return On perusal of intimation and annexure of profit and loss account attached and retum of income, it is noted that the adjustment of Rs.33,53,759/- was made in respect of interest claimed in the profit and loss account. So, it cannot be said that nature of adjustment is not available in the intimation. On careful examination of profit and loss account given in return of income, it is noted that at Sl. No. 43 of profit and loss account, the appellant had entered the amount '0' at Row 43(1)-interest to non residents and also at 43(ii)- interest to others meaning thereby that the total interest debited is ZERO. However, in total column (total of 43(i) and 43(ii)) the amount has been shown at Rs.33,53,759/whereas the total of these two rows is zero as per entries as '0' made in these rows by the appellant. This incorrect reporting by the appellant has resulted into
variance in the amount of interest claimed and entered. This variance is well covered in the sub-clause (ii) of section 143(1)(a) read with Explanation as reproduced above. In view of these facts, there is no legal infirmity in the adjustment made by the CPC. Accordingly, the ground No. 1 is dismissed.”
So far as, the Merits of the case is concerned, he restored the issue to the file of the AO with certain directions which read as under : “6. Under this ground, the appellant has challenged the addition of Rs.33,53,759/- by disallowing interest on loans which is an allowable business expenditure. I have considered the submission made by the appellant as reproduced in para 4 above and have also gone through the material available. As per appellant, he had claimed expenses of Rs.33.53,759/-on account of interest on loans taken for business. The appellant has furnished computation of income and audited accounts. The perusal of same, it is noted that the appellant had debited profit and loss account by amount of Rs.33,53,759/- as interest on loans. The same amount has been shown in the return, however in incorrect column. This technical mistake cannot be the basis for disallowance of an expenditure allowable under the Act. On perusal of the details of above interest expenditure made available by the appellant, the interest been paid to different entities as under- Interest paid to Nationalised banks Rs.7,60.148/- Interest paid to Co-op Bank Rs.5,61,045/- Interest paid to Commercial banks Rs.8,57,439/- Interest paid to Financial corp Rs.11,74,767/- Interest paid to Financial corporations includes interest to non banking financial companies on which TDS provisions are applicable. If the tax has not been deducted as per section 194A of the Act. disallowance is required to be made as per section 40(a)(ia) of the Act. Therefore, the assessing Officer is directed to allow the interest expenditure after making verification of applicability of TDS provisions on interest and after making disallowance under section 40(a)(ia) of the Act, if required. Accordingly, the Ground No. 2 is allowed for statistical purposes.”
Aggrieved with such order of the Ld. Addl./JCIT(A), the assessee is in appeal before the Tribunal by raising following grounds of appeal :
1. On the facts and in the circumstances of the case and in law Ld. CIT(A) has erred in passing, an intimation u/s 143(1) dated 01/08/2016, wherein addition of Rs.33,53,760/- is made, which is beyond the prescribe additions specified in section 143(1) and therefore the entire intimation is bad in law and deserves to be struck down.
2. On the facts and in the circumstances of the case and in law Ld. CIT(A) has erred in expanding the subject matter of appeal and directing the Ld. AO to verify the TDS compliance and making the disallowance u/s 40A(i)(a) at the processing stage of the return, as such adjustment is not envisaged in the provisions of law and same is also not within the power of Ld. CIT(A), therefore such observation may kindly be deleted and the proportionate addition may kindly be deleted. Your appellant prays for deletion of entire addition. Your appellant craves for to add, alter amend, modify, delete any or all grounds of appeal before or during the course of hearing in the interest of natural justice.”
