INDUS VALLEY PARTNERS (INDIA) PRIVATE LIMITED,NOIDA V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 12(1), DELHI, DELHI

ITA 4758/DEL/2024

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Indus Valley Partners (India) Pvt. Ltd. appealed against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, which upheld the addition of INR 49,79,19,935 as undisclosed income under section 68 of the Income Tax Act, based on discrepancies between the revenue figures in the company's consolidated financial statements and its income tax return. The Tribunal found that the Assessing Officer incorrectly relied on the consolidated financial statements for tax assessment purposes, despite the company's standalone financial statements being audited and tax audited, and having a different revenue figure that excluded the subsidiaries' income. The Tribunal also addressed other grounds related to disallowances and additions made by the Assessing Officer, directing a re-evaluation where necessary.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705510 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH DAN RATNOO
• Assessee Lawyers: K.M. GUPTA
• Keywords: Business income; Opportunity of being heard; Revenue expenditure; Depreciation; Capital expenditure; Capital Gains; Rectification of order; Earning of tax free income
• Section: 142(1); 154; 68; 234B; 2

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘C’: NEW DELHI BEFORE SHRIS.RIFAUR RAHMAN, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.4758/DEL/2024 (Assessment Year: 2018-19) Indus Valley Partners (India) Pvt. Ltd., vs. DCIT, Circle 12 (1), SDF C – 7, 3rd Floor, Delhi. NSEZ, Phase – II, Noida – 201 305 (Uttar Pradesh). (PAN :AADCK5814C) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K.M. Gupta, Advocate REVENUE BY : Shri Kailash Dan Ratnoo, CIT DR Date of Hearing : 29.04.2025 Date of Order : 30.06.2025 O R D E R PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER : 1. This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 28.08.2024 for Assessment Year 2018-19 raising following grounds of appeal :- “1. That on the facts and circumstances of the case & in law, the Ld. AO has erred in assessing the income of the Appellant, at INR 94,69,56,429 as against the returned income of INR 40,21,77,760 under normal provisions of the Act. 2. On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in alleging that the Appellant has understated its income and making an addition of INR 49,79,19,935 under section 2 ITA No.4728/DEL/2024 68 read with section 115BBE of the Income Tax Act, 1961. In doing so, the Ld. AO erred in mechanically relying on the revenue figures of the consolidated financial statements and blatantly ignoring the standalone financial statements and clarifications submitted by appellant. 3.1 On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in confirming the action Ld. AO w.r.t. to the disallowance of INR 4,11,37,160 by not appreciating that the Appellant has INR 2,01,20,502 for software expenses and licensee fee and hence, made an excessive disallowance of repair and maintenance on building and others aggregating to INR 2,10,16,658. 3.2 On the facts and circumstances of the case & in law, the Ld. CIT(A)/ AO erred in treating the expenditure of INR 2,01,20,502 as a capital expenditure without appreciating that the same is in the re of license fee and upgradation of software. 4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in making an addition or INR 57,21,574 based on an erroneous assumption that the Appellant has claimed deduction towards Net Loss from Sale of Investments. 5. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in uploading ac ion of the Ld. AO in levying consequential interest under section 234B of the Act. 6. That the Ld. CIT(A) has erred in uploading the action of the Ld. AO in initiating the penalty proceedings under section 274 and 270A of the Act.” 2. Ground No.1 is general in nature, hence dismissed as such. 3. With regard to Ground Nos.2 and 3.1 & 3.2, the relevant facts are, assessee filed its return of income on 30.11.2018 declaring total income of Rs.40,21,77,760/-. The case was selected for scrutiny under CASS with the issues i.e. (i) refund claim, (ii) deduction claimed for industrial undertaking and (iii) expenses incurred for earning exempt income. Accordingly, notices under section 143(2) and 142(1) of the Income-tax Act, 1961 (for short ‘the Act’) were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted relevant information. 