2023 (6) TMI 1067 - AT - Income Tax

Altogether new claim of capital losses in the revised return - Return filed within the due date prescribed u/s 139(5) but subsequent to the due date prescribed u/s 139(1) - whether the assessee is entitled to carry forward such capital losses claimed in the revised return? - Whether the loss claimed in the revised return meets requirement of S. 139(5)? - HELD THAT - To be entitled to carry forward the business loss or capital loss the assessee is required to file the return u/s 139(1) - Section 80 by a non obstante clause prohibits claim of carry forward of such losses unless determined u/s 139(3) - Section 139(3) in turn makes the mandate of the law clear that the loss return must be filed within time limit permissible u/s 139(1) - The revision of return u/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 u/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) - 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 u/s 139(1) thus can not be carried forward u/s 74 of the Act in the factual matrix. We do not find any reason to think differently. 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. No error in the action of the revenue in denial of carry-forward of capital losses claimed in the revised return. Whether 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? - 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. 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. A reference to case of Kumar Jagdish Chandra Sinha 1996 (4) TMI 5 - SUPREME COURT 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 loss and carry-forward thereof fails on this count too. 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. Appeal of the assessee dismissed. Disallowance of interest/financial charges - As per AO 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 - HELD THAT - 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 u/s 57(iii) - We thus decline to interfere with the action of the Assessing Officer and the First Appellate Authority.

Summary

Issues Involved:
1. Eligibility of Long Term Capital Loss (LTCL) on sale of shares claimed in the revised return.
2. Disallowance of interest/financial charges incurred for acquiring shares.

Summary:

Issue 1: Eligibility of Long Term Capital Loss (LTCL) on Sale of Shares Claimed in the Revised Return

The Assessee, an Investment Holding Company, filed its original return under Section 139(1) of the Income Tax Act, 1961, without claiming any Long Term Capital Loss (LTCL). After scrutiny and inquiries by the Investigation Wing, the Assessee filed a revised return under Section 139(5) claiming LTCL of Rs. 206.25 crore. The Assessing Officer (AO) deemed the revised return invalid, referencing Sections 80, 139(3), and other provisions, and denied the carry forward of the LTCL for set-off against future income.

The CIT(A) upheld the AO's decision, reiterating that the return claiming losses must be filed within the time allowed under Section 139(1) to be eligible for carry forward. The Tribunal noted that the Assessee's original return did not mention any capital loss and that the loss was claimed for the first time in the revised return filed beyond the time limit prescribed under Section 139(1). The Tribunal concluded that the provisions of Section 80, which prohibit the carry forward of losses unless determined under Section 139(3), were applicable. The Tribunal also highlighted that the revised return did not meet the criteria of Section 139(5), which allows revisions only for omissions or wrong statements in the original return. The Tribunal dismissed the Assessee's appeal, stating that the claim of LTCL in the revised return was not permissible for carry forward under Section 74 of the Act.

Issue 2: Disallowance of Interest/Financial Charges Incurred for Acquiring Shares

The AO observed that the Assessee earned interest income on fixed deposits and claimed interest expenses on loans used for acquiring shares. The AO denied the adjustment of interest expenses against the interest income, stating that the expenses were not incurred wholly and exclusively for earning the interest on fixed deposits as required under Section 57 of the Act. The CIT(A) upheld the AO's decision, noting the distinction between Section 57(iii) and Section 37(1) of the Act. The Tribunal found that the Assessee failed to show any nexus between the interest earned and the corresponding interest expenditure. The Tribunal upheld the disallowance of interest expenses, agreeing with the Revenue Authorities that the interest expenditure did not result in the corresponding interest income and thus was not deductible under Section 57(iii).

Conclusion:

The appeal of the Assessee was dismissed in its entirety, with the Tribunal affirming the decisions of the lower authorities on both issues.

Order pronounced in the open Court on 22/06/2023.