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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–9, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-9/597/ITO Wd.3(1)(4)/14-15 dated 14.07.2015 arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 04.03.2015 relevant to Assessment Year (AY) 2012-13.
ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
- 2 - 2. The grounds of appeal raised by the assessee are as under:- “1. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the order of Assessing officer not allowing set off of loss of Rs. 11,39,161/- under the head income from other sources against the salary income of Rs. 4,00.000/- and out of business income of Rs. 7,39,161/-. 2. On the facts and in circumstances of the case as well as law on the subject, the learned CIT(A) has erred in confirming the order of Assessing officer not allowing carry forward of loss under the head of income from other sources. 3. It is prayed that above addition/disallowance made by Assessing Officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted. 4. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.”
The solitary issue raised by the assessee is that ld. CIT(A) erred in not allowing setting off of the loss under the head income from other sources amounting to Rs. 11,39,161/- against the income under the head salary and business.
The briefly stated facts are that the assessee is an individual and director in two private limited companies. Similarly, the assessee is also partner to two partnership firm. The assessee during the year has earned taxable income in the form of salary from the private limited companies and interest on capital from partnership firm.
ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
- 3 - 4.1 Besides the above, the assessee has also shown income by way of interest under the head from other sources amounting to Rs.1,84,999/- only. The assessee against such interest income has claimed interest expenses paid to various parties amounting to Rs. 13,24,160/- only. As a result, there was a loss of Rs.11,39,161/- under the head income from other sources.
4.2 The assessee has set off the impugned interest loss under the head income from other sources against the salary income of Rs.4,00,000/- and interest income from partners for Rs.7,39,161/- .
However, the AO was of the view that the assessee is not entitled for set off of the loss claimed under the head income from other sources against the salary and business income u/s 71 of the Act. Accordingly, the assessee was show-caused vide letter dated 9.02.2015 for not allowing set off of the loss as discussed above.
4.3 The assessee in compliance to it submitted that he is entitled to set off of the loss under the head income from other sources in pursuance to the provision of Section 71 of the Act.
However, the AO disagreed with the contention of the assessee and disallowed the claim of set off of the loss of Rs.11,39,161/-. Hence, the
ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
- 4 - loss set off by the assessee was added back to the total income of the assessee.
Aggrieved, assessee preferred an appeal to ld. CIT(A). The assessee before the ld. CIT(A) submitted that the interest income earned from the partnership firm should be adjusted against the interest loss.
5.1 The assessee in addition to the above also submitted that he is eligible for set off of the loss u/s 71 of the Act. However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: “I have gone through the assessment order and the submissions made by the appellant in this regard. I find that the A.O. has given a very detailed reason for not to allow set off of loss of Rs. 11,39,161/- under the head Income from other sources. In this regard the reason given by the A.O. in para 3.8, 3.9 and 3.10 is worth noticing. There is ample merit in the arguments advanced by t A.O. The appellant's contention in this regard are untenable. Accordingly, the ground raised by the appellant does not subsist and the appeal is dismissed.”
Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.
The ld. AR before us filed a paper book running from pages 1-8 and reiterated the submission as made before the lower authorities.
ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
- 5 - 7. On the other hand, ld. DR vehemently supported the order of authorities below.
We have heard the rival contentions and perused the materials available on record. At the outset, we find that in the identical facts and circumstances the Hon’ble ITAT in the case of Shri Sumer Burmal Kothari (being father of the assessee) vs. ITO in ITA No.2868/Ahd/2015 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced below:
“3. We notice from chapter VI of the Act that the same prescribes aggregation of income and set off or carry forward of losses. Loss set off provision in case of inter head income comes u/s. 70. Section 71applies in case of intra head losses as under:- "[Set off of loss from one head against income from another. 71 (1) 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. (2) 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 assesee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets). [(2A) Notwithstanding anything contained in sub-section (1) or sub- section (2), where in respect of any assessment year, the net result of the computation under the head "Profits and gains of business or
ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
- 6 - profession" is a loss and the assessee has income assessable under the head "Salaries", the assessee has shall not be entitled to have such loss set off against such income.] (3)Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.] [(4) Where the net result of the computation under the head "Income from house property" is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section.]" 4. A perusal of section 71 makes it clear that it is enabling provision which allows set off of loss in case the net result of computation under any head of income other capital gains is a loss and there are no capital gains in the respectively assessment year. The same has been made subject to other provisions of chapter VI. Sub-section 1 itself clarifies that this set off of loss cannot be resorted to against income assessable for the very assessment year under any other head. We pause here for a second and revert back to facts of the case. The assessee's loss from other sources is not in dispute and so is his income from the other head of salary. Next comes sub-section 2 which applies in case the net result of computation under any head of income other than capital gains is loss and the assessee has income assessable under the head capital gains. This sub- section obviously does not apply to facts of the instant case. This is followed sub-section 2(A) inserted in the Act w.e.f. 01-04-2005 by the Finance Act, 2004. This sub-section starts with a non-obstante clause to above stated sub-section 1 and 2 bars set off of loss arising from profits and gains from business or profession against salary income. The same also does not apply in the facts of the case. We come to sub-section 3 prescribing set off of loss arising from capital gains. We do not enter into a lengthy discussion and observe that the loss in question is under the other sources. Similar is the situation in sub-section 4 applicable in case of income from house property. We are of the opinion that sub-sections 2 to 4 hereinabove do not act an exception to section 71(1) except to the extent indicated therein. We proceed further in this chapter and find that section
ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
- 7 - 74A only deals with losses from certain specified sources falling under the head income from other sources. The only specified source therein is horse racing which obviously does not apply in the instant case. 5. The Revenue strongly supports both the lower authorities' views a loss arising from the head other sources is not to be set off against salary income. We have thoroughly analyzed relevant provisions of section 71 hereinabove. We find that all negative covenants in section 71 sub-sections 2 to 4(supra) nowhere cover facts of the instant case. We reiterate that such clauses barring application of beneficial provision have to be literally interpreted and scope thereof cannot be widened. We accordingly conclude that the assessee's case seeking set off of his loss arising from other sources of Rs. 7,81, 608/- deserves to be set off against his salary income of Rs. 8 lacs (supra) as per section 71(1) of the Act. We order accordingly. The impugned disallowance of set off of loss is deleted. 8.1 The facts of the case on hand are identical to the order as discussed above, therefore respectfully following the same we reverse the order of authorities below and direct the AO to delete the addition made by him. Hence, the ground of assessee is allowed.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 15/11/2018
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ITA No.2869/Ahd/2015 Shri Siddharth K. Kothari vs ITO A.Y. 2012-13
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-9, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad. 5. 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad