SH. SANJAY BAIRATHI ,JAIPUR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, JAIPUR

PER VIJAY PAL RAO, JM : This appeal by the assessee is directed against the order dated 19th September, 2018 of ld. CIT (A)-4, Jaipur for the assessment year 2013-14. The assessee has raised the following grounds :-

“ 1. The ld. CIT (A) has erred on facts and in law in confirming the addition of Rs. 4,22,710/- by ignoring the fact that investment in gold bullion held as stock in trade for which assessee surrendered Rs. 71,57,787/- and also considered such value in the profit & loss account but as it remained in the stock in the year end and valued at cost or market price whichever is lower at Rs. 67,35,077/-, the resultant loss of Rs. 4,22,710/- is allowable in computing the income. 2. The ld. CIT (A) has erred on facts and in law in directing the AO to examine assessee’s claim of set off of loss of Rs. 4,22,710/- against the value of bullion of Rs. 71,57,787/- surrendered in search even when CIT (A) has no such power as per section 251 of the IT Act, 1961.

2 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur.

family member. During the course of search and seizure action, cash, jewellery,

valueable, stock-in-trade and other documents were found and seized from the

premises of the members of the Motisons Group. In the statement recorded under

section 132(4) of the IT Act, the assessee has surrendered an amount of Rs.

71,57,787/- on account of the value of gold bullion found during the search not

recorded in the books of account. The assessee filed his return of income on

19.07.2013 declaring total income at Rs. 73,37,890/- after reducing a sum of Rs.

4,22,710/- being the diminution of closing stock of bullion found during the course of search due to decrease in the market price as on 31st March, 2013 in comparison to the price prevailing as on 31st October, 2012 the date of search. Thus the AO noted

that the assessee has claimed deduction of loss of Rs. 4,22,710/- against the

surrendered income which is not permissible as per the provisions of section 115BBE

(1)(a) of the IT Act. Accordingly, the AO made the addition of the said amount of

Rs. 4,22,710/- to the income of the assessee. On appeal, the ld. CIT (A) has

confirmed the action of the AO by referring the said provisions of section 115BBE of

the IT Act.

disallowed the claim of loss due to decrease in the market price of the gold bullion

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on the ground that the said bullion found at the time of search is not stock-in-trade

of the assessee and further as per provisions of section 115BBE(1)(a), no claim of

deduction is allowable against the surrendered income. The ld. A/R has thus

submitted that during search, gold weighing 2279.55 gms valued at Rs.71,57,787/-

was found and seized from the residence of assessee. The rate of gold as on date of

search (31.10.2012) is Rs.3,140/- per gram. The assessee while preparing his books

of accounts, incorporated the gold so found in his stock as on 31.10.2012.

Thereafter, as on 31.03.2013, the closing stock was valued at Rs.67,49,748/- as the

rate of gold as on that date was Rs.2,961/- per gram. This resulted in loss of

Rs.4,08,039/- (71,57,787- 67,49,748) as the closing stock is to be valued at cost or

FMV whichever in lower. Thus, the assessee has correctly included the undisclosed

gold in his return and has not made any retraction. The difference is only because

the rate of gold as on 31.03.2013 is lower than the rate of gold as on the date of

search (31.10.2012). The AO has incorrectly interpreted that the assessee has not

disclosed the total gold surrendered during the search. Therefore the valuation of

2279.550 gms gold @ Rs.2961/- i.e., Rs.67,49,748/- is as per law. Thus the

reduction in the value of the stock is due to reduction in the market price of the gold

as on 31.03.2013. Hence, the assessee has correctly valued the stock at market

price. Accordingly, loss incurred by the assessee is allowable as business loss. The ld.

A/R further submitted that the AO has observed that the gold bullion found in search

cannot be treated as stock-in-trade in as much as assessee in search admitted that it

is his undisclosed investment, the same was found in the bedroom of the assessee

and no person having business of Gems & Jewellery will keep his stock-in-trade at

home. These observations are only on surmises & conjectures. The purchases made

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are always an investment in business and when a person is in the business of

jewellery, it is natural to keep the stock of gold bullion at residence for security

purpose. Therefore, the observation of the AO in not considering the investment in

gold bullion as stock-in-trade is incorrect particularly when he has not disturbed the

income from business declared in the return at Rs.67,49,074/- which includes the

value of gold bullion found in search and remaining in stock at Rs.67,49,748/-. As

per the scheme of the Act and the accounting principle, where assessee has made

investment in purchase of stock and its value has declined at the year end, the loss

arising due to such decline is a business loss and is allowable in computing the

income under the head 'Profits & gains from business'. This is not appreciated by the

Ld. CIT(A) while confirming the addition though he has set aside this issue to the AO

to examine the claim and allow if permissible as per law. It may be noted the u/s

251(1)(a) of the Act, the CIT(A) has no power to set aside an issue. Therefore, the

direction given by him to the AO to examine the claim and allow if permissible as per

law is bad in law and on this ground itself the appeal of the assessee be allowed.

