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Income Tax Appellate Tribunal, DELHI BENCH “G” NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI B.R.R. KUMAR
O R D E R PER AMIT SHUKLA, JM:
The aforesaid appeal has been filed by the assessee against the impugned order dated 03.03.2016, passed by Commissioner of Income Tax (Appeals)-IV, Kanpur for the quantum of assessment passed u/s.143(3) for the Assessment Year 2011-12. In the grounds of appeal
, the assessee has raised the following grounds:
1. That the Id. CIT{A) has erred in law as well as on the facts of the case by confirming the additions of Rs.26,68,500/- u/s. 69 of the Income tax Act, 1961 as against the addition thereof u/s 40A(3) as made by the Id. A.O. and the action of the ld. CIT(A) is totally unjust & unlawful as particulars of any unexplained investment has not been brought on record either in assessment proceedings or in appeal proceedings to justify an addition u/s. 69 of the Income Tax Act. 1961.
2. That the ld. CIT(A) has erred in law by confirming the addition of Rs.85,000/- u/s. 69 being the amount of cash found with an employee of the appellant from his residence at the time of search operation.
3. That the ld. CIT (A)has erred in law by directing that the depreciation for the year under reference shall not be available for set off against addition confirmed u/s. 69 as above and directing the same to be carried forward for set off in succeeding years as the ld. CIT(A) did not have powers to issue such directions, which are against the express provisions of law.
4. That the ld. CIT(A) has erred in law as well as on the facts of the case by confirming the additions as above ignoring appellant’s submissions to the effect that the appellant company was under erection and the total additions related to the period before commencement of its business w.e.f. 01.03.2011 as before that date the appellant could not be assumed to have earned any income from any source.”
2. The facts in brief are that the assessee-company is engaged in the hotel business. A search and seizure operation was carried out in the premises of the assessee in Meerut on 09.09.2010 and in Goa. During the course of search, certain documents were seized from Goa marked as Annexure A-3 and specifically pages 67 and 68, which contained details of payment received by Shri Mandeep Singh from Shri Jitendra Singh Bajwa and Shri Bhupendra Singh Bajwa, in cash during the period 26.09.2009 to 01.09.2010. A show cause notice was issued to the assessee as why the amount of Rs. 26,68,500/- given in cash to Shri Mandeep Singh which actually relates to assessee should not be added as income of the assessee for Assessment Year 2011-12. In response, assessee submitted that the hotel was at construction stage and no expenses has been claimed as deduction in the profit & loss account and most importantly, the address mentioned in the seized annexure is the personal residence of Shri Mandeep Singh, who had independent construction business and the paper found from his premises relates to him. However, the ld. Assessing Officer did not accept the assessee’s contention on the ground that no documentary evidences have been provided to prove that the said annexure does not belong to the assessee and the premise searched belongs to Shri Mandeep Singh. During the search proceedings, Shri Mandeep Singh has accepted that he is working as an employee of the company. Accordingly, Assessing Officer has made disallowance u/s. 40A (3) of Rs.26,68,500/- being expenses incurred in cash. Further, addition of Rs.85,000/- has been made on account of cash seized and found during the search from the premises of the assessee company for which no explanation was offered.
3. In the first appeal, ld. CIT (A) held that addition cannot be made u/s. 40A (3), because the hotel was under construction and no expenses have been claimed in the profit & loss acount. However, he has made the addition u/s.69 on the ground that these payments towards capital-work-in- progress. The assessee had also raised alternative plea that there was a claim of loss of Rs.39,05,893/- which includes loss on depreciation of fixed assets and business loss. However, the Ld. CIT (A) rejected the said contention holding that this loss is not available for set off against addition confirmed u/s.69 of the Act. Regarding addition of Rs.85,000/- being cash found during the search made u/s 68, the same has been confirmed by the Ld. CIT(A) on the ground that no explanation was given either before the Assessing Officer or before him.
5. Before us, ld. counsel for the assessee, Mr. Sandeep Sapra, submitted that the addition was made u/s. 40A (3) and Ld. CIT(A) without giving opportunity to the assessee has confirmed the same u/s.69. Accordingly, such an addition is beyond the scope of powers of Ld. CIT (A). On merits, he submitted that the seized material/documents, on the basis of which addition has been made, was found from 1266/B, 2nd Floor, San Paulo, Opposite Cafe Coffee Day near football ground, Candolim, North Goa which happened to be the residence of Sh. Mandeep Singh and not from the premises of the Assessee-Company. During the course of assessment proceedings, it was submitted that Shri Mandeep Singh was an employee of the Assessee-Company but carried out his own independent construction business also. Therefore, the seized documents could not be recorded as books of accounts of the Assessee-Company as neither the name nor the stamp of the Assessee -Company is there in the said documents.
Further, authorities below have not brought any evidence on record to prove that the cash payment received by Shri Mandeep Singh were unaccounted investments of the assessee-company nor there was anything to prove that cash payments made by Shri Mandeep Singh to various parties were unaccounted investments of the assessee. Even during the course of post search inquiry, statement on oath of Shri Jitendra Singh Bajwa was recorded who was confronted with regard to cash payment received by Shri Mandeep Singh. He clearly submitted that he is not aware what Shri Mandeep Singh was writing in his books and denied such cash payments to Shri Mandeep Singh and no statement of Shri Bhupendra Singh Bajwa was recorded. No evidence was brought on record to prove that, either the seized material belonged to assessee-company or the receipts/expenses noted therein pertained to the assessee, therefore, no addition should be made.
Lastly, with regard to the addition of Rs.26,68,500/- made u/s 69 as well as Rs.85,000/- made u/s.68, he submitted that Ld. CIT(A) has erred in law in not allowing the addition made to be set off against unabsorbed depreciation and business loss. In support, he strongly relied upon the CBDT Circular No. 11/2019 dated 19.06.2019 wherein CBDT has clarified that prior to Assessment Year 2017-18 income referred to in Section 115 BBE(1) is allowed to be set off from the losses coming from the earlier year or during the year prior to the amendment brought in the Finance Act, 2016 w.e.f. 01.04.2017. He also placed reliance upon the decision of ITAT Indore Bench in case of Pumarth Properties & Holding Pvt. Ltd. vs. DCIT in dated 31.01.2018.
On the other hand, ld. DR strongly relied upon the order of the Assessing Officer and Ld. CIT (A) and submitted that the additions made u/s.69 deserves to be confirmed because the assessee had failed to give proper explanation. He also relied upon the following judgments: “1 Kahan Udyoq Vs CIT T20131 38 taxmann.com 261 (Delhi)/[2013] 219 Taxman 23 (Delhi MAG.) where Hon’ble Delhi High Court held that where appellant failed to explain purpose and nature of expenditure disclosed in search and same was also not recorded in books of account, addition was to be made under section 69C. 2. Roger Enterprises P. Ltd. v. CIT (2016) 72 taxmann.com 167 (SC) SLP dismissed against High Court's ruling that where evidence of one of two witnesses was by itself sufficient to draw adverse inference against assessee that commission payments made by it were fictitious, refusal by assessee to cross- examine said witness must follow that assessee had accepted said witness and commission payments were rightly disallowed
3. Roger Enterprises P. Ltd. v. CIT f20161 67 taxmann.com 344 (Delhi)/(2016) 238 Taxman 434 (Delhi)/(2016) 382 ITR 639 (Delhi) Delhi High Court held that where evidence of one of two witnesses was by itself sufficient to draw adverse inference against assessee that commission payments made by it were fictitious and assessee declined to cross-examine said witness on ground that it had to be preceded by cross-examination of other witness, it must follow that assessee had accepted said witness and commission payments were rightly disallowed.”
We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as material referred to before us. The impugned addition relates to addition of Rs.26,68,500/- made u/s 69 based on seized documents found from 1266/B, 2nd Floor, San Paulo, Opposite Cafe Coffee Day near football ground, Candolim, North Goa, which is a residence of Sri Mandeep Singh. These seized annexure referred to certain cash payments received by Shri Mandeep Singh which has been treated to be as unexplained payments/investments made by the assessee- company in the construction of the hotel. From the documents placed in the paper book as well as observations noted in the impugned assessment order, it is an admitted fact that these seized documents was not found from the premises of the assessee company albeit it was from the premises of Shri Mandeep Singh in Goa, who was an employee of the assessee-company at the relevant time. The assessee had submitted that he had his own independent construction business also. However, neither the statement of Shri Mandeep Singh was recorded nor any evidence has been produced by the assessee that he carried on any independent construction business. However if one goes by the presumption under the law, then if the documents have not been found from the premises of the assessee, then presumption u/s.132(4A) r.w.s. 292C cannot be drawn against the assessee. However, without going into the merits of the addition made u/s.69 of Rs.26,68,500/- and cash of Rs.85,000/- found with an employee of the assessee made u/s 68 of the Act, we find substance in the argument raised by the ld. counsel that said addition should be set off from the losses on account of depreciation of Rs.38,13,822/- and business loss of Rs.92,071/-. The said loss was claimed in the revised return and it consists of loss arising from depreciation put to use w.e.f. 01.03.2011 and business loss during the year. Though, the Assessing Officer has disallowed the unabsorbed depreciation, however, the Ld. CIT (A) in paragraph 6.2 has given direction to the Assessing Officer to calculate the depreciation allowance as per Section 32(1) read with Explanation 5 of the Act. The relevant observation and the finding of the Ld. CIT (A) in this regard read as under: “6.2 I have gone through the submission of appellant. The appellant has also relied circular no.14 dated 11.04.55 of CBDT and he has further placed reliance on L. Hriday Narayan vs. CIT, 78 ITR 26 (SC) & Parasuram Prtray Works Co. Ltd. Vs. ITO 106 ITR 1 (SC). In which it has been held that Assessing Officer is duty bound to complete the assessment of assessee’s income and mistake of assessee cannot be taken advantage by him. There is force in the argument of AR. Since the Assessing Officer has given no finding as to why he has ignored the claim of depreciation allowance, therefore, in view of factual and legal position, he is directed to calculate the depreciation allowance as per section 32(1) read with Explanation 5 of the Act.”
However, Ld. CIT (A) has held that this loss will not be available of set off against the addition confirmed u/s.69.
As pointed out by the Ld. Counsel CBDT Circular No.11/2019 dated 19th June, 2019, has clarified regarding non available of set off loss against the deemed income u/s.115BBE prior to the Assessment Year 2017-18. The relevant circular reads as under:- Circular No. 11 /2019 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes
North-Block, New Delhi, dated the 19th of June, 2019
Subject: Clarification regarding non-allowability of set-off of losses against the deemed income under section 115BBE of the Income-tax Act, 1961 prior to assessment-year 2017-18-reg. With effect from 01.04.2017, sub-section (2) of section 115BBE of the Income-tax Act, 1961 (Act) provides that where total income of an assessee includes any income referred to in section(s) 68/69/69A/69B/69C/69D of the Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provisions of the Act in computing the income referred to in section 115BBE(1) of the Act.
In this regard, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that in assessments prior to assessment year 2017-18, while some of the Assessing Officers have allowed set off of losses against the additions made by them under Section(s) 68/69/69A/698/69C/69D, in some cases, set off of losses against the additions made under Section 115BBE(1) of the Act have not been allowed. As the amendment inserting the words 'or set off of any loss' is applicable with effect from 1st of April, 2017 and applies from assessment year 2017-18 onwards, conflicting views have been taken by the Assessing Officers in assessments for years prior to assessment year 2017-18. The matter has been referred to the Board so that a consistent approach is adopted by the Assessing Officers while applying provision of section 115BBE in assessments for period prior to the assessment year 2017-18.
The Board has examined the matter. The Circular No. 3/2017 of the Board dated 20th January, 2017 which contains Explanatory notes to the provisions of the Finance Act, 2016, at para 46.2, regarding amendment made in section 1156BE(2) of the Act mentions that currently there is uncertainty on the issue of set-off of losses against income referred to in section 115BBE. It also further mentions that the pre-amended provision of section 115BBE of the Act did not convey the intention that losses shall not be allowed to be set-off against income referred to in section 115BBE of the Act and hence, the amendment was made vide the Finance Act, 2016.
Thus keeping the legislative intent behind amendment in section 115BBE (2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term 'or set off of any loss' was specifically inserted only vide the Finance Act 2016, w.e.f. 01.04.2017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17.
The contents of this Circular may be circulated widely for information of all stakeholders and departmental officers. The pending assessments and litigations on this issue may be handled accordingly.”
The aforesaid circular thus clearly provides that the Assessing Officer should allow the said loss against the addition made u/s.68/69 etc. and the amendment brought by the Finance Act, 2016 is w.e.f. 01.04.2017 and any denial of such set off is only applicable from the Assessment Year 2017-18; and assessment for the period prior to Assessment Year 2017-18, such set off would be allowed against income determined u/s.115BBE. Thus, in view of clear cut clarification by the CBDT, we hold that the addition of Rs.26,68,500/- made u/s. 69 and addition of Rs.85,000/- made u/s.68 is liable to be set off from the loss aggregating to Rs.39,05,893/-. Accordingly, the additions made by the Assessing Officer and confirmed by the Ld. CIT (A) would be liable to be set off from such losses. With this direction, the appeal of the assessee is partly allowed.
In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on 14th October, 2019.