SHRI RAJESHKUMAR POPATBHAI GABANI,,SURAT vs. THE ITO, WARD-3(2)(5)., SURAT

On the facts and in the circumstances of the case as well as law on the subject, the learned commissioner of the Income Tax (Appeals) has erred in confirming the action of the assessing officer in making addition of Rs.11,11,080/- on account of disallowance of set off of loss of shares F & O against undisclosed income declared before DDIT(Inv.)-I, Surat. 3 It is therefore prayed that the above addition may please be deleted as learned members of the tribunal may deem it proper. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”

Brief facts of the case are that the assessee filed its Return of Income at Rs.2,57,673/- including income from profits and gain from business and also income from other sources, after claiming deduction chapter-VI A of the Act and the same was processed u/s.143(1) of the Income Tax Act. Subsequently, the case of the assessee re-opened after serving statutory notices and seeking reply of the assessee, the order of assessment u/s.143(3) r.w.s 147 of the Act was passed by disallowing set off of loss of shares F & O against undisclosed income.

Being aggrieved with the order of the ld.Assessing Officer(AO), the assessee filed before the ld.CIT(A) and ld.CIT(A) dismissed the appeal filed by the assessee on the ground that same was not filed within the limitation of time the assessee had no sufficient cause for no filing the appeal in time.

Being aggrieved with the order passed by the ld.CIT(A), the assessee filed appeal before us on the grounds mentioned hereinabove.

Ground No.1: This ground has not been pressed before us by the assessee and in this respect, the assessee had made a statement at BAR. Therefore, considering the statement of the assessee, this ground no.1 stands dismissed as not pressed.

Ground No.2: This ground raised

After having heard the parties at length and after perusal of the documents and also keeping in view of the decision in Hon'ble Supreme Court in the case of Land Acquison Collector Vs. MST Kitji [1987] (SC) we find that the assessee had sufficient cause for not filing the appeal in time before the ld.CIT(A). Therefore, considering the reasons as cited in the said application and also keeping in view principles laid down by Hon'ble Supreme Court, we condone the delay in filing the appeal before the ld.CIT(A).

Now, coming to the merits of the additions made by the Revenue Authorities, the ld.Authorised Representative(AR) appearing on behalf of the assessee reiterated the same arguments as was raised before the ld.CIT(A) and the same were contained in para no.6 of the order of the ld.CIT(A) which is reproduced below:

On the other hand, the ld.Departmental Representative (DR) relied upon the orders of Revenue Authorities.

We have heard both the Counsels and perused the material placed on records, judgments cited by the parties as well as orders passed by the Revenue Authorities. From the records, we noticed that the assessee had total undisclosed income of Rs.60,28,325/-. It was decided in three assessment years and the said undisclosed income was in the nature of investment made in shares future and options trading business. We also noticed that on the above undisclosed income, assessee paid tax of Rs.18,10,000/- on 17.03.2012, in this respect, challans have been submitted by the assessee. The investments in shares future and option and share trading business had resulted in loss of Rs.59,64,585/- the details of which have already been given by the assessee in the table in the page no.5 of the order of the ld.AO. While filing the Return of Income, the assessee has shown undisclosed income, under the head ‘Business Income’ has provided u/s.14 of the Income Tax Act against which the assessee had claimed loss incurred on share business. In this respect, assessee had also filed written submissions before the ld.AO, the para 7 of the same are reproduced below:

We have also considered the decision in the case of Hon'ble Supreme Court in the case of CIT Vs. D.P.Sandu Bros. [2005] Taxmann 713 (SC) wherein it has been held that section 14 and section 56 of the Act constitutes of complete code for the purpose of determining under which head of particular income would be taxed.

We have also considered the decision of Hon'ble Madras High Court in para no.10 and page 6 of the order of the ld.AO has held as under: “………………. The income-tax is only one tax and levied on the sum total on the income classified and chargeable under various heads. Section 14 has classified different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not collection of distinct tax levied separately on each heads of income and it is not an aggregate of various taxes computed with reference to each of the different source separately. There is only one assessment and the same is made after the total income has been ascertained. The assessee is subject to income-tax on his total income though his income under each head may8 be well below the taxable limit. Hence the loss sustained in any year under any heads of income will have to be set off against income under any other head. In this case, the Assessing officer made addition of Rs.28,50,000/- as undisclosed income under Section 69 of the Act. Once the loss is determined, the same should Rajeshkumar P. Gabani Vs. ITO, Ward-3(2)(5), Surat/ITA No’s.1535 - 1537/AHD/2017 for A.Y’s. 2009-10 to 11-12 Page 7 of 10 be set off against the income determined under any other head of income. The benefit provided under Section 71 of the Act cannot be denied……..”

We have also considered the decision of Hon'ble Gujarat High Court in para no.11 and page 7 of the order of ld.AO has held as under: ". .................... The decisions of this court in the case of Fakir Mohmed Haji Hasan [2001] 247 ITR 290 (Guj.) Krishna Textiles [2009] 310 ITR 227 (Guj.) are neither relevant nor germane to the issue considering the fact that in none of the decisions the legislative scheme emanating from the conjoint reading of the provisions of section 14 and 56 of the Act have been considered. The apex court in the case of D.P. Sandu Bros. Chembur P. Ltd. [2005] 273 ITR 1 has dealt with this very issue. Suffice it to state that the Act does not envisage taxing any income under any head not specified in section 14 of the Act. In the circumstances, there is no question of trying to read any conflict in the two judgments of this court "

We have also considered the decision of Hon'ble Gujarat High Court in para no.12 and page 7 of the order of ld.AO has held as under: ". ............... The AO had gone wrong by not considering the provisions of Section 71 of the IT Act. In this regard the law pronounced in the case of Chensing Ventures is to be followed, wherein it was held that once a loss is determined, the same should be set off against the income determined under any other head of income and there was no reason for denial of benefit u/s. 71 of the IT Act…………………." ". ............... The income-tax is only one tax and levied on the sum total on the income classified and chargeable under various heads. Section 14 has classified different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not collection of distinct tax levied separately on each heads of income and it is not an aggregate of various taxes computed with reference to each of the different sources separately. There is only one assessment and the same is made after the total income has been ascertained. The assessee is subject to income-tax on his total income though his income under each head may be well below the taxable limit. Hence the loss sustained in any year under any heads of income will have to be set off against income under any other head. In this case, the Assessing Officer made addition of Rs. 28,50,000/- as undisclosed income under Section 69 of the Act. Once the loss is determined, the same should be set off against the income determined under any other head of income. The benefit provided under Section 71 of the Act cannot be denied " ". ............... In our opinion, the statutory provisions contained in Section 71 was applicable in the present case. By applying the decision in the case of Rajeshkumar P. Gabani Vs. ITO, Ward-3(2)(5), Surat/ITA No’s.1535 - 1537/AHD/2017 for A.Y’s. 2009-10 to 11-12 Page 8 of 10

We have also considered the administrative instructions for guidance of Income Tax Officers on the matters pertaining to the assessment and also Circular No.11/2019, wherein it has categorically been held as under:

Thus, keeping in view of the amendment, we are of the view as no claim shall be available for any allowances or expenditure of income referred to any section 68, section 69, section 69A, section 69B, section 69C and section 69D from A.Y. 2013-14 onwards. This amendment being prospective and not retrospective and since the claim raised by the assessee is for the A.Y. 2009-10, therefore, this amendment is not applicable and thus the claim for set off of shares business loss is available to the assessee as benefit provided u/s.71 of the Act may not simply be denied on the ground that the assessee was not able to substantiate his claim for classification under certain head of income. In our view, even if that claim is not substantiated, even then the income can be classified under any other head i.e. the income from other sources and benefit u/s.71 of the Act is also allowable. Therefore, keeping in view of the totality of the facts and Rajeshkumar P. Gabani Vs. ITO, Ward-3(2)(5), Surat/ITA No’s.1535 - 1537/AHD/2017 for A.Y’s. 2009-10 to 11-12 Page 9 of 10 circumstances as discussed above and also keeping in view of the decisions as mentioned above, we allow the claim of the assessee for set off of shares business loss against the undisclosed income for the year under consideration, accordingly solitary ground raised by the assessee are allowed.

In the result, appeal of the assessee is partly allowed. ITA No’s.1536 & 1537/AHD/2017 for A.Y’s. 2010-11 & 11-12 : 19. Since, the given facts and circumstances are identical as in the above assessee’s own case [I.T.A.No.1535/Ahd/2017 /A.Y.2009-10], therefore, our findings and directions contained therein shall apply mutatis mutandis to these two appeals of the assessee. Accordingly, following the same, grounds raised by the assessee in both the appeals are partly allowed.

To sum up, three appeals filed by the assessee in ITA No’s.1535 to 1537/AHD/2017 for A.Y’s.2009-10 to 2011-12 are partly allowed.

Order pronounced in the open court on 14-02-2020.