Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI VIKRAM SINGH YADAV, ACCOUNTANT & SHRI RAJ KUMAR CHAUHAN
ORDER Per: Vikram Singh Yadav, A.M.: The present appeal by the assessee is directed against order dated 18.11.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2012-13 wherein he has confirmed the findings of the Assessing officer in rejecting the assessee’s application u/s 154 seeking rectification of assessment order passed u/s 143(3) r/w 147 dated 29/12/2016.
Briefly the facts of the case are that the assessee filed its return of income on 30.11.2011, declaring total income (loss) of Rs. 55,45,600/-. The return of income was processed u/s. 143(1) vide intimation dated 07.01.2012. Thereafter the case of the assessee was reopened and notice u/s. 148 was issued on 17.03.2016. In response, the assessee filed a letter dated 05.04.2016, stating that the return originally filed may be taken as return filed in response to notice u/s. 148 of the Act. Thereafter, notice u/s. 143(2) and 142(1) were issued calling for the information/documentation and assessment was completed u/s. 143(3) r/w 147 vide order dated 29.12.2016, wherein AO brought to tax unsecured loans amounting to Rs. 2,41,72,800/- u/s. 68 of the Act, interest on sham transactions on unsecured loans amounting to Rs. 11,36,500/- and commission on sham transaction on unsecured loans amounting to Rs. 362,592/- under the head “income from other sources and assessed income was determined at Rs. 2,56,71,892/- wherein tax @30% was levied amounting to Rs. 77,01,568/-. As far as the current year loss of Rs. 55,45,600/- as per return of income filed by the assessee, no set-off was allowed, however, the same was allowed to be carried forward to subsequent years.
3. Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A) and as so submitted by the Ld. AR during the course of hearing before us, the matter is currently pending adjudication before the Ld. CIT(A) and no order has been passed disposing off the assessee’s appeal.
Separately, the assessee moved an application vide letter dated 22.01.2020 seeking rectification of the assessment order so passed u/s 143(3) r/w 147, which was disposed off by the AO by passing the order u/s. 154 dated 14.01.2020, wherein the application so filed by the assessee was rejected. The assessee again carried the matter in appeal before the Ld. CIT(A) who has upheld the findings of the AO and against the said order, the assessee is in appeal before us.
During the course of hearing, the Ld. AR drawn our reference to the rectification application so filed by the assessee before the AO and the contents thereof reads as under: “with reference to your order passed u/s 143(3) r.w.s 147 along with Computation Sheet and notice u/s.156 of the Income Tax Act, 1961 dated 29/12/2016 served on us we have to state as under:
While passing the order u/s. 143(3) r.w.s 147 for the Asst. Year 2011-12 your good self has in Para 9 of the assessment order assessed the income unsecured loan u/s. 68" amounting to Rs. 2,41,72,800 under Income From Other Sources. The said loans were taken for the purpose of business & were also utilized for the purpose of business. Your good self has disallowed the interest on sham transactions of unsecured Loans under the head Income from other sources. The said interest has been claimed for the business. Section 68 does not specify that the addition u/s. 68 is to be taxed as income from other sources only. Section 14 of the Income Tax Act provides that all income shall, for the purpose of charge of Income tax and computation of total income, be classified under the following head of income and then specifies the different 5 heads of income. The income is to be taxed under the specific head of the income. Where an item falls specifically under one head, it has to be charged under that head and no other-United Commercial Bank Ltd. V. CIT (32 ITR 688) SC. As can be seen from the language of sec 56, one of the main planks of an income falling under this head is if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. It follows that for any income to fall under other sources, first it has to pass the test that such income can not fall under any other heads ie salary, House property, Business or capital gains. It is only then the income can be taxed under other sources. In case the source of income is undisclosed, how can it be ruled out that the income does not fall under any other heads. For example in the four instances taken above in this para, if the assets owned are found, their value will be taxed u/s 68/69/69A/69B etc if no information about source is given. However if source is proved sec 68/69/69A/698 will not apply & the income will be assessed under respective heads i.e. house property, capital gains, other sources or business. In view of this it is clear that the income from an undisclosed source cannot be classified under the head other sources by its very definition. Reliance is also placed on the decision of the hon. Cochin ITAT in the case of Bhima Jewellers I.T.A. No. 208/Coch/2018. Considering above, since the loans were taken for the purpose of business & utilized for the purpose of business, the same can be taxed under the head Income from Business or Professions only, if it is to be taxed and if taxed then set off the c/f business loss of Rs. 22,73,038 for Α.Υ 2010-11 against Income from other sources 2,41,72,800 in of Rs accordance with circular No.11/2019 dt. 19.06.2019, copy of which is enclosed for your reference Since, your good self has made addition u/s. 68 under the head Income from other sources, your good self is kindly requested to delete the said addition as it is mistake apparent from records.
2. Your good self has erred by not adjusting the current year loss under the head Profits and gains from Business or Profession amounting to Rs. 55,45,600 including depreciation of Rs. 392810 against income from other sources as provided in Section 71(1). Please note that the provisions of Section 115BBE are not applicable for the Asst. Year 2011-12. We kindly request your good self to allow the set off of loss as stated above.
Your good self has not reflected b/fd. business loss of Rs. 22,73,038 of asst. Year 2010-11. The said loss is reflected in intimation u/s. 143 (1) vide communication reference no. CPC/1011/16/1008417264 dated 03.02.2011. We kindly request your good self to reflect the said b/fd. business loss of Rs. 22,73,038.”
Further, our reference was drawn to the order rejecting the application passed by the AO u/s. 154 of the Act and the contents thereof read as under: “3. It is seen on verification that the assessee's contention regarding the amount of bogus credits to be considered as business income which is mainly on the ground that the money was borrowed for business does not have any basis as the amounts shown as loans were unexplained and source thereof has not been explained. As regard set off of losses it is seen that the assessee has mainly relied on CBDT Circular No.11/2019 clarifying that prior to A.Y 2017-18 the assessee is to be allowed set off of any loss for the year as per the provisions of the Act against income referred to in Section 115BBE of the Act. However it is seen that the provisions of Section 115BBE was inserted w.e.f. 01.04.2013 and the circular referred to by the assessee is not applicable to the year under consideration when Section 115BBE was not in the statute. In fact it is relevant to cite the decisiori of the Gujarat High Court in the case of Fakir Mohmed Haji Hasan Vs. CIT (247 ITR 290) and Kerala High Court in the case of CIT Vs. Kerala Sponge Irons Ltd reported in 379 ITR 330 wherein it was held that income determined u/s.68 and such other sections beyond Section 57 of the Act does not fall in the ambit of nature of income specified in Section 14 of the Act as the source of such receipts are not proved. Accordingly the provisions of Section 71 are not applicable to such income. Such view has also been held by the Cochin Bench of ITAT in the case of Bhima Jewellers in ITA
No.208/Coch/2018 vide order dated 20.08.2018. In view of the said facts and legal position it is seen that there is no mistake apparent from record in the case of the assessee. 4. In view of the above the rectification application of the assessee is hereby rejected. The total income of the assessee remains the same as per order u/s.143(3) r.w.s. 147 dated 29th December, 2016 at Rs. 2,56,71,892/- as per normal provisions and loss of Rs.56,03,175/- as per U/s. 115JB.”
Further, our reference was drawn to the findings of the Ld. CIT(A) which are contained at para 5.5 of the impugned order and the contents thereof reads as under: “5.5 In my considered opinion the contention of the appellant is not correct due to the fact that AO had not applied section 115BBE as provisions of section 115BBE was inserted w.e.f. 01.04.2013 Respectfully following the judgement of Gujarat High Court in the case of Fakir Mohmed Haji Hasan vs. CIT (247) ITR 290 and Kerala High Court in the case of CIT Vs. Kerala Sponge Irons Ltd. Reported in 379 ITR 330 wherein it was held that income determined u/s 68 and such other action beyond section 57 of the Act does not fall in the ambit of nature of income specified in the Section 14 of the Act as the source of such receipts are not proved. Accordingly, the provisions of section 71 are not applicable to such income. Such view has also been held by the Cochin Bench of ITAT in the case of Bhima Jewellers in vide order dated 20.08.2018.It was also held that when income is determined under the head 69,68of the Act are not assessable under the head income from other sources and business losses cannot be set off against the income assessed under deeming provisions of section 68 which is not falling under any head of income”
Drawing reference to the aforesaid factual matrix of the case and the findings of the authorities, it was submitted that the AO has erred in not allowing the set-off of current year business loss amounting to Rs. 55,45,600/- against the income brought to tax
under the head “income from other sources”. In this regard, our reference was drawn to the provisions of section 71(1) which allows set-off of loss under one head against the income under another head of income during the financial year relevant to the assessment year and it was submitted that there is no restrictions as such which has been provided u/s. 71(1) of the Act. It was further submitted that the amendment to section 115BBE is applicable from A.Y. 2017-18 and in this regard, our reference was drawn to the CBDT circular number 11/2019 dated 19.07.2019.
It was further submitted that the assessee has also claimed set off of brought forward business losses amounting to Rs. 22,73,038/- pertaining to A.Y. 2010-11 against the income brought to tax by the AO in terms of the order passed u/s. 143 r/w 147 of the Act. However, the AO has not allowed the set off of brought forward business losses as well. In this regard, reference was drawn to the provisions of Section 72, wherein it has been provided that the set off of business losses is available against income not necessarily assessed under the head “business income” and set off is available against such income which would have semblance of business income. In this regard reference was drawn to the decision of Coordinate Mumbai Benches in case of Digital Electronics Limited V. Addl. CIT [2011] 16 taxmann.com 361, Hon’ble Bombay High Court decisions in case of CIT V. Hickson and Dadajee Pvt. Ltd. (ITXA/1493/2014 dated 28.02.2017) and in case of PCIT V. Alcon Developers [2021] 432 ITR 277.
Per contra the Ld. DR has relied on the orders passed by the lower authorities. It was submitted that the matter is already been agitated by the assessee before the Ld. CIT(A) and it is likely that the similar grounds have been taken before the Ld. CIT(A) as well and in light of the same, the present appeal is not maintainable.
In its rejoinder, the Ld. AR stated that it is not in dispute that the assessee has filed an appeal against the quantum additions made by the AO before the Ld. CIT(A) and at the same time, the ld AR stated that as far as the matter relating to set off of the current year business losses as well as the set off of the brought forward business losses is concerned, the assessee has not taken any ground before the Ld. CIT(A). It was submitted that in any case, the Ld. CIT(A) vide the impugned order has already disposed off the assessee’s appeal challenging the order passed by the AO u/s. 154 of the Act and in the light of the same, the objection so taken by the Ld. DR deserve to be rejected.
We have heard the rival contentions and pursued the material available on record. The limited dispute relates to set off of business loss under the head “Profit/gains of business or profession” pertaining to the financial year relevant to impugned assessment year 2011-12 amounting to Rs 55,45,600/- as well as set off of brought forward of business loss under the head “Profit/gains of business or profession” amounting to Rs 55,45,600/- from the previous assessment year 2010-11 against
the income assessed under the head “Income from other sources” for the impugned assessment year 2011-12.
As far as the first issue is concerned, it is not in dispute that the assessee has claimed loss under the head “Profit/gains of business or profession” in its return of income filed for the year under consideration and which has been accepted and assessed by the AO while passing the assessment order u/s 147 r/w 143(3) of the Act. The quantum of business loss and the head of income being under the head “Profit/gains of Business or profession” is thus not in dispute. It is also not in dispute that the AO has brought to tax an amount of Rs 2,56,71,892/- under the head “Income from other sources”.
The provisions of section 115BBE were not on the statute for the impugned assessment year and have been brought in by the Finance Act, 2012 w.e.f 1-04-2013 and are thus not relevant for deciding the matter under consideration.
In terms of Section 71(1) of the Act, it has been provided that “where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.” We therefore find that in the instant case, the net result of computation under the head “Profit/gains of Business or profession” is a loss and the assessee has assessed
income under the head ‘Income from other sources” for the impugned assessment year and the business loss is thus eligible for set off against the income from other sources. All facts are on record and the language of the statue is clear leaving no doubt for any interpretation or calling for any long drawn process of reasoning and analysis and the assessee is thus eligible for set- off of business loss of Rs 55,45,600/- against the income from other sources and the matter thus calls for necessary rectification and the AO is directed to allow such set off to the assessee.
In terms of set off of brought forward business loss under the head “Profit/gains of business or profession” amounting to Rs 55,45,600/- from the previous assessment year 2010-11 against the income assessed under the head “income from other sources” for the impugned assessment year, as pointed out by us during the course of hearing, even though the assessee has sought such set off as part of its rectification application, there is no finding recorded by the AO in this regard. In absence of requisite finding of the AO, we deem it appropriate to set-aside the matter to the file of the AO to examine such claim of the assessee and to decide the same as per law. The contentions so raised before us are thus left open and not adjudicated upon and the assessee is at liberty to raise the same before the AO who shall consider the same while deciding the matter.
In the result the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 14/05/2025 Sd/- Sd/- (RAJ KUMAR CHAUHAN) (VIKRAM SINGH YADAV) Judicial Member Accountant Member Mumbai Dated: 14/05/2025 Anandi.Nambi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order