We have heard the rival arguments made by both the sides and perused the record. So far as the first ground is concerned, the same relates to the order of Ld. Addl./JCIT(A) upholding the power of CPC to make such adjustment. We find the provisions of section 143(1) of the Act read as under : “143. (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; (ii)an incorrect claim, if such incorrect claim is apparent from any information in the return; Following sub-clause (iii) to (vi) shall be inserted after sub-clause (ii) of clause (a) of sub-section (1) of section 143 by the Finance Act, 2016, w.e.f. 1-4-2017 : (iii)disallowance of loss claimed, if return of the previous year for which set off of loss is claimed was furnished beyond the due date specified under sub-section (1) of section 139; (iv)disallowance of expenditure [or increase in income] indicated in the audit report but not taken into account in computing the total income in the return; (v)disallowance of deduction claimed under [section 10AA or under any of the provisions of Chapter VI-A under the heading "C.—Deductions in respect of certain incomes", if] the return is furnished beyond the due date specified under sub-section (1) of section 139; or (vi)addition of income appearing in Form 26AS or Form 16A or Form 16 which has not been included in computing the total income in the return: Provided that no such adjustments shall be made unless an intimation is given to the assessee of such adjustments either in writing or in electronic mode: Provided further that the response received from the assessee, if any, shall be considered before making any adjustment, and in a case where no response is received within thirty days of the issue of such intimation, such adjustments shall be made:
(b) the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a), (c) the sum payable by, or the amount of refund due to the assessee shall be determined after adjustment of the tax and interest, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest: (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and (e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee Provided that an intimation shall also be sent to the assessee in a case where the loss declared in the return by the assessee is adjusted but no tax or interest is payable by, or no refund is due to, him: Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made. Explanation. For the purposes of this sub-section.- (a) "an incorrect claim apparent from any information in the retum" shall mean a claim, on the basis of an entry, in the return.- (ii) of an item, which is inconsistent with another entry of the same or some other item in such return: (iii) 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; (b) the acknowledgement of the return shall be deemed to be the intimation in a case where no sum is payable by, or refundable to, the assessee under clause (c), and where no adjustment has been made under clause (a)." (Emphasis supplied).”
A perusal of the same would show that as per sub-clause (ii) of clause (a) of section 143(1) of the Act existing at the relevant time the adjustment can be made in respect of an incorrect claim, if such incorrect claim is apparent from any information in the return. Further, the different circumstances under which a claim will be considered as an incorrect claim apparent from any information in the return have also been provided in Explanation to section 143(1) of the Act. A perusal of the intimation and annexure of profit and loss account attached to the return of income show that the adjustment of Rs.33,53,759/- was made in respect of interest claimed in the profit and loss account. A perusal of the profit and loss account given in return of income show that at Sl. No. 43 of profit and loss account, the assessee had entered the amount '0' at Row 43(1)-interest to non residents and also at 43(ii)- interest to others meaning thereby that the total interest debited is ZERO. Further, in total column (total of 43(i) and 43(ii)) the amount has been shown at Rs.33.53,759/-whereas the total of these two rows is zero as per entries as '0' made by the assessee in these rows. Therefore, this incorrect reporting by the assessee has resulted into variance in the amount by the CPC. Therefore, we do not find any infirmity in the detailed order of Ld. Addl./JCIT(A) on this issue. Accordingly, the first ground raised by the assessee is dismissed.
So far as, the second ground is concerned, we find the assessee has challenged the merit of the addition. We find the Ld. Addl./JCIT(A) has directed the AO to verify the TDS compliance as per the provisions of section 40A(i)(a) of the Act and allow the claim of the assessee. There is nothing wrong in the above order of the Ld. Addl./JCIT(A) directing the AO to allow the claim of the assessee subject to verification of the compliance of section 40A(i)(a) of the Act. In view of the detailed order passed by the Ld. Addl./JCIT(A) and in absence of any contrary material brought to our notice by the Ld. AR, we do not find any infirmity in the order of Ld. Addl./JCIT(A). Accordingly, the same is upheld. The second ground raised by the assessee is accordingly dismissed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open Court on 01st April, 2025.
Sd/- Sd/- (R. K. PANDA) (ASTHA CHANDRA) VICE PRESIDENT JUDICIAL MEMBER पुणे Pune; दिन ांक Dated : 01st April, 2025 RK आदेश की प्रतितिति अग्रेतिि/Copy of the Order is forwarded to: अपील र्थी / The Appellant; 1. 2. प्रत्यर्थी / The Respondent 3. The concerned Pr.CIT, Pune 4. DR, ITAT, ‘B’ Bench, Pune ग र्ड फ ईल / Guard file. 5. आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune
S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 2 Draft placed before author Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement on Sr. PS/PS 7 Date of uploading of Order Sr. PS/PS 8 File sent to Bench Clerk Sr. PS/PS Date on which the file goes to the Head 9 Clerk 10 Date on which file goes to the A.R. 11 Date of Dispatch of order