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Income Tax Appellate Tribunal, DELHI BENCH “F” DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI PRADIP KUMAR KEDIA
The captioned appeal has been filed by the Assessee against the order of the Commissioner of Income Tax (Appeals)- XVIII, New Delhi [‘CIT(A)’ in short] dated 26.06.2014 arising from the assessment order dated 30.03.2013 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2010-11.
The grounds of appeal
raised by the assessee read as under: “1. That the disallowance of carry forward of long term capital loss claimed on the sale of shares in the revised return of Rs.206,25,53,801/- as sustained by the Hon'ble CIT(Appeals) is arbitrary, unjust, unwarranted and untenable on various factual and legal grounds.
2. That the disallowance of interest / financial charges to the extent of Rs.26,44,176/-, incurred by the appellant company for acquiring the shares in NDTV Limited as sustained by the Hon'ble CIT(Appeals) is unjust, unwarranted and untenable on various factual and legal grounds 3. That the disallowance of interest to the extent of Rs.26,44,176/- by AO/CIT(Appeals) on the funds borrowed for the purpose of acquiring controlling stake in the Company, is not in accordance in law and the interest received on bank FDs has to be adjusted against the interest paid on borrowed funds, having a direct nexus and the remaining if any only can be taxed.”
3. Ground No.1 concerns eligibility of Long Term Capital Loss (LTCL) on sale of shares claimed by way of revised return filed under S. 139(5) of the Act.
Briefly stated, the assessee is an Investment Holding Company set up to acquire and hold shares of NDTV Ltd. and its Group Cos. The Assessee, in the instant case, filed its original return of income under S. 139(1) of the Act on 15.10.2010 declaring total income at Rs.4,17,005/- concerning Assessment Year 2010-11 in question. The original return so filed by the assessee was subjected to scrutiny assessment by issuance of notice under Section 143(2) dated 29.08.2011. Pending completion of the assessment under Section 143(3), the assessee filed revised return under S. 139(5) of the Act on 02.02.2012. The assessee claimed that it has filed revised return of income within the time limit prescribed under S. 139(4) of the Act and original return within the time limit prescribed under S. 139(1) of the Act. As per the revised return, the assessee claimed Long Term Capital Loss(LTCL) of Rs.206.25 crore arising on sale of shares together with Income Rs.4,17,005/- under the head “ income from other source” declared earlier in the original return. The assessee has thus claimed a carry forward of capital loss of Rs.206.25 crore as reported in the revised return. The Assessing Officer inter alia noted that no such loss arising on sale of share were claimed in the original return filed by the assessee. Subsequently, inquiries in respect of certain transactions entered into by the assessee were carried out by the Investigation Wing Delhi. Following the same, the assessee revised its return of income after lapse of 17 months and filed revised return of 02.02.2012 whereby the impugned Long Term Capital Loss (LTCL) was claimed. The Assessing Officer observed that such revised return is not a valid return and thus nonest in the eyes of law. The Assessing Officer made reference to Sections 80, 139(3) and other provisions of the Act and refused to admit the claim of Long Term Capital Loss and consequently carry forward thereof for set off against the income of the later years was denied. The AO noted that there is not even an iota of reference of any transaction involving any capital gains or capital loss in the original return. The AO also noted that as per section 139(3), for entitlement of carry forward of losses arising in the current assessment year, the loss return has to be necessarily filed within the time allowed for filing return under S 139(1) whereas in the instant case, the capital transactions resulting in huge loss has been claimed for the first time in the revised return filed beyond the time limit stipulated under S. 139(1) of the Act. The AO thus denied claim of LTCL for carry-forward and set off in subsequent assessment years.
Aggrieved by the non-admission of claim of Long term Capital Loss presented in the revised return, the assessee preferred appeal before the CIT(A). Before the CIT(A) as well, the assessee contended that once the assessee has filed original return on due date as prescribed under Section 139(1) of the Act, the assessee is entitled to file the revised return within the time limit prescribed under Section 139(5) of the Act. It was contended that revised return filed within time limit prescribed under Section 139(5) of the Act will substitute the original return filed earlier and the claim made in the revised return resulting in losses cannot be brushed aside. It was contended that the view taken by the Assessing Officer that the loss return must be necessarily filed within time limit allowed under Section 139(1) as provided in S. 139(3), to enable the assessee to claim carry forward thereof, is misdirected in law as a consequence of misconstruction of the provisions of the Act.