3 ITA No.4728/DEL/2024 4. During assessment proceedings, the Assessing Officer observed that assessee is in the business of computer and related services and software development. The papers and documents in relation to renewal of LOA received from Government of India, Ministry of Commerce and Industry, Department of Commerce, Noida Special Economic Zone vide letter dated 27.06.2016, Form No.56F relating to the claim by the exporter for deduction u/s 10A of the Act was issued and perused. The Assessing Officer observed from the ITR filed by the assessee in which ‘revenue from operations’ was mentioned as Rs.209,63,44,024/- and ‘other income’ is mentioned as Rs.8,61,76,493/- in Part A – Profit & Loss account, further observed that in the consolidated statement of Profit & Loss account for the year ending 31.03.2018 of annual report, the ‘revenue from operations’ is mentioned as Rs.259,36,62,735/- and ‘other income’ is mentioned as Rs.8,67,77,717/-. When the issue was raised during the proceedings and in response, the assessee submitted that to ignore the consolidated financial statement prepared as mandated under accounting standard in the case of presentation of financial statements of holding company. What is relevant is the statement prepared for the assessee on standalone basis for computation of income. After considering the submissions of the assessee, the Assessing Officer rejected the same and proceeded to make the addition of difference between revenue declared in the consolidated Profit & Loss account and revenue declared in ITR 6 as 4 ITA No.4728/DEL/2024 undisclosed income of the assessee to the extent of Rs.49,79,19,935/- u/s 68 of the Act. 5. Further the Assessing Officer observed that in the consolidated statement of Profit & Loss account under the head ‘other expenses’, the assessee has mentioned software expenses as zero whereas it has created a new head viz. ‘others (including facility and IT infrastructure)’ for an amount of Rs.4,11,37,160/- which was not found in earlier year’s financial statement. When the same was asked to the assessee to clarify, the Assessing Officer observed that assessee has not explained/clarified about the reasons for creation of such head of expenses and purpose of the same. He further observed that in the immediate preceding assessment year, disallowance was made on account of software expenses while observing that software purchase was capital in nature and not revenue. Since the assessee has created this new head i.e. ‘others (including facility and IT infrastructure)’ of Rs.4,11,37,160/- on the same expenses in order to divert its capital expenses and to claim the same as revenue. With the above observation, he treated the above software expenses as capital expenditure and proceeded to make the addition of Rs.4,11,37,160/-. 6. Further the Assessing Officer observed that assessee has claimed net loss from sale of investment which was worked out at Rs.57,21,574/- which is pertinent to FY 2016-17. When the assessee was asked to produce 5 ITA No.4728/DEL/2024 supporting documents, the assessee could not produce any supporting documents till the completion of the assessment. Accordingly, he rejected the claim of the assessee in absence of documentary evidences and proceeded to make the addition of Rs.57,21,574/- as income of the assessee. 7. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A). With regard to addition made by the Assessing Officer of Rs.49,79,19,935/- on account of under-statement of revenue from operations, ld. CIT (A) observed that this income was charged u/s 68 of the Act. Consequently, rectification order u/s 154 dated 17.03.2024 was passed, charging this income u/s 115BBE of the Act and accordingly, he proceeded to sustain the addition u/s 68 and charging of tax u/s 115BBE and accordingly dismissed this ground raised by the assessee. 8. Aggrieved with the above order, assessee preferred an appeal before us and made the detailed submissions and also filed case synopsis which read as under :- “8.6 It is submitted that only the Appellant’s audited standalone financial statements should be considered for the purpose of assessing its income. The Ld. AO’s reference to the consolidated financial statement for the purpose of reckoning of the revenue of the Appellant is completely unjust and blatantly incorrect. The Appellant’s submission with respect to the said matter is as under: (A) Legal and accounting basis for Consolidated Financial Statements 8.7 Section 129 of the Companies Act 2013 provides that where a company has one or more subsidiaries or associate company , it shall, in addition to standalone financial statements, prepare a consolidated financial statement of the company in the same form and manner as that of its own and in accordance with applicable accounting standards. 