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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’ NEW DELHI
Before: SHRI PRASHANT MAHARISHI & SHRI K.NARASIMHA CHARY
PER K. NARASIMHA CHARY, JM
Aggrieved by the order dated 26/03/2018 passed by the learned Commissioner of Income Tax (Appeals)-2, Gurgaon ("Ld. CIT(A)")for the assessment year 2012-13, Oberoi Motors (“the assessee”) filed this appeal. 2. Brief facts of the case necessary for the disposal of this appeal are that there was a survey operation under section 133A of the Act at the residential as well as the business premises of M/s Shaktiman/Kirtimangroup of cases on 4/9/2012 and 24/9/2012. During
such survey, the assessee offered an additional income of Rs. 85,58,000/- in the assessment year 2012-13. However, during the assessment proceedings for the assessment year 2013-14, attaining a doubt, learned Assessing Officer called for the income-tax return and balance sheet for the assessment year 2012-13 and found that the assessee had filed the Income Tax return for assessment year 2012-13 declaring a total income of Rs. 65,42, 853/-as against the surrendered income of Rs. 85, 58, 000/-, after setting off the business loss against the income surrendered during the course of survey, and such a set off, according to the learned Assessing Officer, is not allowable. He, therefore, after following the procedure under section 147 of the Income Tax Act, 1961 (the Act) disallowed the losses which were set off by the assessee against the surrendered amount. Learned Assessing Officer allowed the salary to partners to the tune of Rs. 1.5 Lacs, on the ground that in view of the fact that the disallowance of the set off of the business losses would result in the business loss of Rs. 16,74, 747/-before allowing interest and salary to the partners against the business of the assessee firm.
Assessee preferred appeal before the Ld. CIT(A) and argued that in the case of PCIT vs. M/s Kushi Ram and Sons it was held that the surrendered amount is from business income and therefore, set off of the business losses could be allowed out of it. Ld. CIT(A) did not accept the contention of the assessee and held that the surrendered amount is deemed income and does not fall under any of the head of income and therefore no set off of business losses could be allowed. Ld. CIT(A) consequently dismissed the ground relating to the allowance of the partners salary also.
Assessee is therefore, before us in this appeal contending that the business income to the tune of Rs. 85, 58, 000/-surrendered by the assessee, was already recorded in the books of accounts and therefore it would be unreasonable to treat the same as not falling under any of the head of income, more particularly in view of the decision of the Hon’ble Apex Court in the case of LukhmichandBaijnath vs. CIT 35 ITR 416 (SC) wherein it was held that in case an amount is found credited in the books of accounts of the business, it would not be unreasonable to treat the same as business income. Ld. AR further submitted that in the case of the sister concern, namely, Kirtiman Cement and Packaging Private Limited, a coordinate Bench of this Tribunal in ITA No. 2777 and 2778/Del/2017 by order dated 15/5/2018 for the assessment years 2012-13 and 2013-14 allowed the business losses to be set off against the surrendered amount. He further placed reliance on the CBDT circular No. 11/2019 dated 19/06/2019 wherein the board had accepted that prior to 1/4/2017 set off of losses shall be allowed against the deemed income. He also placed reliance on the decision of a coordinate Bench of this Tribunal in the case of Ace Infracity Developers Private Limited in ITA No. 1087 /Del/ 2018 order dated 5/3/2021.
Ld. DR submitted that the learned Assessing Officer placed reliance on the decision of the Hon’ble Apex Court High Court in the case of Fakir Muhamed Haji Hasan vs. CIT 247 ITR 290 and the deletion of the Hon’ble Punjab and Haryana High Court in the case of M/s Kim Pharma in ITA No. 106 of 2011 dated 27.04 2011. She further submitted that in Kushi Ram (supra) it was held that it is not necessary that the surrendered amount is from business income. She therefore submits that
the orders of the authorities below are justified and the assessee cannot be allowed to set off the business losses out of the deemed income.
We have gone through the record in the light of the submissions made on either side. There is no dispute that from the inception the assessee had been contending that from the regular business of the assessee in trading of LML Vespa scooters, the property business income was already recorded in the books of the assessee to the tune of Rs. 85, 58, 000/-and after adjusting the losses to the tune of Rs. 20, 15, 147/- which were also recorded in the books by the time, the net income of Rs. 65, 42, 853/-was arrived and the same was mentioned in the return of income. Ld. CIT(A), as a matter of fact observed that the assessee introduced the cash in the books of accounts in the name of property income from property dealings. According to the authorities below, however, the surrendered amount is only a deemed income and no set off of business losses is allowable out of them.
As rightly contended by Ld. AR, in the case of LakhmichandBaijnath (supra) the Hon’ble apex court held that in case any amount is found credited in the books of accounts of the business, it would not be unreasonable to treat the same as business income. A copy of the order dated 15/5/2018 in the case of M/s KirtimanCements (supra) is produced before us and a coordinate Bench of this Tribunal after considering a catena of case law held that section 115BBE was amended w.e.f. the assessment year 2017-18 stating that the loss will not be allowed against the income assessed under section 68 to 69D of the Act and therefore, for the assessment years under consideration such business losses could be allowed to be set off.
We have also gone through the circular No. 11/2019 issued by the CBDT wherein it is clearly stated that the amendment inserting the words “or set off of any loss” is applicable with effect from 1/4/2017 and in view of the fact that there were conflicting views taken by the Assessing Officers in the assessment years prior to the assessment year 2017-18, keeping the legislative intent behind the amendment in section 115 BBE (2) while The Finance Act, 2016 to remove any ambiguity of interpretation, the Board was of the view that since the term “are set off of any loss” was specifically inserted only vide the Finance Act, 2016 w.e.f. 1/4/2017, an assessee is entitled to claim set off of loss against income determined under section 115 BV of the Act till the assessment year 2016-17.
From the above it is clear that, in view of the fact that the assessee had already introduced the transactions in their books of accounts in the name of property income from property dealing, it would not be reasonable to say that such income does not fall under any of the head of income or that such deemed income does not allow any set off of business losses. We are inclined to accept the contention of the assessee that the surrendered income, in respect of which the entries had already been made in the books of accounts of the assessee in relation to the property income from property dealing, amount to business income and it allows the set off of the business loss to the tune of Rs. 20, 15, 147/-. We, therefore, direct the assessing officer to delete the disallowance of the set off of the business loss.
The disallowance of Rs. 1.5 Lacs out of salary paid to partners under section 40 (b) of the Act has to be worked out keeping in view the
consequences of the deleting the disallowance of the set off of the business loss. We set aside the impugned order on this aspect, and remand issue to the file of the learned Assessing Officer to work out the maximum allowable salary to partners.
In the result, appeal of the assessee is allowed in part and for statistical purpose. Order pronounced in the open court on this 16th day of July, 2021. Sd/- Sd/- (PRASHANT MAHARISHI) (K. NARSIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 16/07/2021