Otherwise also, when the loss has arisen due to valuation of stock, the same is

required to be set-off against the undisclosed income taxable u/s 115BBE as held by

the Hon'ble ITAT in case of M/s Sanjay Bairathi Gems Limited in ITA No.

157/JP/2017 dated 08.08.2017. Otherwise also, the addition made by the AO at Rs.

4,22,710/- is incorrect in as much as reduction in the value of investment due to

valuation of stock is only Rs. 4,08,039/- ( 71,57,787-67,49,748).

below and submitted that apart from the bullion found during the search and

seizure, there was no trading by the assessee in bullion and, therefore, only for

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taking the benefit of reduction in the gold price at the end of the year the assessee

has claimed the gold found during the search as stock-in-trade. Thus the ld. CIT

D/R has contended that the amendment to the provisions of section 115BBE is

clarificatory in nature and there is a special provision for not allowing any loss to be

set off against the said income.

record. We note that in the statement recorded under section 132(4), the assessee

has explained that he is doing trading in bullion. Further, as per the trading account

for the year under consideration, apart from the gold found during the search, the

assessee has shown some transactions of purchase and sale of gold. Though there was no opening stock as on 1st April, 2012 but the assessee has shown the closing

stock of the gold which was found during the course of search. We further note that

the valuation of the gold found during the search was done at the prevailing market

rate as it is apparent from the statement recorded under section 132(4) which has

been reproduced by the AO at page 3, in reply to question no. 18 as under :-

“iz'u&18 ryk’kh ds nkSjku ryk’kh ny dks Gold bullion weighing 2279-55

gm. vkids bedroom esa ik;h x;h ftldh Inventory Annexure B cuk;h x;h gS rFkk mDr bullion Inventory B ds Serior No. 1 rFkk 18 ij Øe’k% weighing 2226 gm. rFkk 53-55 gm. gSA mDr bullion dk ewY;kadu foHkkxh; valuer us Annexure B ds Serial No- 1 rFkk 18 ij fd;k gS ftlds vuqlkj mDr bullion dh vkt fnukad dks valuation : 71]57]787@& ¼: 69]89]640@& + 1]68]147@& Øe’k%½ gSA mDr bullion dk lR;kiu vkidh fu;fer [kkrk cfg;ksa esa ugha fd;k tk ldk rFkk bldk dksbZ fcy Hkh ryk’kh ny dks ugha feykA d`i;k Li”V djsa

6 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur. fd D;ksa u mDr Bullion dks vkidh for o”kZ 2012&13 dk v?kksf”kr fuos’k ekurs gq, vkidh dj ;ksX; vk; esa tksMk tk;sa? mRrj mijksDr Bullion dk esjs ikl dksbZ fcy ugha gS rFkk bldk lR;kiu eSa esjh fu;fer [kkrk cfg;ksa ls djokus esa vleFkZ gwa vr% mDr bullion dh vkt fnukad dks dher : 71]57]787@& ekurs gq, eSa viuh ekufld ‘kkfUr gsrq esjh Lo;a dh dj ;ksX; vk; ¼foRr o”kZ 2012&13½ esa djkjksi.k gsrq tksMus ds fy;s

lefiZr djrk gwaA”