6 ITA No.4728/DEL/2024 8.8 Accordingly, the Appellant had prepared the consolidated financial statements in accordance with Accounting Standard 21 on ‘Consolidated Financial Statements’ prescribed under section 133 of the Companies Act, 2013. The extract of the objective mentioned in the Accounting Standard 21 is reproduced as under:- \"The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by apparent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary(ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.” (emphasis supplied by us) 8.9 The Appellant has two wholly owned foreign subsidiaries:  Indus Valley Partners Corporation incorporated Delaware, United States of America (IVP USA) and  Indus Valley Partners UK Limited (IVP UK) incorporated in the United Kingdom. 8.10 The consolidated financial statements comprise the financial statements of the Appellant and its subsidiaries (IVP USA and IVP UK), combined on a line-by-line basis by adding together the value of like items of assets, liabilities, income and expenses after eliminating intra-group balances and transactions. The aforesaid has also been mentioned in Note 2(b) of the consolidated financial statements. Hence, the revenue and the other income in the consolidated financial statements include income earned by both foreign subsidiaries. (B) Reconciliation of income as per standalone with consolidated financials 8.11 The Appellant submitted a reconciliation between standalone and consolidated financials, clearly demonstrating the additional income pertains to subsidiaries and is not part of IVP India’s books. Particulars Standalone Financial Statements Consolidated Financial Statements Difference Revenue from Operations 209,63,44,024 259,36,62,735 49,73,18,711 7 ITA No.4728/DEL/2024 A copy of the Standalone financial statements is enclosed at page 116 to 151 of the PAPER BOOK and consolidated financial statements is enclosed at Page 152 to 183 of the PB. 8.12 A further bifurcation of the revenue from operations and other income appearing in the consolidated financial statements is as under: Particulars Reference Revenue from Operations Other Income Total IVP India – Standalone (Page 116 to 151 of the PB) (A) 209,63,44,024 8,61,76,493 218,25,20,517 Add: IVP USA (B) (B) 187,18,90,853 6,01,224 187,24,92,077 IVP UK (C) - 16,61,123 16,61,123 Total (D=A+B+C) 396,82,34,877 8,84,38,839 405,66,73,717 Less: Inter-company transaction to be excluded on account of consolidation (E) (137,45,72,143 ) (16,61,123) (137,62,33,266 ) Amount appearing in IVP consolidated financial statements (Page 152 to 183 of the PB) (F=D-E) 259,36,62,735 8,67,77,717 268,04,40,452 Addition made by the Ld. AO (G=F-A) 49,73,18,711 601,224 49,79,19,935 (C) Unique CIN 8.13 The Ld. AO pointed out that the consolidated financial statements as well as the standalone financial statements have the same Corporate Identification Number (CIN) U72200DL2000PTC264692. 8.14 It is submitted that the consolidated financial statements are prepared by the parent company to provide the information about economic activities of the group. Since the presenter of the consolidated financial statements is the parent company, the unique CIN of the parent company is quoted on the consolidated financial statements. Other Income 8,61,76,493 8,67,77,717 6,01,224 Total 218,25,20,517 268,04,40,452 49,79,19,935 8 ITA No.4728/DEL/2024 8.15 Further, section 12(3)(c) of the Companies Act, 2013 provides as under: 12(3) Every company shall- (a)… (c) get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and (d)…. 8.16 In light of the above provision, the Appellant, being the parent company of IVP USA and IVP UK, has quoted its CIN on the consolidated financial statements. 8.17 The Appellant further submits that both the subsidiaries of the Appellant are foreign companies which are not allotted a unique CIN by the MCA. Hence, question of quoting of any other CIN on the consolidated financial statements does not arise. Since the standalone financial statements are also prepared by the appellant, it has quoted its CIN on such document as well. (D) Revenue reconciles with Tax Audit Report (‘TAR’) 8.19 It is submitted that the revenue from operations and other income of INR 2,09,63,44,024 and INR 8,61,76,493 respectively as per the standalone financial statements was also confirmed by the tax auditor of the Appellant in the TAR issued under section 44AB of the Act. A copy of the TAR is enclosed at Page 184 to 201 of the PB. 8.20 Attention of the Hon’ble Tribunal is invited to clause 40 of the TAR (at page 198 of the PB) wherein the total turnover of the Appellant is reported at INR 2,09,63,44,024. Further, the said amount is also matching with the amount of revenue reported in ROI for the year under consideration. (E) Revenue reconciles with Forms filed with the Registrar of Companies(‘RoC’) 8.21 Attention of your Honour is also invited to the forms filed by the Appellant with the Registrar of Companies (ROC) in compliance with