2017 (2) TMI 994 - AT - Income Tax

Tribunal allows 'funded interest paid' claim under Section 154 pending application timeline verification.

The Tribunal directed the Assessing Officer to reexamine the record to verify if the application for rectification was made within the statutory period. ... Rectification of mistake - claim of ‘funded interest paid’ under the provisions of Section 43B, invoking Explanation 3C - Held that:- We are unable to understand why and how this does not fall under the category of mistake apparent from record. Assessee has indeed made a claim after amendment of the Act. Consequently, to that extent, one has to consider that the claim was properly made. The Board Circular No. 68 dt. 17-11-1971 clarifies that where an assessee moves an application u/s. 154 pointing out that a mistake had occurred in any of the completed assessments. Keeping that in mind the application could have acted upon, provided the same has been filed within the time and is otherwise in order. Even when application was originally rejected, the said circular allows a fresh application to consider. Like-wise, Circular No. 73 dt. 17-01-1972 empowers the officer that in all cases where a valid application under clause B of sub-section 2 of Section 154 had been filed by assessee within the statutory limit but was not disposed-off within the time limit specified under sub-section 7 of Section 154, it may be disposedoff by that authority even after expiry of the statutory time limit on merits and in accordance with law. Keeping the above circulars in view, we are of the opinion that assessee’s claim is an allowable claim, if the claim for rectification was made as per the time limits prescribed in Section 154. AO made a reference to company’s letter dt. 04-03-2010 in the order u/s. 154. The order also does not mention when the return was processed u/s. 143(1). Moreover, the enclosures to the appeal indicate that application u/s. 154 has been filed on 25-02-2009. If this date is taken, the application may be well within the statutory period. However, neither the AO nor the CIT(A) has examined whether the application was made within the statutory period of four years from the date of order sought to be amended, as per Section 154(7). The CIT(A) stated that application was made after six years. How the period was counted was not specified. The starting point should be the order, which is sought to be amended. Since there is no clarity on this point, we direct the AO to examine the record and if the application is made within the statutory period then, assessee’s claim should be allowed u/s 154 of the Act. - Decided in favour of assessee for statistical purposes Issues:Claim of 'funded interest paid' under Section 43B, invoking Explanation 3C.Detailed Analysis:Issue 1: Claim of 'funded interest paid' under Section 43B, invoking Explanation 3CThe appeal was against the rejection of the application under Section 154 of the Income Tax Act by the Assessing Officer (AO). The issue revolved around the claim of 'funded interest paid' under Section 43B, invoking Explanation 3C. The assessee filed a return of income for AY 2004-05 initially declaring total income as NIL. Later, a revised return was filed, including an interest amount and seeking allowance of an interest portion of a loan funded during the year. The AO rejected the application, citing the principles laid down by the Supreme Court in a specific case. The Commissioner of Income Tax (Appeals) also rejected the claim, stating that the funded interest paid was not a mistake apparent from the record.Issue 1 Analysis:The key contention was whether the claim of 'funded interest paid' falls under the purview of Section 43B and Explanation 3C. The Finance Act, 2006 introduced Explanation 3C, clarifying that a deduction for interest payable shall be allowed only when the interest has been actually paid. The assessee paid the interest before the due date of filing the return but did not claim it initially. The AO and CIT(A) acknowledged that the assessee was eligible for deduction but rejected the claim on technical grounds. The Tribunal emphasized that the claim made after the retrospective amendment should be considered, as per relevant circulars guiding rectification applications.Issue 1 Conclusion:The Tribunal directed the AO to reexamine the record to verify if the application for rectification was made within the statutory period, as required by Section 154(7) of the Act. If the application falls within the prescribed timeframe, the assessee's claim for 'funded interest paid' should be allowed under Section 154. The appeal of the assessee was allowed for statistical purposes, pending verification of the application timeline.This detailed analysis provides a comprehensive understanding of the judgment, focusing on the specific issue of the claim of 'funded interest paid' under Section 43B, invoking Explanation 3C.