2017 (4) TMI 1559 - AT - Income Tax

Tribunal decision: loss carry forward rejected, turnover recalculated, interest disallowance deleted

The ACIT, Circle 11 (4), Bangalore Versus M/s IDEB Projects Private Limited.

The ACIT, Circle 11 (4), Bangalore Versus M/s IDEB Projects Private Limited. - TMI Issues Involved1. Validity of the revised return filed under Section 139(5).2. Deletion of addition made by the AO on account of low contract revenue.3. Re-computation of disallowance under Rule 8D(2)(iii) of the IT rules.4. Deletion of disallowance of interest under Section 36(1)(iii).Detailed Analysis1. Validity of the Revised Return Filed Under Section 139(5):The Revenue argued that the revised return filed by the assessee should be treated as null and void, citing the case of Karnataka Forest Development Corp. Ltd. The Revenue contended that the assessee filed the original return under Section 139(1) but revised it to a loss return, which should only be permissible under Section 139(3). The Tribunal noted that the original return was filed within the time allowed under Section 139(1) and the revised return was filed within the time allowed under Section 139(5). The Tribunal held that the revised return is valid but rejected the carry forward of loss, noting that the assessee was not serious about it as the period of 8 years had expired.2. Deletion of Addition Made by the AO on Account of Low Contract Revenue:The Revenue challenged the deletion of an addition of Rs. 29,00,71,247 made by the AO due to low contract revenue. The Tribunal found that the reduction in turnover was only 6.96% and not 750% as claimed by the Revenue. The Tribunal restored the matter back to the AO for a fresh decision by way of a speaking order to determine the correct turnover for the year as per the Percentage of Completion Method (POCM) and AS-7, if applicable.3. Re-computation of Disallowance Under Rule 8D(2)(iii) of the IT Rules:The Revenue contended that the CIT(A) erred in directing the AO to recompute the disallowance under Rule 8D(2)(iii). The Tribunal found that the CIT(A) had correctly directed the AO to recompute the disallowance after considering the correct figures as per the balance sheet. The Tribunal upheld the CIT(A)'s direction on this issue.4. Deletion of Disallowance of Interest Under Section 36(1)(iii):The Revenue argued that the CIT(A) erred in deleting the disallowance of interest amounting to Rs. 23,25,95,267 under Section 36(1)(iii). The Tribunal noted that the assessee's own interest-free funds on both 31.03.2009 and 31.03.2008 were in excess of the interest-free advances given to sister concerns. Citing the Tribunal's earlier decision in the case of M/s Kems Auto Components Ltd. vs. DCIT and the judgment of the Hon'ble Bombay High Court in CIT vs. Reliance Utilities & Power Ltd., the Tribunal upheld the CIT(A)'s deletion of the disallowance.ConclusionThe Tribunal partly allowed the Revenue's appeal, validating the revised return but rejecting the carry forward of loss, and restored the issue of low contract revenue back to the AO for a fresh decision. The Tribunal upheld the CIT(A)'s directions regarding the re-computation of disallowance under Rule 8D(2)(iii) and the deletion of interest disallowance under Section 36(1)(iii).