the provisions of Companies Act, 2013. A copy of Annual Return of the Appellant filed in Form No.MGT-7 for FY 2017-18 relevant to AY 2018-19 is enclosed at page 202 to 216 of the PB. Reference may kindly be made to clause V of the Annual return wherein the turnover of the Appellant is reported at INR 9 ITA No.4728/DEL/2024 2,09,63,44,024 which is matching with the amount reported in the standalone financial statements, the TAR and the ROI. (F) Revenue reconciles with GSTR-9C 8.22 Attention is also invited to GST returns filed by the Appellant in Form GSTR-9C for Mumbai and Noida wherein the turnover is reported as under: Location Turnover (Amount in INR) Noida 161,79,21,543 Mumbai 47,84,22,480 Total 2,09,63,44,023 8.23 A copy of the GST returns filed in Form GSTR-9C for Mumbai and Noida are enclosed at page 217 to 240 of the PB. As can be observed from the above, as per the GST returns also, the turnover (revenue from operations) of the Appellant is INR 2,09,63,44,023 which is in line with the figures reported in the ROI and the standalone financial statements. 8.24 It is further submitted that the addition is not only arbitrarily but whimsical as in the same assessment order, two disallowances have been made on the basis of numbers reported in the Standalone financial statements of the Appellant i.e., addition on account of software expenses and on account of stock appreciation rights. The comparative figures of the above two disallowances are reproduced here-in-below to show that the above addition is devoid of any merit and liable to be deleted. Nature of Expense Amount in Standalone Financial Statements (INR) Amount in Consolidated Financial Statements (INR) Others (including facility and IT infrastructure') 4,11,37,160 (Page 140 of the PB) 6,62,42,255 (Page 172 of the PB) Expenses related to stock appreciation rights 2,67,41,616 (Page 139 of the PB) 7,33,10,618 (Page 171 of the PB) 8.25 In light of the above, it is prayed by the Appellant that the amount of revenue from operations and other income as per the standalone financial statements should only be considered and the addition made by the Ld. AO relying on consolidated financial statements should be deleted. 10 ITA No.4728/DEL/2024 (G) Section 68 read with section 115BBE of the Act 8.26 At the outset, the Appellant wishes to submit that the provisions of section 68 of the Act could only be attracted where any sum is found credited in the books of a taxpayer maintained for any previous year, and the taxpayer offers no explanation about the nature and source thereof or the explanation offered by him is not. The Appellant seriatim submits that none of the conditions to invoke section 68 of the Act are satisfied in the case of the Appellant as under: - a) The alleged amount represents the income of the subsidiaries of the Appellant. Thus, the aforesaid amount is not credited in books of the accounts of the Appellant. b) The Appellant, though not warranted, provided the reconciliation of the amounts reported in the consolidated financial statements vis-à-vis the standalone financial statements to the Ld. AO which has not been dealt with by the Ld. AO in any manner. c) The nature and source of income of the subsidiaries of the Appellant has already been explained above as well as before the Ld. AO as well as supported by the Standalone Financial statements which was conveniently ignored by the Ld. AO. Thus, the above condition for invoking section 68 of the Act is also not satisfied in the present case. 8.27 With respect of the Ld. AO's order alleging the applicability of section 68 read with section 115BBE of the Act, the Appellant submits that by no stretch of imagination, the amount of ‘revenue of operations’ and ‘other income’, as reported in the consolidated financial statements of the Appellant, can be construed by the Ld. AO as the revenue of the Appellant for tax purposes. Hence, the addition made by the Ld. AO has not legs to stand. 8.28 It is submitted that the alleged addition made by the Ld. AO in the revenue from operations and other income are not credited in the standalone financial statements of the Appellant cannot be made in the case of the Appellant. Further, as discussed above, the provisions of section 68 of the Act cannot be invoked in the instant case and hence, the action of the Ld. AO is blatantly illegal and liable to be rejected in light of the submission made above.” 9. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities. 