SRI LAXMI NARAYANA JUTE MILLS(P) LIMITED,BOBBILI vs. INCOME TAX OFFICER, WARD-1,, VIZIANAGARAM

In this case, the assessee filed the return of income declaring loss of Rs.50,12,185/- for the assessment year 2013-14 on 31.10.2013. The Assessing Officer (AO) completed the assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter called as ‘Act’) on total loss of Rs.24,266/-, thereby making the addition of Rs.49,87,919/-.

During the assessment proceedings, the AO made the addition of Rs.49,87,919/- u/s 68 of the Act and allowed the same to be set off against the loss declared by the assessee. The assessment was completed u/s 143(3) by an order dated 31.03.2016. Subsequently, the AO issued notice u/s 154 of the Act dated 19.08.2016 stating that the unexplained cash credits representing Rs.49,87,919/- required to be taxed at flat rate of 30% u/s 115BBE of the Act and the same cannot be set off against the loss under any other head. Since the assessee failed to respond to the notice issued u/s 154 of the Act, the AO passed rectification order on 27.10.2016 taxing the unexplained cash credits of Rs.49,87,919/- @30% as per section 115 BBE of the Act.

Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the order of the AO.

During the appeal hearing, the Ld.AR submitted that the AO has invoked the provisions of section 115BBE of the Act which was introduced in the statute by Finance Act 2012 w.e.f. 01.04.2013. However, sub section 2 of section 115BBE was amended by Finance Act 2016 w.e.f. 01.04.2017 placing restrictions on set off of loss. As per sub section 2 of section 115BBE, the AO is not allowed to set off the addition resulting on account of section 68 and 69D against the loss and required to be taxed separately @30%. However, the rate of 30% was also enhanced to 60%. The Ld.AR submitted that the said provision not to allow the expenditure or allowance against the loss is applicable from the assessment year 2017-18, but not applicable to the impugned assessment year. Accordingly argued that the AO has committed an error and the Ld.CIT(A) erred in confirming the addition made by the AO.

On the other hand, the Ld.DR strongly supported the orders of the lower authorities.

We have heard both the parties and perused the material placed on record. In this case, the AO made the addition representing share application money as unexplained cash credit and allowed the set off the addition against the loss declared by the assessee. Subsequently rectified the assessment u/s 115BBE by withdrawing the set off of loss already allowed and taxed the addition separately @30% u/s 115BBE of the Act. As per section 115BBE in sub section 2, not to allow the set off of expenditure as an allowance was inserted by Finance Act 2016 w.e.f. 01.04.2017. For ready reference we extract section 115BBE as applicable for the A.Y. 2013- 14 which reads as under : “115BBE. (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).]”

Since the provision is introduced w.e.f. assessment year 2017-18 and was not made retrospective effect, the same is not applicable to the impugned assessment year. Therefore, the order of the Ld.CIT(A) is

Even otherwise, in the assessee’s appeal in I.T.A. No.398/Viz/2018 of even date we have deleted the addition made by the AO, therefore, the order passed u/s 154 becomes infructuous and consequently the order of the Ld.CIT(A) stands cancelled.

In the result, appeal of the assessee is allowed.