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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC’ : NEW DELHI
Before: SHRI AMIT SHUKLA
order dated 25.08.2020, passed by the ld. CIT (A)-22, New Delhi for the quantum of assessment passed under section 147 read with section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) for the assessment year 2011-12.
2. The assessee has taken the following grounds of appeal :-
“1. That the Learned Commissioner of Income Tax (Appeals), Delhi has erred both in law and on facts in sustaining the initiation of proceedings under section 147 of the Act and, completion of assessment u/s 1471143(3) of the Act which were without jurisdiction and deserves to be quashed as such.
./2021 1.1 That the Learned Commissioner of Income Tax (Appeals) has failed to appreciate that, there was no tangible, relevant, specific and reliable material on record on the basis of which, it could be held that, there was any reason to believe with the learned Assessing Officer that income of the appellant had escaped assessment and, in view thereof, the proceedings initiated were illegal, untenable and therefore, unsustainable. 1. 2 That the Learned Commissioner of Income Tax (Appeals) has erred in law as well as on the facts of the case by confirming the action of the Ld. A.O. with respect to issue notice u/s 148 of the Act and upholding the jurisdiction of the Ld. A.O. to complete impugned assessment u/s 147/143(3) of the Act for reasons including the following:- i) Because, the Ld. A.O. did not apply his independent mind so as to come to conclusion to form a belief regarding alleged escapement of income. ii) Because, the Ld. A.O. had alleged the escapement of income of Rs.1,24,31,575/1- in the reasons recorded before issuance of notice and the amount of addition of Rs. 9,46,5801- only was made in the returned income, which fact establishes that the Ld. A.O. did not apply his mind while recording the reasons u/s 147 of the Act. The Reasons were recorded mechanically on borrowed satisfaction of Investigation Wing, without scrutiny of the return of income and Audited Final Accounts available on the Portal.
2. That the Learned Commissioner of Income Tax (Appeals) has also failed to appreciate that approval under section 151 of the Act by PCIT was granted mechanically on consideration of wrong facts supplied by the Assessing Officer and hence initiation of proceedings u/s 147 of the Act on this ground is also invalid and accordingly the subsequent proceedings u/s 143(3) of the Act are liable to be quashed.
3. That entire Assessment Order has been passed by the Assessing Officer and upheld by Commissioner of Income Tax (Appeals) without appreciating that the Appellant was not confronted with any adverse material /statement of the witness if any against the transactions duly recorded in books of accounts of ./2021 the Appellant and hence principles of natural justice has been violated making the Orders passed by Lower Authorities illegal.
4. Without prejudice to above legal grounds, the Learned Commissioner of Income Tax (Appeals) has also erred by confirming the addition of Rs.9,46,580/- u/s 68 of the Act, without considering the submissions of the appellant in right perspective thereof and the findings and observations made are totally unjust and unlawful and the judicial pronouncements relied upon by the Learned Commissioner of Income Tax (Appeals) are not applicable to the appellant's case being distinguishable on facts. 4.1 Otherwise also, the Addition of Rs.9,46,580/- u/s 68 of the Act is contrary to CBDT Circular No. 11/2019 dated 19.06.2019 explaining that Addition u/s 68 of the Act can be set off against losses of the Appellant in the same year till Assessment Year 2016-17 i.e. before the amendment in section 115BBE with effect from Assessment Year 2017-18.
5. That the addition of Rs. 28,398/- u/s 69C towards hypothecated/assumed payment of commission @ 2% on the alleged amount of Rs. 9,46,580/- being alleged accommodation entries is totally unjust, unlawful & unwarranted as the alleged mediator has never been confronted to the appellant even after a specific request from the appellant and therefore the same deserves to be deleted.”
3. The assessee company was Member of National Commodities Derivatives Exchange Ltd. and carried on the business of dealing in commodities and derivatives in the said exchange. During the year, the assessee had incurred loss from business and shown profit from commodity trading on National Multi Commodity Exchange (NMCE) amounting to Rs.9,46,580/-in the following manner :- ./2021 A: Speculative Business Income (Rs.) (i) Gain from intra-day commodity transactions 9,46,580.00 (ii) Loss from intra-day commodity transactions -4,07,651.00 (iii) Net profit as shown in the profit & loss Account and declared in the return 5,38,929.00 (i) Business loss (other than speculative loss) -4,32,343.00 (ii) Speculative Business income from trading in Commodities (9,46,580 – 4,07,651)(above) 5,38,929.00 (iii) Gross Total Income u/s 80B(5) of the Act 1,06,586.00 (iv) Set off of brought forward loss 1,06,586.00 (v) Total income u/s 2(45) r/w section 14 of the Act Nil______
4. Thus, the return of income was filed on 27.09.2011 declaring ‘nil’ income. Thereafter, ld. AO initiated the reassessment proceedings u/s 147 of the Act on the reasons recorded on 26.08.2018 which is incorporated on pages 1 & 2 of the assessment order. In the reasons recorded, he has stated that he received information via email dated 25.03.2018 from DDIT (Inv), Kolkata informing systematic evasion of taxes by clients/members of NMCE during different financial years for misusing of the NMCE platform which was shared by Ahmadabad Directorate. Based on this information, the AO recorded ‘reason to believe’ that alleged amount of Rs.1,24,31,575/- (notional sale) which includes bogus profit of Rs.1,84,150/- has escaped assessment which was an intra-day transaction of purchase (without any investment) and sale on commodity exchange, netting off same day of which net result is either gain or loss. Thereafter, AO made addition u/s 68 has already been disclosed in the income-tax return filed by the assessee. He also made addition of Rs.28,398/- u/s 69C on presumptive basis @ 3% ad hoc commission on commodity profit of Rs.9,46,580/-. The addition has been made by the AO u/s 68 and he even disallowed set off from business loss on the ground that it was bogus income which cannot be set-off. The relevant observations of the AO are as under :-
“7. Disallowance of set off of business loss against bogus income. In the case of Fakir Mohmed Haji Hasan vs CIT (2001) 165 CTR 111(Gujarat), the Hon'ble Gujarat High Court has held that when income cannot be classified under anyone of the head of income under Section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise.
• The commodity trading profit credited in P&L Ale is not a speculative business income rather a bogus income shown in order LO claim set off of losses against it. • Applying the ratio of above case to the present case, once the income has b en assessed u/s 68 it cannot be treated as business income because it is not an income classifiable under any heads of income as per Sec 14. • Thus, the question of set off of losses against such income does not arise at all.
7. In view of the discussion in the aforementioned paragraphs of this order, the income of Rs.9,46,580/- shown by the assessee as profit from speculation business is hereby treated as income from undisclosed sources u/s 68. The assessee has shown nil return of income. Hence, the set off of losses from the above income from undisclosed sources is disallowed.
./2021 (Addition of Rs 9.46,580/-) Accordingly, I am satisfied that the assessee has furnished inaccurate particulars of income to the tune of Rs 9,46,580/-, therefore, penalty proceedings u/s 271(1)(c) for furnishing inaccurate particulars of income as aforesaid within the meaning of explanation 1 to the sub-section (1) of the section 271(1)( c) of the Income Tax Act, 1961 are initiated. 7.1 Further, it is typical that these transactions are carried out on a commission basis. From various Investigation reports, it is observed that commission @3% has been charged for providing such bogus income. Since, the assessee has claimed an income of Rs.9,46,580/- as commodity profit on NMCE, an amount of Rs.28,398/- i.e. 3% of Rs.9,46,580/- is being added u/s 69C of the I.T. Act as unexplained expenditure. (Addition of Rs. 28,398/-)”
5. Ld. CIT (A) has confirmed the action of the AO after making very detailed observations and holding as to how these are bogus transactions and addition has rightly been made u/s 68 of the Act.
She has also denied the set off of this income against the business loss.
Before us, ld. counsel for the assessee apart from raising various legal issues on validity u/s 147/148 of the Act has stated that now, in view of the CBDT Circular No.11/2019 dated 19.06.2019, prior to the assessment year 2017-18, CBDT has directed AO to allow set off of losses against addition made u/s 68/69C of the Act. Thus, even if the addition has been made, the same has to be allowed and set off against the business loss as claimed in the return of income.
AO and ld. CIT (A).
After considering the relevant findings given in the impugned order as well as the aforesaid submissions of the assessee, I find that the only issue which has been raised is that, the addition that has been made by the AO u/s 68 and 69C aggregating to Rs.9,74,978/-, was already included in the return of income and same was set off u/s 71 of the Act against business loss as per law. AO has denied the set off of business loss holding that addition u/s 68 of the Act cannot be set off, as addition u/s 68 is taxed under ‘income from other sources’.
However, this issue stands covered by the CBDT Circular No.11/2019 dated 19.06.2019 which read as under :-
“Circular No.11 /2019 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North-Block, New Delhi, dated the 19th of June, 2019
Subject: Clarification regarding non-allowability of set-off of losses against the deemed income under section 115BBE of the Income-tax Act, 1961 prior to assessment-year 2017-18-reg.
With effect from 01.04.2017, sub-section (2) of section 115BBE of the Income-tax Act, 1961 (Act) provides that where total income of an assessee includes any income referred to in section(s) 68/69j69A/69B/69Cj69D of the Act, no deduction in respect of any expenditure or allowance or set off of any
In this regard, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that in assessments prior to assessment year 2017-18, while some of the Assessing Officers have allowed set off of losses against the additions made by them under Section(s) 68/69j69A/69B/69C/69D, in some cases, set off of losses against the additions made under Section 115BBE(1) of the Act have not been allowed. As the amendment inserting the words 'or set off of any loss' is applicable with effect from pt of April, 2017 and applies from assessment year 2017-18 onwards, conflicting views have been taken by the Assessing Officers in assessments for years prior to assessment year 2017-18. The matter has been referred to the Board so that a consistent approach is adopted by the Assessing Officers while applying provision of section 115BBE in assessments for period prior to the assessment year 2017-18.
The Board has examined the matter. The Circular No. 3/2017 of the Board dated 20th January, 2017 which contains Explanatory notes to the provisions of the Finance Act, 2016, at para 46.2, regarding amendment made in section 115BBE(2) of the Act mentions that currently there is uncertainty on the issue of set-off of losses against income referred to in section 115BBE. It also further mentions that the pre-amended provision of section 115BBE of the Act did not convey the intention that losses shall not be allowed to be set-off against income referred to in section 115BBE of the Act and hence, the amendment was made vide the Finance Act, 2016.
Thus keeping the legislative intent behind amendment in section 115BBE(2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term 'or set off of any loss' was specifically inserted only vide the Finance Act 2016, w.e.f. 01.04.2017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17.
The contents of this Circular may be circulated widely for information of all stakeholders and departmental officers. The pending assessments and litigations on this issue may be handled accordingly.