11 ITA No.4728/DEL/2024 10. Considered the rival submissions and material placed on record. We observed that Assessing Officer, during the assessment proceedings, observed that assessee has declared revenue from operations in ITR of Rs.218,25,20,517/- and further observed from annual report submitted before him. In the annual report, he observed that in the consolidated financial statements, assessee has declared an amount of Rs.268,04,40,452/- and he proceeded to add the difference amount as undisclosed income u/s 68 of the Act. Before us, assessee has brought to our notice that as per the requirement under the Companies Act, assessee has to declare standalone financial statement as well as consolidated financial statements mandated in case of the holding company which comprises the economic activities of the whole group. He brought to our notice that assessee’s standalone business consist of two units operating at Mumbai and Noida and assessee has declared the revenues earned from these units. Further he brought to our notice that assessee has declared revenue from operations and other income of standalone business of the assessee as well as revenue from operation of two subsidiary companies. The consolidated financial statements are prepared after eliminating intra group services and further submitted that the revenue from operation of the subsidiary companies are subject to tax in the respective taxable territories. The relevant revenue cannot be taxed in the hands of the assessee. After consideration the submissions of both the 12 ITA No.4728/DEL/2024 parties, we are of the view that as per the requirement of Companies Act, assessee has to prepare consolidated financial statement to analyse the group performance. As far as taxable income is concerned, the relevant information relevant for such purpose is the standalone financial result not the consolidated financial results. Therefore, the addition made by the Assessing Officer is bad in law and accordingly, we direct the Assessing Officer to delete the above addition. Since the above addition made u/s 68 is directed to be deleted, the provisions of section 115BBE have no relevance. Accordingly ground no.2 raised by the assessee is allowed. 11. With regard to Ground Nos.3.1 & 3.2, we observed that ld. CIT (A) considered the aforesaid submissions of the assessee and decided the issue in favour of the assessee by relying on the decision of his predecessor in AY 2015-16 wherein similar issue was considered and the expenditure was incurred on purchase of computer software were adjudicated as capital in nature. At the same time, it was adjudicated that assessee is entitled for depreciation on the same. Accordingly, the grounds raised by the assessee before the ld. CIT (A) was partly allowed in the current assessment year. 12. Aggrieved with the above order, assessee is in appeal before us and brought to our notice that during the year under consideration, the assessee incurred a total expenditure of Rs.4,11,37,160 towards repair and maintenance which includes expenses related to subscription paid towards usage of cloud 13 ITA No.4728/DEL/2024 services or usage of softwares as a service, software licenses and maintenance. He further submitted that the expenditure was debited under the head ‘Others (including facility and IT infrastructure)’ in Note 24 of the standalone financial statements and was claimed as a revenue expenditure and the details of these expenses are tabulated as follows: Nature of expenses Amount in INR Maintenance of Building and Plant & Machinery 2,10,16,662 Software licenses and maintenance 2,01,20,502 Total 4,11,37,160 13. He further brought to our notice that during the course of the assessment proceedings, the AO, vide notice dated 28 September 2021, questioned on the creation of a new head titled “Others (including facility and IT infrastructure)” not reflected in earlier years’ financial statements and assessee was directed to clarify the same along with the breakup of expenses recorded in “Others (including facility and IT infrastructure)” and the ledger accounts. In response, the assessee, vide submission dated 28 September 2021, clarified that the regrouping was undertaken by the statutory auditors during the financial year to reflect the correct nature of the expenses incurred in accordance with generally accepted accounting principles and that software usage expenses were clubbed under the said head. The details along 14 ITA No.4728/DEL/2024 with the ledger accounts were furnished to the AO. He further brought to our notice that despite the explanation, the AO disregarded the submissions and disallowed the entire amount of Rs.4,11,37,160 on the assumption that the entire amount represented expenditure incurred by the Appellant on software by relying on the treatment accorded to software expenses in previous years where software expenses were held to be capital in nature. He further brought to our notice that the ld. CIT(A) upheld the disallowance without proper appreciation of the factual position, however, the ld. CIT(A) directed the AO to allow depreciation on the disallowed expenditure by treating it as capital in nature, as also held by the ld. CIT(A) in earlier years. 14. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities. 15. Considered the rival submissions and the material placed on record. We observed that Assessing Officer has disallowed an amount of Rs.4,11,37160/- observing that the assessee has debited the abovesaid expenditure under the head ‘others’ and similar expenditure was not claimed in the earlier year. However, assessee has filed detailed submissions before the ld. CIT(A) giving the break-up of the abovesaid expenditure which includes maintenance of building and plant & machinery of Rs.2,10,16,662/- and software licence and maintenance of Rs.2,01,20,502/-. After considering the above break up, ld. CIT (A) has deleted the maintenance of building and 15 ITA No.4728/DEL/2024 plant & machinery expenditure and sustained the software licence and maintenance to the extent of Rs.2,01,20,502/- by relying on the findings in previous assessment year. Before us, ld. AR submitted that the nature of software expenses claimed by the assessee is relating to licence fee and upgradation of software. 16. Considered the rival submissions and material placed on record. We observed from the record that assessee has regrouped the software maintenance expenditure under the head ‘Repair & Maintenance – Others’. We also note that assessee has incurred similar expenditure in the previous year under the head ‘software’. It is not a new expenditure (refer Note 27 to Notes to Account). We observed that the assessee has declared income of Rs.209.63 crores and the nature of the business is computer related services and software development. Therefore, the nature of the business demands regular updating and maintenance of software. The assessee has incurred similar amounts in the previous year also (Rs.1,68,26,732/-). Therefore, this expenditure is directly related to the business of the assessee and can only be treated as revenue expenditure. Hence, we are inclined to allow these grounds raised by the assessee. 17. With regard to ground no.4, we observed that before ld. CIT (A), assessee submitted that assessee has declared gain on sale of investment after adjustment of loss on sale of investment for earlier assessment year to the 16 ITA No.4728/DEL/2024 extent of Rs.57,21,574/- and filed the details of computation of total income and Schedule BFLA before the ld. CIT (A). After considering the same, ld. CIT(A) observed that assessee has not produced any details of such adjustment of loss on sale of investment. There is a possibility that this loss of Rs.52,21,574/- is included in such brought forward adjusted loss. Accordingly, he has not given any relief to the assessee on this issue. 18. Aggrieved assessee is in appeal before us and submitted as under :- “10.3 In order to compute the income under the head ‘Profits and gains from business or profession’ (‘PGBP’), the net profit as appearing in the standalone audited financial statements is taken as the starting point. However, since this profit includes incomes which are chargeable to tax under different heads of income, the incomes which pertain to a different head are reduced from this profit among other things, to arrive at the income under the head PGBP. Accordingly, the Appellant should have reduced the ‘gain on sale of investments’ amounting to INR 5,42,09,587 from the computation of income under the head PGBP since the same is liable to be taxed under the head ‘Capital Gains’. Further, the Appellant should also have added the amount of INR 57,21,574 to the computation since it was loss which liable to be taken into consideration under the head ‘Capital Gains’. Accordingly, the Appellant reduced an amount of INR 4,84,88,013 (i.e., INR 5,42,09,587 less INR 57,21,574) from the computation of income under the head PGBP. A copy of the tax computation is enclosed at Page 342 to 344 of the PB). 10.4 Therefore, by reducing only INR 4,84,88,013 in the computation, the Appellant had duly disallowed the amount of INR 57,21,574 recorded in the books as prior period item. Accordingly, the sum of INR 57,21,574 debited to the profit and loss account (as an adjustment from gain on sale of investments) was not claimed as a deduction in the ROI. 10.5 During the course of assessment proceedings, the Ld. AO, vide show cause notice dated 28 September 2021, sought details and document to justify the claim of loss from sale of investments of INR 57,21,574. In response, the Appellant submitted vide submission dated 28 September 2021 that this amount had already been disallowed in the ROI and was not claimed as a deduction. 