SURESHCHAND SUGANCHAND JAIN,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 4(2)(1), MUMBAI, MUMBAI

The appellant is a member of the National Multi Commodity Exchange (NMCE) and is engaged in the business of shares and stock trading & broking. The appellant filed his Return of Income (RoI) for the relevant year declaring total income at Rs 2,39,36,408/-. The return was processed u/s. 143(1) of the Act. Later the case was selected for scrutiny and by order dated 10.03.2014 passed u/s. 143(3) of the Act, the total income was assessed at Rs. 2,40,00,020/- after making disallowance u/s.14A amounting to Rs.45,916/- and disallowance of Rs.17,700/- on account of late contribution to Employees Provident Fund (EPF).

It appears that subsequently, the case was re-opened u/s. 147 of the Act on the basis of the information received from the office of the Asst. Director of Income tax (Investigation), Kolkata, stating that some of the brokers of the NMCE had indulged in systemic evasion of taxes by client/members thereby booking contrived losses/profits, which were then shared to different beneficiaries according to their requirement. In so far as the appellant is concerned, it was found that he was a beneficiary of such accommodation entry to the tune of Rs.8,93,938/- by misusing the facility of trading in NMCE. In principle it was reported that the authorized representative of the assessee had dealt in three different commodity stock viz. Future Sack, Jute and T S Bags on 21.02.2011 through Jet Air Agencies P. Ltd. and had shown to have earned an amount of Rs.33,26,784/-.

The statutory notice u/s. 148 of the Act was issued to which the appellant filed return, maintaining the same income as declared earlier. The reasons recorded in support of the re-opening were supplied to which the assessee raised objection. The objections were rejected by a speaking order passed by the AO dated 25.09.2018. Subsequently, statutory notices u/s. 143(2) and 142(1) of the Act were issued to which the assessee filed his response and furnished the required details. However, the AO vide order dated 27.12.2018 disallowed the amount of Rs.33,26,784/- (which were part of the income from business and profession shown by the assessee). The AO made an addition of equivalent amount u/s. 68 of the Act as “Income from other sources” and disallowed the set off of losses.

In appeal, the appellant challenged the re-opening on the ground that there was no case made out of any income having escaped assessment as the income earned through Jet Air Agencies Pvt. Ltd., was already offered to tax. It was contended that the amount could not have been shifted from ‘business income’ to ‘income from other sources’ purportedly as unexplained cash credit u/s. 68 of the Act. A specific contention was raised about the refusal to allow the set off of the current year losses of Rs.17,46,811/- against other heads of income.

The learned CIT(A) by the impugned order dated 25.03.2026 has dismissed the appeal.

We have heard parties. Perused record.

It is submitted by the learned AR that the basic requirement of finding that income chargeable to tax has escaped assessment is lacking in this case. It is submitted that the AO has merely categorized a part of the business income [which was already disclosed] as “Income from other sources” on account of addition u/s. 68 of the Act. He submitted that thus this is not a case in which it can be said that income assessable to tax had escaped assessment.

Reliance is placed on behalf of the appellant on the decision of Gujarat High Court in PKM Advisory Services (P.) Ltd (339 ITR 585) and the CBDT Circular No.11/2019 dated 19.06.2019, which is in the nature of a clarification regarding allowability of set-off of losses against deemed income u/s 115BE of the Act (prior to A.Y. 2017-18). It is submitted that in this case the AO has disallowed set off of losses, by which the appellant is aggrieved.

The learned DR has supported the impugned order. It is submitted that it was on the basis of the information received from the Investigation Wing that the case was re-opened and the AO was justified in passing the impugned order.

We have carefully considered the circumstances and the submissions made.

It is trite that a finding, albeit a prima facie finding, that income chargeable to tax has escaped assessment is a sine qua non for reopening an assessment. In the present case, as noticed earlier, the case was subject matter of scrutiny assessment prior to re-opening where only two additions/disallowances were made in respect of disallowance u/s.14A and disallowance on account of late contribution to Employees Provident Fund. It can be seen from the computation of income as filed by the assessee and the one worked out in para 13 of the assessment order, that the AO has merely treated a part of the income of Rs.33,26,784/- as unexplained cash credit u/s. 68 of the Act and the same has been shifted from the head ‘Income from business and profession’ to ‘Income from other sources’. In as much as the addition was made u/s. 68, the set off of the current year losses has also been disallowed by which the appellant is principally aggrieved.

First with reference to the re-opening, we find that the Gujarat High Court in the case of PKM Advisory Services (P.) Ltd (supra), has held that in the absence of any income having escaped assessment, the re-opening cannot be sustained. We find force in the submission on behalf of the appellant that the income being already declared there could not have been a finding as to escapement of income. The reopening thus cannot be sustained. In so far as the disallowance of set off of the losses is concerned, Circular No.11 of 2019 by the CBDT, it is clarified that in so far as the years prior to assessment year 2017-18 are concerned, the assessee is entitled to claim set off of losses u/s. 115BBE of the Act. The following para 4 of the Circular is relevant for the purpose :-