Thus it is clear that the value of the bullion was taken as per the prevailing rate on

the date of search. Once the value was computed as per the prevailing rate on the

date of search instead of cost of acquisition of the gold, then the value of the stock as on 31st March,2013 has to be taken at cost of acquisition or realizable value

whichever is less.The rate of gold was adopted at the time of search @ 3140/- per gram whereas the prevailing market rate as on 31st March,2013 was Rs.2961/- per

gram. The prevailing rate as on the date of search and as on the date of closing of

financial accounts is not in dispute and, therefore, the loss due to reduction in the

market price of gold in respect of stock-in-trade has to be allowed. Once the

assessee has explained during the course of search and seizure that he is doing the

business of trading in bullion then the claim of the assessee treating the same as

stock-in-trade cannot be rejected without any contrary material on record. The

department has accepted all other facts explained by assessee at time of search and

seizure action and valuation of the gold. The coordinate bench of this Tribunal in

case of ACIT vs. M/s. Sanjay Bairathi Gems Ltd. a group concern of the assessee

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vide order dated 08.08.2017 in ITA No. 157/JP/2017 has considered and decided an

identical issue in para 3 to 15 as under :-

” 3. We now refer to the relevant findings of the Ld. CIT(A) which are under challenge before us. The same are reproduced as under:-

“3.1.3 I have duly considered assess’s submission and carefully gone through assessment order. I have also taken a note of factual matrix of the case as well as applicable case laws relied upon. The factual position of the case is summarized as under: a) A survey operation u/s 133A of the Act was carried out on 31.10.2012 at the business premises of the assessee, which was converted into search u/s 132 of the Act. In the sworn statement recorded on oath u/s 132(4) of the Act, assessee, in reply to question No. 21; admitted the excess stock of Rs. 2,43,77,004/-. Later on, after verification, the assessee vide letter dated 4.02.2013 explained that the correct excess stock found in search operation works out to Rs. 231.41 lakh as against the amount of Rs. 243.77 lakh worked out at the time of search operation. The assessee further explained that the excess stock is due to the valuation of the stock at market price instead of the purchase price. b) Sworn statement recorded u/s 132(4) of lkthe Act on 31.10.2012 of Sh Sanjay Bairathi in answer to Q no 16,17,18 & 19 and answer to q no 21 of statement recorded u/s 133A of Sh Rakesh Kumar Sharma, Manager of M/s Sanjay Bairathi Gems Ld are reproduced here as under:- c) AO has made the addition of Rs. 2,31,41,217/= u/s 69B of the Act and thereafter invoked the provisions of sec 115BBE of the Act and not allowed set off of business loss against the addition made. The assessee vide letter dt 09.03.2015 has made submission before the AO. Form the above, it is seen that assessee has shown net business income Rs. 1,44,44,484/= in ITR filed on 28/9/2013 vide acknowledgment no 799563911280913 for the AY 2013-14. d) It is pertinent to mention here that applicability of set off provision as contained in sec. 115BBE of the Act is effective from 1.4.2017.

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e) AO has relied on the decision of cases decided by Hon’ble Punjab & Haryana High Court in Kim Pharma Pvt. Ltd. (cited supra) and liberty India (cited supra). It is submitted that in case of Kim Pharma (P.) limited report in 258 CTR 454 amounts surrendered in course of survey was not reflected in books of accounts and no source from where it was derived was declared by the assessee and therefore it was held that the same cannot be assessed as business income. In this case the decision of Karnataka high Court in case of CIT V. S.K. Srigiri and Bros 298 ITR 13 relied by the Assessee was distinguished by holding that in this case assessee received additional income from business only. But in the present case also the excess stock offered in survey is part of the business income. The excess stock is determined by valuing the business stock at current price instead of the purchase price. Nothing was brought to suggest that this was not a regular item of the stock dealt by the assessee. In view of this, it is submitted that the case law relied by the AO is not applicable. f) Assessee has relied on the decision of following favourable cases: (i) Choksi Hiralal Maganlal (ITAT)(Ahmadabad) (ii) Fashion World (ITAt) (Ahmadabad) (iii) Ramnarayan Birla (ITAT Jaipur) In case of Choksi Hiralal Maganlal (Cited supra) Hon’ble ITAT Bench Ahmadabad has held that excess stock found during the survey is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Authorized Officer, the provisions of section 69B of the Act cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B of the Act is that the asset should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the pat of overall physical stock found, the investment in the excess stock has to be treated as business income as per detailed reasons given in the case of Fashion World Vs. ACIT ITA No. 1634/Ahd/2006 wherein, the Hon’ble Tribunal held that, if excess stock found during the course of survey or search and does not have any independent identity as an asset but as mixed part of overall stock found in the survey/search then such excess stock would represent business income only. Further, in case of the Hon’ble ITAT Bench Jaipur in case of DCIT V. Ramnarayan Birla 482/JP/2015 dated 30.09.2016 in the similar facts

