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TMI Blog2012 (7) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... n or wrong statement in the original return of income. It is submitted that the revised return was as per provisions of section 139(5) of the Act and was a valid return. It is submitted that it be so held now. 2. The learned Commissioner of Income Tax (Appeals) erred in considering the service charges of Rs.44995181/- as income of the year under consideration. It is submitted that the CIT(A) ought to have excluded the same on principle of real income as only real income can be axed. It is submitted that it be so held now. 3. The learned Commissioner of Income Tax (Appeals) erred in not directing the assessing officer to exclude the service charges of Rs.44995181/- from the income of A.Y 2005-06. It is submitted that as the income is taxed in the year under consideration it ought to be excluded from the income of A.Y. 2005-06. It is submitted that it be so held now." 2. In Revenue's appeal the brief facts as arising from the AO's order at page-6 to 10 which are reproduced as under:- "5. DISALLOWANCE U/S 14A: From the statement of accounts, it was observed that the assessee has obtained unsecured government loans of Rs.384.95 crores and paid interest of Rs.6,62,50,000/- on this a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Rs.306.57 crores Less: Provision for NPA Rs. 10.79 crores Investments as per the balance sheet Rs295.79 crores We would like to sate that majority of the investments are made before 1997-98. In those years deductions were claimed u/s.80M of the Act. Assessing Officer has disallowed the interest expenses incurred for the earning the dividend and allowed the deduction u/s.80M on the net dividend income received. In all the assessment years learned CIT(A) and up to A.Y. 196-97 ITAT has deleted the disallowance made and allowed the deduction u/s.80M on the gross dividend income received.' 5.2 The assessee's submission and justification made in respect of the proposed disallowance u/s.14A was considered in the light of the facts and circumstances involved and also the legal provisions of section 80M and section 14A of IT Act. After taking a holistic view of the above referred aspects, it is found that the assessee's contention is devoid of legal and factual grounds, therefore, the same is not acceptable for the following reasons: i) Regarding the relevance of the CIT(A)'s decision, as relied upon by the assessee, it is felt that the same is not applicable in the instant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce between interest paid to the banks and interest recovered from the directors ... ..." 5.3 In view of the above discussion and also after considering the assessee's explanation, it is held that the stand taken by the assessee is not tenable and acceptable even on prima facie ground. In this regard, reliance is also placed on the decision of honourable ITAT Mumbai Bench 'SMC' in the case of ACIT Vs. Dakshesh S Shah (2004) (90 ITD 519) - A.Y. 98-99. The gist of the decision is reproduced as under: The assessee made investment in shares by obtaining borrowed loans. During assessment proceedings, the assessee claimed deduction apparently u/s.57(iii) in respect of interest paid on such borrowed funds. The AO noticed that dividend income was exempt from tax in the hands of the receiver, as per the provisions of section 10(33) rws 115(o). The AO held that since the income was exempt from tax, expenditure incurred for earning of such income could not be allowed. On appeal, the Commissioner (Appeals) allowed deduction. On appeal by the revenue: HELD Chapter IV, provides five heads of income, the first four being specific heads of income, whereas the fifth one is residuary in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion was concerned, the contention of the assessee was academic. Under the circumstances, the order of the Commissioner (Appeals) was reversed and the order of the AO was upheld. 5.4 After considering all the fact and circumstances and Court's decision as narrated above, it is concluded that the provision of section 14A in respect of investment in equity shares is squarely applicable in the assessee's case. Accordingly the proposed disallowance on account of diversion of interest bearing fund towards investment having no taxable return in the form of equity shares has been worked out as below: i) Investment in equity shares Rs.2,95,78,48,555 ii) Rate of interest (approximately) 10% iii) Total proposed disallowance Rs.29,57,84,855 5.5 Considering the fact that the assessee has actually incurred the interest expenditure of Rs.6,62,50,000/- only, therefore, the proposed disallowance u/s.14A of IT Act is also restricted to the actual expenditure on this account. In view of the above, the assessee's loss is reduced to the extent of Rs.6,62,50,000/-." The Ld. CIT(A) vide para-6.3, 6.3.1 and 6.3.2 observes as under:- "6.3 The matter has been given due consideration and I am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- is not justified and hence deleted." 