The CIT(A) however did not find merit in the plea of the assessee and determined the issue against the assessee and consequently confirmed the action of the Assessing Officer. The CIT(A) reiterated the conclusion of the Assessing Officer that in order to be entitled to carry forward the losses, the return has to be necessarily filed within time limit prescribed under Section 139(1) of the Act. However, the loss in the instant case, has been claimed by filing revised return under Section 139(5) of the Act, beyond the time limit prescribed under Section 139(1).
7. Further aggrieved, the assessee preferred appeal before the Tribunal. The ld. counsel for the assessee broadly reiterated the submissions made before the lower authorities and contended that where the original return albeit has been filed on or before the due date under Section 139(1) of the Act, the assessee is entitled in law to revise the return under Section 139(5) of the Act within due date prescribed therein. The assessee in the instant case has filed the original return as well as the revised return within due date prescribed under Section 139(1) and Section 139(5) respectively. Thus, the loss arising on sale of shares claimed as Long Term Capital Loss is not hit by the embargo placed under Section 80 of the Act. The ld. counsel relied upon the judgments rendered in the case of Pr.CIT vs. Babubhai Ramanbhai Patel (2017) 84 taxman.com 32 (Guj.); Dharampur Sugar Mills Ltd. vs. CIT, 90 ITR 236 (Alld) and the decision of the Co-ordinate Bench rendered in Ramesh R. Shah Vs. ACIT, order dated 29.07.2011 to buttress the aforesaid proposition. The ld. Counsel thus submitted that the denial of carry forward of losses claimed in the revised return is opposed to the scheme of the Act as interpreted by the judicial dicta and hence requires to be reversed and the claim made towards Long Term Capital Losses by way of revised return requires to be admitted and the loss be directed to be carry forward for set off in accordance with law against the income arising in the subsequent assessment years.
The ld. CIT-DR on the other hand strongly relied upon the assessment order and the first appellate order. The ld. CIT-DR submitted that the loss return under Section 139(3) must be necessarily filed within the due date prescribed under Section 139(1) of the Act to avoid the rigors of Section 80 of the Act. In the instant case, the assessee has not claimed the losses in the original return at all. The losses claimed has come into vogue by virtue of revised return which was filed subsequent to the due date prescribed under Section 139(1) of the Act and thus the revised return seeking to make a new claim giving rise to losses cannot be allowed in defiance of the provisions of the Act regardless of the fact that revised return has been filed within the due date prescribed under Section 139(5) of the Act.
8.1. The ld. CIT-DR next submitted that the claim of capital loss has been made for the first time in the revised return and it is not a case where the claim of loss made in the original return has been modified in the revised return. The ld. CIT-DR referred to and relied upon the following decisions to support the addition of the Revenue.
• Karnataka Forest Development Corp. Ltd. vs. CIT, 23 taxmann.com 314 (Bang ITAT) • Prima Agro Ltd. vs. CIT, 21 taxmann.com 527 (Kerala High Court) • Smt. Jawahar Kanungo vs. ITO, 1 SOT 254 (Mum ITAT) • CIT vs. Alok Enterprises, 266 ITR 399 (SC)
8.2 The Ld. CIT(DR) thereafter averted to the observations made in the assessment order that the such a huge loss was claimed for the first time by way of revised return and there is no reference to the loss in the original ROI or in the profit and loss account. It was contended that it is unbelievable that such a loss has been incurred which is omitted to be reported in the profit and loss account. It was thus contended that such omission to claim the loss in the original return is prima facie willful to evade the transactions from the knowledge of the deptt. and thus the benefit of the claim of loss claimed by filing revised return should not be granted to the assessee. The Ld. DR thereafter submitted that when the shares have sold and loss is caused to the assessee, it is unfathomable that corresponding loss / profit will not be displayed anywhere. It is not understandable as to how the mismatch by non-reporting of loss has not surfaced in the financial statement prepared and how the Statutory Auditor has not detected such huge mismatch. The Ld. CIT-DR thus submitted that the issue needs to be looked into holistically having regard to such tell tale facts. The Ld. CIT(DR) thus submitted that the benefit of capital loss claimed in the revised ROI has been rightly denied by the lower authorities and thus no interference therewith is called for.
