Assessee allowed to file revised return under section 139(5) correcting income classification error within stipulated timeframe

The ITAT Chandigarh allowed the assessee's appeal for statistical purposes regarding disallowance of interest expenditure under section 57. The assessee had wrongly claimed interest on borrowed capital under "income from other sources" instead of "business income" in the original return filed under section 139(4). The ITAT held that revised returns can be filed within one year from assessment year end or before assessment completion, whichever is earlier, as per section 139(5) amended by Finance Act 2016. Since the assessee had properly revised the return within the stipulated timeframe correcting the classification error, the revised return should be considered. The matter was remanded to CIT(A) for fresh decision after providing reasonable opportunity to the assessee, as the original decision lacked proper examination of facts.

---

---

Issues:
Appeal against disallowance of expenditure on interest paid on borrowed capital under section 57 of the Income Tax Act, erroneous claim of deduction under the wrong head, misinterpretation of Section 139(5) of the Income Tax Act, excessive addition to total income, and treatment of revised return as infructuous.

Analysis:
The assessee filed an appeal against the order of the Ld. CIT(A) pertaining to Assessment Year 2017-18, challenging the disallowance of expenditure on interest paid on borrowed capital under section 57. The AO disallowed the deduction as the original return was filed under Sub Section (4) to Section 139, and the revised return claiming the deduction under the correct head was filed under Sub Section (5) of Section 139. The AO considered the revised return infructuous, leading to an addition of Rs. 27,47,508 to the taxable income.

The Ld. CIT(A) upheld the AO's decision, stating that a belated return cannot be revised, and expenses to earn exempt income cannot be allowed. The assessee argued that the return was revised before the completion of assessment, as allowed under Section 139(5) post-amendment by the Finance Act, 2016. The Ld. CIT(A) failed to consider this amendment, leading to an incorrect decision. The assessee requested a fair opportunity to contest the findings.

Upon hearing the contentions, the Tribunal noted that the return filed under section 139(4) could be revised as per the amended Section 139(5) applicable for A.Y. 2017-18. The revised return was filed within the stipulated timeframe, correcting the erroneous claim under section 57. As the Ld. CIT(A) did not provide a fair opportunity to the assessee and decided the matter without thorough examination, the Tribunal set aside the decision and remanded the case to the Ld. CIT(A) for a fresh decision after affording a reasonable opportunity to the assessee.

In conclusion, the appeal of the assessee was allowed for statistical purposes, emphasizing the importance of considering the revised return and providing a fair opportunity for examination before making a decision.

---