Rural Infrastructure Tax & Dead Rent Disallowance u/s 43B: ITAT Remands to AO for Fresh Verification of Legitimacy and Correctness [Read Order]

The Jabalpur bench of Income Tax Appellate Tribunal (ITAT) remanded the matter relating to statutory disallowances under section 43B to AO for fresh verification on the grounds of legitimacy and correctness.

In the assessment year 2017-18, the assessee M/s RPJ Minerals Private Limited filed a return of income showing a total loss of Rs 29,97,675/-. The AO observed that during this assessment year, the business of the assessee had not been set up, and it was still at the implementation stage.

Therefore, for the year under consideration, the company did not perform any operational activities. During the relevant financial year, the assessee earned interest from a temporary short-term deposit with a scheduled bank.

The AO asked the assessee to show cause as to why the interest of Rs. 14,21,215/- earned on fixed deposits should not be assessed as income from other sources. The assessee once again submitted that the deposits continued to form part of the funds required for the implementation of the project.

They were not spare or surplus funds. The purpose of making the short-term deposits was to make efficient use of the project capital and thereby to reduce the cost of the project to the extent possible.

Since the funds deployed in the short-term deposit continued to be inextricably linked with the mining development project, the interest earned therefrom was on the capital account and had been rightly adjusted against capital work in progress.

The AO made one more addition. He noted that the assessee had not made payment of statutory dues of Rs. 25,41,229/- of the F.Y. 2016-17, before the due date of the filing of the income tax return. He, therefore, asked the assessee to show cause as to why the same should not be added back to the income of the assessee and upon receiving a reply which suggested that TDS of Rs. 50,0000/- has been deposited before the due date of the filing of the return, he gave relief for the same and added back an amount of Rs. 24,91,229/- under section 43B of the Act.

Aggrieved with the said addition, the assessee took note of the matter to the CIT(A). The CIT(A) did not decide on either of the two issues in which the assessee went on appeal. The assessee is aggrieved against the failure of the ld. CIT(A) to decide on either matter and on his failure to delete the additions made by the AO.

It was observed by the Tribunal that, In the assessment year 2017-18, it is observed that the CIT(A) has sustained the addition amounts of Rs.23,01,000/- relating to Rural Infrastructure Tax paid before the due date of submission of return and also not addressed the assessee’s explanation, that Dead Rent of Rs.1,56,603/- was not a part of statutory dues or an expenditure like tax, duty, cess or fee to which the provisions of section 43B of the Income Tax Act may apply. The CIT(A) has refused to delete the addition of Rs . 23,01,000/-, because no evidence had been furnished before him in this regard.

Accordingly, the two member bench comprising Kul Bharat (Vice President) and Nikhil Choudhary (Accountant Member) held to restore the matter back to the file of the AO so that the assessee may furnish the necessary evidence in this regard.

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