We have carefully considered the rival submission. The moot question in the present case is whether the assessee is entitled in law to make an altogether new claim of capital losses in the revised return which is filed within the due date prescribed under Section 139(5) of the Act but subsequent to the due date prescribed under Section 139(1) of the Act and consequently whether the assessee is entitled to carry forward such capital losses claimed in the revised return. The other integral issue is whether the loss claimed in the revised return meets requirement of S. 139(5) of the Act in the facts of the case.
9.1 As noted above, the facts of the case are quite peculiar. The assessee, in the instant case, filed return declaring income of Rs. 4,17,005/- but choose not to claim substantial amount of capital loss of Rs.206,25,53,801/- in the original return of income filed under Section 139(1) of the Act. The loss was not reflected in the audited profit & loss account of the Assessee either. The case of the assessee was subjected to scrutiny and some inquiries were initiated by the Investigation Wing Delhi. In the course of the scrutiny assessment, the assessee filed revised return under S. 139(5) after a lapse of nearly 17 months and put forward a claim towards incurring staggering Long Term Capital Loss(LTCL) of Rs. 206.25 cr. and also claimed a carry forward thereof for set off against the income that may arise in the subsequent assessment years. The Assessing Officer denied the claim of such capital losses while framing assessment. The AO observed that the return claiming the carry forward of losses must be filed within the due date prescribed under Section 139(1) of the Act to claim the benefit of carry forward and set off of losses in terms of Sections 72, 73, 73A and 74 of the Act. It was observed that Section 80 r.w. Section 139(1) and 139(3) of the Act, the return filed under Section 139(5) making new claim towards losses thus does not stand on the same pedestal as the losses claimed in the return filed under Section 139(1) of the Act. The AO concluded that in view of S. 139(3), the capital loss can not be carried forward unless the return showing such loss is filed under S. 139(5) of the Act, whereas the Assessee has not claimed such loss in the ROI filed under S. 139(1) of the Act and made an altogether fresh claim toward capital losses in the revised ROI filed under S. 139(5) of the Act. A reference was made to Section 80 of the Act which postulates that such loss cannot be carried forward unless determined under S. 139(3) which section in turn refers to S. 139(1) of the Act. In essence, the AO held that the belated claim of capital losses in the revised return is not permissible to be carried forward under S. 74 of the Act. The CIT(A) endorsed the action of the AO without any demur.
9.2 In this backdrop, before we proceed to deal with the issue, it may be relevant to capsulate the provisions relevant for determining the issue. Section 139(1) postulates that the assessee is required to furnish a return of income on or before the due date for the previous year in the form prescribed and duly verified by the assessee. Section 139(3) prescribes that if an assessee has sustained a loss in any previous year under the head ‘profits and gains of business or profession’ or under the head ‘capital gains’ claimed that such losses or any part thereof should be carry forward for set off under Sections 72 to 74A, he is under obligation to furnish the return within the time allowed under Section 139(1) of the Act. Section 139(5) on the other hand deals with revised return and states that if any person having furnished a return under Section 139(1) or sub section 4 of the Act 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. Section 80 which begins with non-obstante clause, unequivocally lays down that to get the benefit of carry forward of loss pertaining to Capital Gains, the return of loss has to be filed within the time allowed under S. 139(1).
Thus, a bare reading of these provisions gives an infallible impression that to be entitled to carry forward the business loss or capital loss, the assessee is required to file the return under Section 139(1) of the Act. Section 80 of the Act by a non obstante clause prohibits claim of carry forward of such losses unless determined under S. 139(3) of the Act. Section 139(3) in turn, makes the mandate of the law clear that the loss return must be filed within time limit permissible under s. 139(1) of the Act. The revision of return under S. 139(5) is also circumscribed by expression discovers any omission or any wrong statement in the original return.
In the instant case, the original return filed under S. 139(1) does not make reference to existence of any capital loss at all. The loss has been claimed for the first time in the revised ROI beyond the time limit prescribed under S. 139(1) of the Act. The provision of S. 80 thus comes into play. The law codified thus is plain and concrete and does not admit of any ambiguity. The revenue authorities, in our view, have thus rightly held that the capital loss claimed beyond the time limit under S. 139(1) thus can not be carried forward under S. 74 of the Act in the factual matrix. We do not find any reason to think differently.
11. At this juncture, we also take note of the the judgment of the Hon’ble Allahabad High Court in Dhampur Sugar Mills Ltd. (supra) referred on behalf of the Assessee. However in that case, the Hon’ble Allahabad High Court itself observed as under:
“There is a distinction between a revised return and a correction of the return. If the assessee files some application for correcting a return already filed or making amends therein, it would not mean that he has filed a revised return. It will still retain the character of an original return, but once a revised return is filed, the original return must be taken to have been withdrawal and to have been substituted by a fresh return for the purpose of assessment. The same view has been taken in Gopaldas Parshottamdas v. Commissioner of Income Tax.” Thus, a case before the Hon’ble Allahabad High Court was quite different. It merely says that the earlier return after filing a revised return cannot form the basis of the assessment. Also a mere correction of return without filing a revised return will not tantamount to withdrawal of the original return and its substitution of a fresh return. In the instant case, an altogether fresh claim of capital loss has been made in the revised return filed beyond 139(1) time limit. It is not a case of mere correction or modification in the existing claim of capital loss. The capital loss claimed when seen qua revised return filed under s. 139(5), the claim of carry forward thereof, clearly does not pass the muster of law.
A reference has also been made to the judgment of Hon’ble Gujarat High Court in PCIT vs. Babubhai Ramanbhai Patel (supra). On a reading of the judgment, it is gathered that the reference has been made to Sections 139(1), 139(3) and 139(5) only while granting relief to the assessee for raising claim for carry forward of speculation loss made by way of revised return but not raised in the original return. Significantly, Section 80 of the Act which seeks to place statutory embargo upon the assessee for eligibility of carry forward of losses raised beyond the due date under S. 139(1) has not been presented for the consideration of the Hon’ble High Court at all. Thus, the reliance upon such judgment rendered without reference to Section 80 of the Act, which is pivotal to the controversy, is of no moment and the observations made therein cannot be applied in the facts of the case.
We thus see no error in the action of the revenue in denial of carry-forward of capital losses claimed in the revised return.
There is another aspect to the matter. As noted, Section 139(5) permits an assessee to file a revised return only if he discovers any omission or any wrong statement in the original return filed by him.
14.1 On facts, it is clearly discernible from the records that the impugned capital loss was not reported in the audited financial statement at all. The profit & loss account does not make any reference to such loss at all. It is not known as to how the loss has been accounted for in the books. In the course of hearing, a specific question was put to the Ld. Counsel of the assessee on this aspect to which he drew blank. The Ld. Counsel merely referred to comparative Investment figure. No bank statement was submitted for perusal of the bench to understand the transactions resulting in such huge losses. The loss claimed to have resulted but not reported appears incomprehensible from the perspective of rudimentary principles of accounting. Even the basic details of nature of capital loss and how such loss has been determined are not placed despite pointed query. To reiterate, how and where the accounting entries in this regard has been made in the financial statement is totally unknown. How an inadvertent omission to account for such whopping losses has resulted, is not answered despite specific opportunity. The propriety of such capital loss itself is thus under cloud. In the circumstances noted above, it is quite difficult to affirm that the omission or wrongful statement in the original return towards such colossal loss is sheer inadvertence and not deliberate or willful. Such claim of loss in the revised return without showing inadvertence even at the stage of second appeal thus has been rightly denied.
14.2 A reference to the judgment rendered in the case of Kumar Jagdish Chandra Sinha vs. CIT 220 ITR 67(SC) is quite apt to the facts of the case where was held that revised return can not be filed to cover up deliberate omission etc. in the original return. Thus, from this perspective also, phraseology of S. 139(5) does not permit claim of capital loss by way of a revised return. The claim of the Assessee towards incurring impugned capital losss and carry-forward thereof fails on this count too.
At this juncture, we may hasten to add that Section 254 of the Act defines the powers of the Tribunal in widest possible terms. Where it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason to prevent assessee from raising grievance before the Tribunal in this regard. In the similar vain, the ITAT is under solemn duty to set the facts right and in perspective to determine the correct position of taxability on a given issue. The nature of transactions undertaken and method of accounting thereof, transfer of funds in this connection etc. giving rise to so called capital losses is integral to determine the issue with reference to s. 139(5) of the Act. The ITAT can venture into examination of such an integrally connected critical aspect of the matter to determine the character of transactions as well as quantification of loss. This view is fortified by the decision of the Hon’ble Karnataka High Court in the case of Fidelity Business services India Pvt. Ltd. vs. ACIT (2018) 95 taxmann.com 253 (Kar.). Similar view has been expressed by the Hon’ble Delhi High Court in the case of CIT vs. Jansampark Advertising and Marketing Pvt. Ltd. (2015) 56 taxmann.com 286 (Del.). The Hon’ble Delhi High Court in this case observed that where the AO failed to discharge its obligation to conduct a proper inquiry to take the matter to logical conclusion, it is also the obligation of the first appellate authority and indeed that of ITAT to have ensured that effective inquiry is carried out on the subject matter of appeal. Likewise, the Hon’ble Bombay High Court in ITO (TDS) vs. Thyrocare Technology Ltd. (Bom) Income Tax Appeal No.53 of 2016 & Ors. judgment dated 11.09.2017 also similarly observed that once the Tribunal was obliged in law to examine the matter and re-appreciate all the factual materials, then it should have performed that duty satisfactorily and in terms of powers conferred by law. The Aurangabad Bench of the Hon’ble Bombay High Court in the case of CIT vs. Chalisgaon People’s Co-op. Bank Ltd. (Tax Appeal No. 31 of 2005 & Ors. judgment dated 23.03.2015) has also underlined the need for appropriate enquiry on the factual aspects to determine the issue. It observed that it was obligatory on the part of fact finding authorities to make inquiry and arrive at a finding.
15.2 The Assessee has failed to furnish any explanation whatsoever on the nature and character of transactions resulting in such capital loss. An unsubstantiated and uncorroborated claim is thus, in any case, untenable in law. Hence, on this score too, the claim does not meet the ingredients of provisions of S. 139(5) of the Act.
Ground No.1 of the appeal of the assessee is thus dismissed.
Grounds No.2 and 3 of the appeal of the assessee concerns disallowance of interest/financial charges to the extent amounting to Rs.26,44,176/-. In the course of the assessment, the Assessing Officer inter alia noticed that the assessee has earned interest income on fixed deposits with ICICI bank to the tune of Rs.31,85,254/- and claimed interest expenditure amounting to Rs.26,03,379/- arising from loans. The net interest income of Rs.5,41,078/- was declared under the head ‘income from other sources’. The Assessing Officer denied the adjustment of interest expenses against the interest income earned on fixed deposits on the ground that interest expenses have not been incurred wholly and exclusively for the purposes of earning the interest on fixed deposits as provided under Section 57 of the Act. The Assessing Officer inter alia observed that the cash flow statement furnished by the assessee proves that interest expenses were incurred for the loans taken by it which was utilized for making investment in shares of NDTV Ltd. and hence it has nothing to do with the earning of interest income which was earned subsequently on fixed deposits made out of sale proceeds by a part of investment in shares. The Assessing Officer thus added Rs. 26,44,176/- to the total income of the assessee.
In the first appeal, the CIT(A) noted distinction between the scope of Section 57(iii) vis-à-vis Section 37(1) of the Act and found the action of the Assessing Officer to be in conformity with the provisions of the Act. The CIT(A) thus denied any relief to the assessee on this score. 19. Before the Tribunal, the ld. counsel has merely reiterated its contentions placed before the lower authorities without showing any nexus between the interest earned and corresponding interest expenditure as observed. The Revenue on the other hand has clearly recorded a finding of fact that the interest expenditure has not given rise to the corresponding interest income. The interest income has arisen independently out of fixed deposits fixed with bank, the source of which in turn is sale of investments. The interest expenditure on the other hand has been incurred on borrowers utilized for investment in acquisition of shares of NDTV Ltd. Thus, apparently the assessee has failed to discharge the onus which lays upon it to show that incurring of expenditure has resulted in corresponding income taxable under the head ‘income from other sources’. In the absence of any live nexus between the expenditure and the corresponding income, the Revenue Authorities have rightly disallowed the claim of interest expenses having regard to the narrower scope of deductions eligible under Section 57(iii) of the Act. We thus decline to interfere with the action of the Assessing Officer and the First Appellate Authority.
In the result, Grounds No.2 and 3 of the appeal of the assessee are dismissed.
In the result, the appeal of the Assessee is dismissed.
Order pronounced in the open Court on 22 /06/2023.