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held that the excess stock is to be assessed as part of the normal stock and to be taxed under the head income from business. By following the decision of Coordinate Bench in the case of Chokshi Hiralal Maganlal vs. DCIT, 141 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. From the above, it is seen that the excess stock found during the search operation is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Authorized Officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income. Further, the excess stock so found is part of the regular business, therefore, following decision of Hon’ble ITAT Bench Jaipur in case of Ram Narayan Birla (Cited supra), the same has to be taxed under the business income. Otherwise even if the same is taxed u/s 115BBEof the Act, the provisions of not allowing the set off has come into effect from 1.4.2017.” 4. During the course of hearing, the ld. AR submitted that the issue in this ground is under which head the unexplained investment should be taxed. In this connection it would be relevant to refer to the overall scheme of the Act which is as under:-

a) Section 4 deals with charge of income tax. This section provides that total income of the previous year of the person shall be charged to income tax at the rate provided in the Act. Section 5 provides that total income of any previous year of a person who is a resident includes all income from whatever source derived. b) Chapter IV deals with the computation of the total income. Section 14 of this chapter deals with the heads of income. This section read as under:-

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Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:- A.—Salaries. B.—[***] C.—Income from house property. D.—Profits and gains of business or profession. E.—Capital gains. F.—Income from other sources.

c) Chapter V deals with inclusion in the total income of an assessee, income of other persons and Chapter VI deals with aggregation of the total income and set off or carry forward of losses. Section 69B falls in chapter VI. As per this section where in any financial year assessee has made investment or is found to be owner of any valuable article etc. which is not recorded in the books of accounts or for which no explanation or satisfactorily explanation is given, such amount may be deemed to be the income of the assessee for such financial year.

d) From the plain reading of all these provisions it is evident that whatever income is included in the total income, the same has to be classified under the five heads of income as provided in section 14. Therefore, any credit in the books of accounts which is not satisfactorily explained or any investment which is not found recorded or otherwise explained and taxed u/s 68, 69, 69A, 69B or 69C has to be taxed under any one of the above five heads. If such income can’t be linked to any of the first four heads as provided in section 14, it has to be assessed under the fifth head i.e. income from other sources. Section 56 (1) also provides that income of every kind which is not to be excluded from the total income under this head shall be chargeable to income tax under the head “Income from other sources”, if it is not chargeable to income tax under any of the heads specified in section 14, item A to E” Thus even an income assessable under section 69B has to be given a specific head in terms of section 14 and in case it can’t be given any specific

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head as per item A to E of section 14, it has to be given the residuary head i.e. items F of section 14.

e) It may also be noted that Chapter XII of the Act provides for determination of the tax in certain Special cases. Even when tax is to be charged on certain income in this chapter at a specific rate, still such income has to be classified under any one of the heads provided in section 14. For example short term capital gain u/s 111A in certain cases is charged @15%, Long term capital gain u/s 112 is charged @20%, winning from lotteries, cross word puzzles etc chargeable to tax @30%, still for the purpose of inclusion of such income in the total income of such assessee, a specific head in terms of section 14 has to be given.

f) Section 14 starts with the words “save as otherwise provided by this Act”, all income would be classified under the 5 heads of income mentioned therein. The Act has not provided any head of income other than these 5 heads of income. Section 69B falls in chapter VI which is titled as aggregation of income. Therefore income falling u/s 68, 69, 69A, 69B, 69C and 69D have to be aggregated with any of the 5 heads of income mentioned in section 14.

4.1 In this background of the scheme of the Act, the question which arises for the determination is that under which head of income the excess stock/investment found in search and offered by the assessee for tax is to be assessed. According to the assessee such excess stock/investment is a business stock/investment which has arisen out of the unrecorded business activity of the assessee and therefore the same needs to be assessed under the head profit & gain of business. For this purpose reliance is placed on the decision of ITAT Ahmedabad Bench in case of Chokshi Hiralal Maganlal vs. DCIT 141 TTJ (Ahd) 1 dt. 21/01/2011 wherein the Tribunal held that excess stock found during the survey is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the survey officers, the provisions of section 69B cannot be made applicable as primary condition for invoking the provisions of section 69A, 69B is that the asset

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should be separately identifiable and it should have independent physical existence of its own. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable separately but is the part of overall physical stock found, the investment in the excess stock has to be treated as business income as per detailed reasons given in the case of Fashion World vs. ACIT ITA No. 1634/Ahd/2006 wherein, the Tribunal held that, if excess stock found during the course of survey or search and does not have any independent identity as an asset but as mixed part of overall stock found in the survey/search then such excess stock would represent business income only.

4.2 Recently the Hon’ble ITAT Jaipur Bench in case of DCIT vs. Ramnarayan Birla 482/JP/2015 dated 30.09.2016 in the similar facts held that the excess stock is to be assessed as part of the normal stock and to be taxed under the head income from business. The relevant finding of the ITAT is as under:- “We have heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the assessee is engaged in the business of jewellery. During the course of survey excess stock valuing Rs. 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. Therefore, the first attempt of the assessing authority should be to

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find out link of undeclared investment/expenditure with the known head, give opportunity to the assessee to establish nexus and if it is satisfactorily established then first such investment should be considered as undeclared receipt under that particular head. It is observed that there is no conflict with the decision of Hon’ble Gujarat High Court in the case of Fakir Mohd. Haji Hasan (supra) where investment in an asset or expenditure is not identifiable and no nexus was established then with any head of income and thus was not available for set off against any loss under any other head.

Therefore, the Hon’ble Coordinate Bench held that where asset in which undeclared investment is sought to be taxed is not clearly identifiable or does not have independent identity but is integral and inseparable (mixed) part of declared asset, falling under a particular head, then the difference should be treated as undeclared business income explaining the investment. In the present case the excess stock was part of the stock. The revenue has not pointed out that the excess stock has any nexus with any other receipts. Therefore, we do not find any fault with the decision of the ld. CIT (A) directing the AO to treat the surrendered amount as excess stock qua the excess stock found.” 4.3 The AO relied upon the decision of Hon’ble Punjab and Haryana High Court in case of Kim Pharma (p.) Limited vs. CIT 258 CTR 454. In this case the amount surrendered in course of survey was not reflected in books of accounts and no source from where it was derived was declared by the assessee and therefore it was held that the same can’t be assessed as business income. In this case the decision of Hon’ble Karnataka High Court in case of CIT vs. S.K. Srigiri and Bros 298 ITR 13 relied by the Assessee was distinguished by holding that in this case assessee received additional income from business only. In the present case also the excess stock offered in survey is part of the business income. The excess stock is determined by valuing the business stock at current price instead of the purchase price. Nothing was brought to

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suggest that this was not a regular item of the stock dealt by the assessee. Hence the case laws relied by the AO is not applicable.

4.4 The AO further referred to the provisions of section 115BBE and held that no deduction or set off of business loss will be allowable. The provisions of section 115BBE reads as under:- (1) “Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of— (a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and (b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). (2) Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub- section (1).”

From the above provisions, it can be noted that no deduction in respect of any expenditure or allowance shall be allowed. It nowhere says that set off of the loss with any other income will not be allowed. 5.5 It may be noted that sub-section 2 to Section 115BBE is amended w.e.f. 01.04.2017 to include therein the words “set off of loss”. The amended sub-section 2 w.e.f AY 2017-18 is as under:

“Notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income referred to in clause (a) of sub-section (1)”.

In the memorandum explaining the provisions of amendment, the amendment to Section 115BBE is explained and has been stated that this

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amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.

From the above it can be noted that this amendment is made applicable for AY 2017-18 and subsequent years. It is a settled proposition of law that any amendment which increases the tax burden of the assessee has to be considered prospective and not retrospective. In the case of CIT vs. Vatika Township Pvt. Ltd. 367 ITR 466/ 109 DTR 33, the Supreme Court at Para 32 & 33 held that legislations which modify accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. It further held in Para 39(c) that “if the concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretations, the interpretation which favours the subjects, as against there the revenue, has to be preferred”. Therefore, the amendment to Section 115BBE w.e.f. 01.04.2017 is not applicable to the year under consideration and thus, the Ld. CIT(A) correctly directed the AO to allow the set off of the business loss for the year against the income offered on account of excess business stock found in search. 4.6 The above issue is also considered by the Hon’ble ITAT Vishakapatnam Bench in case of Pillalala Ramakrishna Rao & Anr. vs. ACIT& ANR. 2016 ITL 4940 where at Para 11 of its order, it held as under:

“11. The CIT, assumed jurisdiction to revise the assessment order on the ground that there is a lack of enquiry on the part of the A.O., in examining the issue of cash found during the course of search at the time of completion of assessment u/s 143(3) of the Act. The CIT was of the opinion that the A.O. has applied incorrect provisions of the Act, to deal with cash found during the course of search, as against separate provisions provided by way of section 115BBE of the Act. The CIT further, observed that as per the provisions of section 115BBE of the Act, where the total income of an assessee includes any income referred to in section 68 to 69D of the Act, then notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance (or set off of any loss) shall be allowed to the assessee under any provision of this Act, in computing his income referred to in clause (a) of sub

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section (1) of section 115 BBE of the Act. The CIT was of the opinion that the A.O. ignoring the provisions of section 115BBE of the Act, accepted income declared by the assessee under the normal provisions of income from profession and further allowed set off of brought forward loss from earlier years, which render the assessment order erroneous in so far as it is prejudicial to the interest of the revenue. We do not see any merits in the findings of the CIT for the reason that the assessee right from the beginning claims that cash found during the course of search represents his professional income earned in the individual capacity for the financial year 2012-13, accordingly included cash found during course of search as his professional income for the assessment year 2013-14 and filed returns of income. We further noticed that the assessee has admitted entire cash seized during the course of search as his professional income without there being any deductions towards expenditure, but, claimed set off of brought forward business loss of earlier years against such additional income. The allegation of the CIT is that when any income is admitted consequent to search proceedings, no deductions towards any expenditure or allowances or set off of loss shall be allowed against such income. But, the fact is that as per the provisions of sub section (2) of section 115BBE of the Act, which was amended by the Finance Act, 2016 w.e.f. 1.4.2017 which is applicable from the assessment year 2017-18 and subsequent years, there is a bar on set off of loss from A.Y. 2017-18, however, there is no bar to claim set off of loss up to A.Y. 2016-17. Therefore, even assuming for a moment that the A.O. has applied incorrect provisions of the Act, to tax cash found during the course of search, the assessee can always claim set off of brought forward loss from earlier years up to the assessment year 2016-17, even if the same has been added under the provisions of sec. 68 to 69D of the Act. Therefore, we are of the view that the assessment order passed by the A.O. is neither erroneous nor prejudicial to the interest of the revenue, as there is no prejudice is caused to the revenue”. 5. The ld. DR is heard who has relied upon the order of the lower authorities and submitted that the AO has rightly invoked the provisions of section 69B of the Act. Further, he submitted that the provisions of section 115BBE forms part of and comes under Chapter-XII providing for determination of rate of

17 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur.

tax in certain special cases and accordingly, quantification of the amount of tax. The provision of section 115BBE does not relate to the computation of total income. It was submitted that for quantification of tax, in respect of income referred in the said provisions, the amendment by the Finance Act 2016 would not affect the computation of total income. Hence, the business losses in the instant case cannot be allowed set off against the amount brought to tax under section 69B in terms of investment in undisclosed stock of stones and jewellery. 5.1 Further, in support of his contentions, he relied upon the following decisions:

• Dhanush General Stores vs CIT (2012) 20 taxman.com 853 (Chhattisgarh) • Razakbhai R. Arabiani vs ITO (2013) 40 taxman.com 245 (Gujarat) • Vipul Kumar Kiritlal Shah vs ITO (2013) 33 taxman.com 370 (Gujarat) • Krishnamegh Yarn Industries vs ACIT (2016) 68 taxman.com 103 (Gujarat) • CIT vs Kuwer Fibers (P) Ltd (2017) 33 taxman.com 345 (Del)

18 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur.

High Court in case of Fakir Mohmed HajiHasan (supra) which has subsequently been explained in subsequent decision of Radhe Developers India Ltd (supra). 7. We have heard the rival contentions and perused the material available on record, the factual matrix and various decisions relied upon by both the parties. The Assessing officer has brought to tax, undisclosed investment in excess stock of stones, gold & jewellery found and surrendered during the course of search proceedings which has not been recorded in the books of accounts of the assessee, under the provisions of section 69B read with section 115BBE of the Act. Further, the Assessing officer has not allowed the set off of business loss of Rs 86,96,733 against the said income of Rs 2,31,41,217 which has been brought to tax under section 69B read with section 115BBE of the Act. The Assessing officer has however allowed the carry forward of said business loss to be set off in the subsequent assessment years. The fact that the business loss has been incurred during the year is thus not in dispute. The limited dispute relates to set off of said business loss against the income which has been brought to tax under section 69B read with section 115BBE of the Act. 8. Firstly, regarding the contention of the ld CIT DR that the provisions of section 115BBE comes under Chapter-XII providing for determination of rate of tax in certain special cases and accordingly, it relates to quantification of the amount of tax and not to the computation of total income and therefore, the amendment brought in by the Finance Act 2016 would not affect the computation of total income. It was accordingly contended that the business losses in the instant case cannot therefore be allowed set off against the amount brought to tax under section 69B in terms of undisclosed investment in stock of stones, gold and jewellery. 9. It is noted that by the Finance Act, 2016, an amendment has been brought-in in section 115BBE(2) wherein it has been provided that “notwithstanding anything contained in this Act, no set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income as referred to clause (a) of subsection (1) of the Act. If we were to accept the contentions of the ld CIT(DR), the question that arises is would that interpretation render sub-section (2) otiose and what was the necessity

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for bringing in the subject amendment. The intent of the legislature has been provided in the memorandum explaining the said amendment which reads as under:

“Currently, there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the provisions of the sub- section (2) of section 115BBE to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D.” 10. In light of above, given the fact that the AO has invoked the provisions of section 11BBE in the instant case, the provisions of sub-section (2) to section 11BBE are equally applicable. The amendment brought in by the Finance Act, 2016 whereby set off of losses against income referred to in section 69B has been denied is stated clearly to be effective from 1 April 2017 and will accordingly, apply to assessment year 2017-18 onwards. Accordingly, for the year under consideration, there is no restriction to set off of business losses against income brought to tax under section 69B of the Act.

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which restrict such set off, in the instant case, set off of business losses against income brought to tax under section 69B cannot be denied. 12. Now, we refer to various judicial pronouncements quoted by both the parties. We find that the decision of Hon’ble Gujarat High in case of Fakir Mohmed HajiHasan (supra) and subsequent decision of the Hon’ble Madras High Court in case of Chensing Ventures (supra) are two earliest decisions on the subject where the Hon’ble Courts have taken a divergent view in the matter. As per the decision of Hon’ble Gujarat High Court, the addition on account of unexplained investment would be considered as total income of the previous year without allowing set-off of business loss. As per Madras High Court’s decision, the addition would be set-off against the business loss and the balance addition, if any, would form part of the total income and attract tax. 13. It is noticed that the Hon’ble Gujarat High Court in case of CIT vs Shilpa Dyeing & Printing Mills (P) ltd (supra) had an occasion to consider an identical issue where the said divergent view has been reconciled. In that decision, the Hon’ble High Court has considered its earlier decision rendered in case of Fakir Mohmed HajiHasan (supra) as explained in another decision in case of Radhe Developers India Ltd (supra) and also the decision of Madras High Court in case of Chensing Ventures (supra). It would therefore to relevant to refer to the facts and the legal proposition laid down by the Hon’ble Gujarat High Court decision in case of Shilpa Dyeing & Printing Mills (P) ltd. Facts of the case Brief facts are that, the respondent-assessee is a company engaged in the business of dying and printing. During the course of scrutiny for the assessment year 2008-09, the Assessing Officer noticed that in a survey action conducted at the business premises of the assessee, it had declared a sum of Rs. 100.98 lacs (rounded off) on account of excess stock. In the return, the assessee had suggested current year's loss against such income. Assessing Officer holding a belief that income from unlisted source would not fall under any of the heads of the income, the same has to be taxed separately, the current losses cannot be set off against such income. Findings and legal proposition

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“8. We, however, find that Section 71 of the Act permits an assessee to set off loss other than that of capital gains against income from other head. This very issue came-up for consideration before the Madras High Court in case of Chensing Ventures (supra). The Division Bench of the Court considered the issue in following manner: "6. Heard counsel. The Assessing Officer has not given any reason whatsoever to deny the set off of the business loss against the income declared under the head & "other sources". Section 71 deals with set off of loss against income under any other head. After setting off losses against the income under the same head, if the net result is still a loss, the assessee can set off the said loss under Section 71 of the Act against income of the same year under any other head, except for losses which arise under the head "capital gains". The income tax is only one tax and levied on the sum total of the income classified and chargeable under the various heads. Section 14 has classified the 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 a collection of distinct tax levied separately on each head 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. In the assessment, no reasons were given by the Assessing Officer to deny the benefit of Section 71 of the Act. The benefit provided under Section 71 of the Act cannot be denied and the learned Standing Counsel appearing for the Revenue is also unable to explain or give reasons why the assessee is not entitled to the benefit of Section 71 of the Act. The reasons given by the Tribunal are based on valid materials and evidence and the same is in accordance with the

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provisions of Section 71of the Act. We find no error or legal infirmity in the impugned order."

"The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 & 56 of the Act have been considered. The Apex Court in the case of D.P. Sandu Bros.Chembur P. Ltd.,(supra) has dealt with this very issue while deciding the treatment to be given to a transaction of surrender of tenancy right. The earlier decisions of the Apex Court commencing from case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) have been considered by the Apex Court and, hence, it is not necessary to repeat the same. 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 as submitted by the learned Counsel for the Revenue." 10. In our opinion, the statutory provisions contained in Section 71 was applicable in the present case. By applying the decision in case of Fakir Mohmed Haji Hasan (supra) as explained in case of Radhe Developers Incia Ltd. (supra), the same cannot be declined. In the result, no question of law arises. Tax appeal is, therefore, dismissed.” 14. It is also noted that in latest decision of Hon’ble Gujarat High Court in case of Krishnamegh Yarn Industries (supra) which has been brought to our attention by the ld CIT DR to support his contentions regarding applicability of section 69B, the earlier decision in case of Shilpa Dyeing and Printing Mills has been followed for setting off of losses under section 71 against such income. The relevant findings of Hon’ble High Court are as under:

23 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur.

“8. We have learned advocates for the respective parties. Perused the orders of the CIT (Appeals) as well as the ITAT. It is an undisputed fact that during scrutiny, the assessee himself has disclosed the fact that in his books of account, he had shown less stock to the tune of Rs.10,06,987/-. It is also an admitted fact that when the physical stock was examined by the authority, the value of the said stock was Rs. 13,33,485/-, however, as per the books of account, the value of stock was to the tune of Rs.3,26,498/- i.e. amount to the tune of Rs.10,06,987/- was not recorded in the books of account. However, it is admitted by the assessee himself that he has not completely disclosed the stock in the books of account. Now, considering the proviso of Section 69(B) of the act, we are of the opinion that the assessee had not fully disclosed the stocks in the books of account and therefore, the Assessing Officer as well as the CIT (Appeals) have rightly observed that the case of the assessee would fall under the proviso of Section 69(b) of the act. We are also of the opinion that the submissions made by the learned advocate is that the case would fall under the proviso of Section 69(c) of the act does not apply to the facts of the present case. It is not the case of the revenue that there is an unexplained expenditure, which would cover under the proviso of this Act and therefore, the assessee would not be entitled for the set off under the proviso of Section 71 of the act. As far as applicability of the case of Shilpa Dyeing & Printing Mills (P.) Ltd. (Supra) is concerned, the same would be applicable since the Court had held that the amount of excess stock would fall under the definition of income as per Section 14 of the Act and therefore, the assessee would be entitled for the set off under proviso of section 71 of the act. As far as the case of Attar Singh Gurmukh Singh (Supra) is concerned, the same would not be applicable in the present facts and circumstances of the case since it is not the case that there was unexplained expenditure made by the assessee. 9. Therefore, we are of the opinion that the CIT (Appeals) as well as the ITAT have committed error in refusing giving set off to the assessee under Section 71 of the act and accordingly, we allow these

24 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur.

appeals by setting aside the order dated 28.02.2005 passed by the Income Tax Appellate Tribunal (the ITAT) and order dated 07.07.2014 passed by the Commissioner of Income Tax (Appeals) Ahmedabad [the CIT (Appeals)].”

Thus it is clear that in the said case arising from the same search and seizure as well

as survey action, the Tribunal has decided the issue in favour of the assessee.

Following the order of the Coordinate Bench of this Tribunal, we allow the claim of

the assessee and set aside the orders of the authorities below qua this issue.

Sd/- Sd/- ( jes'k lh- 'kekZ ) (fot; iky jkWo ½ (RAMESH C. SHARMA ) (VIJAY PAL RAO) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Jaipur Dated:- 13/06/2019. Das/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Shri Sanjay Bairathi, Jaipur. 2. The Respondent – The ACIT, Central Circle-2, Jaipur. 3. The CIT(A). 4. The CIT, 5. The DR, ITAT, Jaipur 6. Guard File (ITA No. 1343/JP/2018) vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत

25 ITA N0. 1343/JP/2018 Shri Sanjay Bairathi, Jaipur.