3. The Ld. CIT-DR Shri Alok Johri argued that the deduction u/s.80M was relevant in the present case up to the assessment year 1997-98, when the provisions of Section 14A were not brought into statute. The provisions of Section 14A were brought into statute by the Finance Act, 2001 with effect from 1-4-2001 and the relevant for the assessment year 2001-02 and thereafter. Therefore the decision of ITAT Ahmedabad Bench in the case of assessee cannot be the basis for deleting the disallowance of expenditure in the impugned year. Mr. Johri relied upon the judgment of Hon'ble Bombay High Court in the case of Godrej And Boyce Mfg. Co. Ltd. v. DCIT (2010) 328 ITR 81 (Bom) and argued that proportionate disallowance of the expenditure has rightly been made by the Assessing Officer. 4. On the other hand Learned Counsel for the assessee, Shri Sanjay R Shah invited our attention at page-6 of assessment order when the investment before assessment year 1997-98 was at Rs.2975 crores. The assessee made the investment for the purpose of business out of borrowed funds and therefore the deduction u/s.80M was allowable in the earlier years. Moreover, the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:- "3.VALIDITY OF REVISED RETURN: As discussed above, the assessee had filed a revised return u/s.139(5) of the I.T. Act while increasing its total loss by Rs.4,49,95,181/- in comparison to the loss shown in the original return of income. Vide this office letter dated 19/7/06, the assessee was asked to justify the act of revising their loss u/s.139(5) of I.T. Act. The assessee explained its position vide their letter dated 21/11/06 as under: 'Government of Gujarat ("GOG") has floated sales tax deferment scheme for the facilitation of the industrial units who want the benefit of the Sales tax Incentive Schemes in the sate of Gujarat. The arrangement was decided to treat the deferred amount of sales tax as deemed loan and in lieu thereof and such units were required to furnish first charge / pari passu charge in favours of GIIC/GSFC/Sales Tax Department as decided by the GOG. Hence, GIIC was the nodal agency for the scheme. During the year provision was made for receipt of service charges for the above referred fee based activity addition income was accounted for and offered to tax while filing original return of income. However, afterwards it was found out that GOG vide its GR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequently discover at a later stage. While the word "omission" denotes an unintentional act and the phrase "wrong statement" includes within its scope a statement which is not false to the knowledge of the assessee. Similarly the word 'discover' has a special connotation as it specifies that the omission/wrong statement should be hidden/concealed and unintentional at the time of filing the original return. In other words the genesis of filing the revised return should be in existence or a prevailing factor while the computation of income was made and the original return of income was filed. Conversely if a revised return is filed on the basis of factor/event when was not in existence at the time of filing original return and occurred subsequent to the date of filing of return, the same cannot be made basis of invoking the provision of sectioon139(5) of the I.T. Act, while giving retrospective effect to such development." 7. The Ld. CIT(A) confirmed the action of Assessing Officer. 8. Ld. counsel for the assessee, Shri Sanjay R Shah argued that event occurring after the date of balance-sheet which is audited can be taken into consideration while revising the return income. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return further loss is also increased, there cannot be any bar in revising the return, if there is an omission or wrong statement found by the assessee in the return of income originally filed u/s.139(1) of the Act. In the present case before the expiry of the limitation to file the revised return, the assessee had discovered that no income had accrued to the assessee and accordingly the return had been revised for the reasons of withdrawal of the scheme by the Government. The action of the assessee in revising the return on principle of real income cannot be said to be false or against the provisions contained in Section 139(5) of the Act, in view of the facts and circumstances and the decisions of various courts of law relied upon by the assessee hereinabove. We accordingly reverse the order of Ld. CIT(A) and direct the Assessing Officer to accept the revised return filed u/s.139(5) of the Act. Thus, the ground No.1 of the assessee is allowed. 11. As regards grounds No.2 and 3 the Ld. CIT(A) vide para-4.3.1 to 4.3.3 observed as under:- "4.3.1 Without prejudice to this aspect, even on the principle of real income, the fact that the appellant was in receipt of the money conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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