10.6 Despite the above explanation, the Ld. AO erroneously added INR 57,21,574 to the returned income, incorrectly treating it as a claimed expense that lacked supporting documentation. 10.7 The Ld. CIT(A) further upheld the above addition on the assumption that there is a possibility that the loss of INR 57,21,574 is included in the brought forward losses claimed by the Appellant without seeking any details in this respect from the Appellant. Submission before the Hon’ble Tribunal 17 ITA No.4728/DEL/2024 10.8 The Appellant submits that it had invested INR 2,00,00,000 in Reliance Yield Maximiser Alterative Investment Fund – Scheme I (the Fund) on 13 May 2015. From 6 July 2015 onwards, the Fund made periodic distributions consisting of both principal and interest components. The Fund statements (enclosed at Page 345 to 347 of the PB) did not segregate these components. 10.9 Due to the lack of bifurcation in the statements, the Appellant inadvertently recorded the entire distributions received as interest income and offered the same to tax in AYs 2016-17 and 2017-18 10.10 It was only during the year under consideration that the Appellant realized the misclassification and proceeded to compute the principal portion of the distributions received during AY 2017-18, which amounted to INR 57,21,574. 10.11 The Appellant passed appropriate entries in the books rectifying the accounting treatment followed in the earlier years and reported the amount of INR 57,21,574 as prior period items under Note 41 of the standalone financial statements for the period under consideration. Given the nature of the expense, the same was reported under Note 21 of the standalone financial statements after netting it against the gain on sale of investments of INR 5,42,09,587. 10.12 In response to the observations made by the Ld. CIT(A), the Appellant respectfully submitted that the amount of INR 4,84,88,013 reported as ‘Net gain on sale of investments’ under Note 21 pertains to gains arising from the transfer of various mutual funds. This amount was duly reduced while computing business income, and the corresponding capital gain was separately computed under the head ‘Capital Gains’ in the tax computation. 10.13 The Appellant computed capital gains of INR 1,02,59,130 on the aforesaid sale of investments, as per the applicable capital gain provisions under the Act and adjusted the same against the brought forward capital loss of INR 1,04,26,340 from earlier years. The details of such set-off are duly reflected in Schedule CFL of the ROI are enclosed at Page 60 to 61 of the PB. It may be noted that the capital loss against which capital gains earned in the subject year were adjusted was incurred by the Appellant in earlier years and had no linkage with the asset which resulted in the prior period loss in the period under consideration. 10.14 However, the Ld. CIT(A), without proper appreciation of the facts and submissions and without providing an opportunity to the Appellant to provide such details, erroneously held that the Appellant had not furnished any details regarding the loss adjusted against the capital gains. Further, the Ld. CIT(A) misinterpreted the facts of the case and held that there is a possibility that the loss of INR 57,21,574 is included in the brought forward losses claimed by the Appellant. 10.15 In view of the above, it is respectfully submitted that the addition of INR 57,21,574 made by the Ld. AO results in a double disallowance – first, voluntarily by the Appellant in the ROI, and second, again by the Ld. AO, despite having reduced the same in the computation of income under the head PGBP. This addition is, therefore, unjustified, and liable to be deleted.” 18 ITA No.4728/DEL/2024 19. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities. 20. Considered the rival submissions and material placed on record. We observed that assessee has not filed any details before the Assessing Officer and submitted certain details of computation of total income and Schedule BFLA before the ld. CIT (A), however ld. CIT (A) observed certain discrepancies on the submissions made by the assessee. Considering the issues involved in this case which needs verification, therefore, we are inclined to remit this issue to the file of Assessing Officer with a direction to verify the claim of the assessee and allow the same as per law after giving proper opportunity of being heard to the assessee. Accordingly, ground no.4 raised by the assessee is allowed for statistical purposes. 21. Ground Nos.5 6 are consequential in nature. 22. In the result, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on this 30th day of June, 2025. Sd/- sd/- (ANUBHAV SHARMA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.06.2025 TS 19 ITA No.4728/DEL/2024 Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI "