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Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. CIT(A) / NFAC, Dehi dt. 12/12/2023 pertaining to Assessment Year 2017-18. 2. In the present appeal, the Assessee has raised the following grounds of appeal:
“1. That in view of facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in upholding the disallowance of expenditure on interest paid on borrowed capital u/s 57 of the Income Tax Act.
That in view of facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has failed to note that the appellant, inadvertently, claimed deduction under the wrong head.
That in view of facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has misinterpreted Section 139(5) of the Income Tax Act in furtherance thereof had treated the revised return as infructuous.
That in view of facts and circumstances of the case and in law, the total addition of Rs. 27,47,508/- to the total income and consequent tax demand created at Rs. 12,63,691/- is, at any rate, excessive and unjust.
5. That the appellant craves leave to add, amend, alter or delete any ground during the course of the hearing.”
2 3. Briefly the facts of the case are that the assessee filed his return of income declaring total income of Rs. 13,11,290/- which was selected for limited scrutiny through CASS for the reason that the assessee has claimed large deduction under section 57 of the Act. Thereafter, during the course of assessment proceedings, the assessee was asked to justify the claim of deduction under section 57 under the head “Income from Other Sources”. In response, the assessee submitted that the deduction has been wrongly claimed under the head “Income from Other Sources” and the same should have been claimed under the head “Business Income”. It was further submitted by the assessee that he has filed his revised return of income claiming the deduction under the head “Business Income”..
3.1 The reply so filed by the assessee was considered but not found acceptable to the AO. As per the AO, the assessee has filed his original return of income under Sub Section (4) to Section 139 and not under Sub Section (1) of Section 139 and therefore, the assessee was not entitled to revised his return of income under Sub Section (5) of Section 139 of the Act. Thereafter, a show cause was issued as to why the return filed by the assessee on 22/08/2018 under section 139(5) may not be treated infructuous return being not filed in accordance with the provisions of the Act.
3.2 In response thereof, non reply was filed by the assessee and thereafter the AO held that the silence on the part of the assessee is taken as his acceptance of the fault of claiming deduction under section 57 of the Act and accordingly the said deduction was disallowed and added to the taxable income in the hands of the assessee and as against the returned income of Rs. 13,11,290/-, the assessed income was determined at Rs. 40,58,798/- by making addition/disallowance of Rs. 27,47,508/- for the amount of deduction claimed under section 57 and brought to tax in the hands of the assessee.
4. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A). As per the Ld. CIT(A), the AO has rightly disallowed the interest 3 under section 57 of the Act. As per the Ld. CIT(A), the assessee has also accepted the fact that the claim was wrong and he therefore decided to revised his already belated return to rectify the said mistake and the action of the AO was upheld and disallowance made by the AO was confirmed stating that the AO has applied the correct position of law that a belated return cannot be revised. It was further held by the Ld. CIT(A) that even if the revised return of income was to be treated as valid return, since the income (remuneration & interest from the firm) has been claimed as exempt income, the expenses to earn this income cannot be allowed as an expense in the hands of the assessee and the appeal of the assessee was dismissed.
Against the said findings and the direction of the Ld. CIT(A), the assessee is in appeal before us.
During the course of hearing, the Ld. AR reiterated the submission made before the Ld. CIT(A) and reference was drawn to the submissions filed before the Ld. CIT(A) and the contents thereof read as under:
“4.1 Appellant's Submission: The Appellant has filed submission dated 08/12/2023 as under:- "The assessee is a partner with in the Firm M/s Harish Enterprises, registered office at Bhagat Singh Chowk, Kaithal Haryana-136027 and Branch office at 7089/10, G/F, Mata Rameshwari, Nehru Nagar, Karol Bagh, New Delhi-110005 during the year showing, his rental income, business and other income in the Income Tax Return filed. The return filed was processed within the ambit of section 143( 1) of the Act and the case of the assessee was selected for scrutiny u/s 143(3). During the assessment proceeding, notice u/s 143(2) was issued on 09/08/2018 Statutory notices u/s 142(1) of the Act along with questionnaire were also issued and asking for specific details. In response to statutory notices and questionnaire issued, the assessee has filed replied on Income Tax Portal. Addition on account of deduction claimed u/s 57 of the I.T. Act, 1961 under the head 'income from other sources': During the year, the assessee has filed ITR-2 showing his rental income, salary and Interest income from Partnership firm and Interest Income and wrongly claimed deduction u/s 57 ofRs. 27,37,508/-. In this regard, the assessee wants to state that the assessee has taken personal loan amounting to Rs. 1,41,00,000/- from Standard Chartered Bank on 08/06/2013 and 1,50,00,000/- from Development Credit Bank Limited on 31/03/2014. The assessee has invested loan amount in the partnership firm M/s Harish Enterprises for business running.
4 But while filing ITR-2, his office staff has wrongly claimed deduction Interest paid of Rs. 27,37,508/- u/s 57 under head of income from other sources. Actually it is business expense and must be claimed under business expense. After receiving notice 143(1), the assessee realized his mistake and he filed revised ITR-2 showing interest expense under the Schedule BP: Details of Income from Firms of which partner under Expenses Column. During the Assessment Year, the Assessing Officer has denied his reply that belated return filed u/s 139(4) cannot be revised. The Assessing Officer has acted arbitrarily in adding the above Addition of Rs. 27,47,508/- to his total income and raised a demand ofRs. 12,63,691/-.
According to Section 139(4), Any person who has not furnished a return within the time allowed to him under sub-section (1), may furnish the return for any previous year at any time before the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. According to Section 139(5), If any person, having furnished a return under subsection (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Whereas as per u/s 139(5) as stated above belated return filed u/s 139(4) can be revised at any time before expiry of one year from the end of relevant assessment year or before the completion of assessment, whichever is earlier. In our case assesse revised his original return filed before completition of assessment but assessing officer denied our submission merely on the basis that belated return filed u/s 139(4) cannot be revised u/s 139(5). Any mistake which is apparent can be rectified before the completion assessment proceeding. The claim of interest cannot be rejected merely for the facts that the same is claimed under the wrong head which has been corrected by the assessee and acknowledged by the assessing officer. As the return was revised before the completion of the assessment the assessing officer was supposed to consider such revised return. Instead of doing so, the assessing officer in his Assessment Order called such revised return as "Fractuos Return" and raised a question on the efficacy of the Income Tax Portal. Mens rea "is the mental element of a person's intention to commit a crime; or knowledge that one's action or lack of action would cause a crime to be committed." The assessee has not furnished inaccurate particular of his income but inadvertently presented the right particular but under the wrong head of income. The assessee revised the return to correct the return particular so as to bring the fact to the assessing officer. There was no change in the income disclosed post revising the income tax return. We pray your good self to consider the fact and the revised return and give relief."
6.1 Further, our reference was drawn to the amendment brought in by the Finance Act, 2016 w.e.f A.Y. 2017-18 to Section 139 as well as the Memorandum explanation the provision in the Finance Bill 2016 wherein Sub 5 Section (5) of Section 139 has been substituted to provide that if any person, having furnished a return under sub-section (1) or sub-section (4) of section 139 or any return furnished in response to notice issued under sub section (1) of Section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. It was submitted that both the AO as well as the Ld. CIT(A) have failed to take cognizance of the amendment which has been brought in by the Finance Act 2016 w.e.f A.Y. 2017-18 wherein even a belated return has been allowed to be revised. On merits, it was submitted that the assessee like to contest the findings of the ld CIT(A) as no opportunity was provided to the assessee before arriving at such a finding and the matter may be set-aside to the file of the ld CIT(A) to decide on merits of the case after providing an opportunity to the assessee.
Per contra, the Ld. DR has fairly submitted that there has been a change in the law as brought in by the Finance Act, 2016 which is relevant for the impugned A.Y 2017-18 as pointed out by the ld AR. At the same time, it was submitted that the Ld. CIT(A) has decided the matter on merits of the case as well and since the assessee has shown exempt income, any expenditure incurred to earn exempt income cannot be allowed.
We have heard the rival contentions and purused the material available on record. In the present case, the assessee has filed the original return of income under sub-section (4) of section 139 of the Act and in terms of sub- section (5) of section 139 as amended by the Finance Act, 2016 relevant for the impugned assessment year 2017-18, it provides that if any person, having furnished a return under sub-section (1) or sub-section (4) of section 139 discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. Therefore, the return of income filed under section 139(4) can be revised in the instant case and as such there is no bar in revising the 6 return of income. Further, it is an admitted position that claim has been wrongly made under section 57 while computing the income under the head “income from other sources” instead of claiming the same under the head “Business income”, the return of income originally filed can be revised and has infact been duly revised by the assessee within the stipulated time frame.
The revised return of income so filed therefore needs to be considered to examine the claim of deduction so made by the assessee. Given that the ld CIT(A) has decided the matter on merits of the case without affording an opportunity to the assessee and even during the course of hearing, we felt that all facts necessary for examining the claim of deduction need to be thrashed out, we deem it appropriate to set-aside the matter to the file of the ld CIT(A) to decide the same afresh as per law after providing reasonable opportunity to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes.