INNOVATIVE CONSTRUCTION P. LTD,MUMBAI vs. ACIT 12 (2)(2), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “C”, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., v. ACIT – 12(2)(2) 1st Floor, Samir Complex Room No. 145, 1st Floor St. Andrews Road, Bandra (W) Aayakar Bhavan, M.K. Road Mumbai – 400050 Mumbai – 400 020 PAN: AAACI1573M (Appellant) (Respondent) Assessee by : Shri Yogesh A. Thar Department by : Ms. Shreekala Pardeshi

Date of Hearing : 03.12.2020 Date of Pronouncement : 11.12.2020

O R D E R PER C.N. PRASAD (JM)

2 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., “GROUND I: Addition of Rs. 4,54,551 under section 69A of the Act 1.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in confirming the addition of Rs. 4,54,551, made by the Assistant Commissioner of Income Tax - 12(2)(2), Mumbai ('the AO'), to the total income of the Appellant under section 69A of the Act. 1.2 He failed to appreciate and ought to have held that the account does not belong to the Appellant and that it did not have knowledge about the current account and the fixed deposit account allegedly standing in its name with Oriental Bank of Commerce, or as to who have even opened that account in its name. 1.3 The Appellant, prays that the addition of Rs. 4,54,551 made by the AO under section 69A of the Act be deleted. Without prejudice to Ground I Ground II: Total income referred to in section 115BBE(1) of the Act is the positive amount if any, arrived at after setting of income of the nature referred to in Section 69A against business loss of the current year

2.1 On the facts and circumstances of the case and in law, and without prejudice to the foregoing ground, the CIT(A) erred in holding that income-tax is to be calculated @ 30% on addition made under section 69A of the Act, though the said addition has been fully set off against the business loss of the current year. 2.2 He failed to appreciate and ought to have held that since the amount of addition under section 69A has been fully set off against the business loss of the current year the total income does not include any income of the nature referred to in section 69A of the Act.

2.3 The Appellant prays that the amount of addition made under section 69A be set off against the business loss of the current year and, since the resultant amount is a loss, it be held that the total income does not include any amount of the nature referred to in

3 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., section 69A of the Act and consequently the provisions of Section 115BBE(1) are not applicable to the facts of the Appellant's case.”

4 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., 6. We have heard the rival submissions, perused the orders of the authorities below. Circular No. 11/2019 [F.NO.225/45/2019-ITA.II], DATED 19-6-2019 issued by the CBDT reads as under: - “CIRCULAR NO. 11/2019 [F.NO.225/45/2019-ITA.II], DATED 19-6-2019 With effect from 1-4-2017, 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) 68769 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. 2. 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/69B/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. 3. 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 115BBE(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 setoff against income referred to in section 115BBE of the Act and hence, the amendment \vas made vide the Finance Act, 2016. 4. 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. 1-4-2017, an assessee is entitled to claim set-off of loss against income

5 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., determined under section 115BBE of the Act till the assessment year 2016-17.

6 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., set off against losses as per the computation of income filed by the assessee.

7 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., for the revenue is that, it will not fall within any of the category of income under the classifications contained in Section 14. In other words, such income cannot be treated as “profits and gains of business” or it cannot be considered as “income from other sources”. As the provisions of law which stood applicable for the relevant year of assessment, there is a specific bar with respect to allowing any deductions from such income, by virtue of Section 115BBE, as it stood unamended. The amendment declining set off was introduced only with effect from 1.4.2017. Therefore, question whether set off permissible under Section 72(2) read with Section 32(2) of the Act would apply with respect to the said income, assumes importance. There again, the crucial aspect relevant for consideration is the nature of the said income. In one of the oldest cases decided by the Honourable Supreme Court, Govindarajulu Mudaliar v. Commissioner of Income Tax [(1958) 34 ITR 307] it is held that, “there is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income Tax Officer is entitled to draw an inference that the receipts are of an assessable nature”. Following the said observations in Lakhmi Chand Baijnath (supra) the Honourable Supreme Court observes that, “when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business”. Even though Standing Counsel contended that the said observations of the apex court cannot be treated as a precedent of binding nature, mainly because it is made with respect to the provisions contained in the erstwhile Income Tax Act of 1922, we are not persuaded to accept the same. It is basically on an identical circumstance that the apex court had found that the income credited in the business book with respect to which the assessee fails to prove satisfactorily the source and the nature of receipt of the amount, it shall be deemed to be of receipt from business. The decisions of the High Court of Madras in Chensing Ventures (supra) as well as the decision of the High Court of Gujarat in Shilpa Dyeing & Printing Mills (supra) are to the effect that income of such nature from undisclosed source need to be treated as income from other sources. Therefore, we are of the opinion that the undisclosed income assessed under Section 68 need not be treated as an income falling totally outside the ambit of the classifications contained in Section 14 of the Act. Even assuming for the sake of argument that, it will not fall within the classifications contained in Section 14, it is evident that, as on the date of the assessment such income was included under a special classification by virtue of Section 115BBE. It is pertinent to note that, 115BBE had prohibited allowance of deductions alone, as it stood unamended as on the relevant date of the assessment. The explanatory notes to the provisions of the Finance Act, 2016 enumerates the reasons for

8 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., introduction of the further amendment barring the set off, with effect from 1.4.2017. It is stated that, “Currently, there is uncertainty on the issue of setoff of losses against income referred to in Section 115BBE of the Income Tax Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in Section 115BBE. However, the current language of Section 115BBE of the Income-Tax Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, the provision of the sub-section (2) of Section 115BBE of the Income Tax Act has been amended as to expressly provide that no set off any loss shall be allowable in respect of income under the Section 68 or Section 69 or Section 69A or Section 69C or Section 69D.” The intention of the legislature in introducing the amendment, as stated in the explanatory note, is to avoid unnecessary litigation and to expressly provide that no set off of any loss shall be allowable in respect of income under Section 68. Therefore, it has to be held that, as on the relevant date of the assessment, there was no bar existed with respect to allowing set off against the carried forward unabsorbed depreciation on fixed assets, with respect to income under Section 68. Therefore, we are of the view that, Tribunal had committed an illegality in coming to the conclusion that the deemed income will not fall even under the head of income from other sources and therefore the deductions and set off applicable to income under other heads will not be attracted in the case of deemed income covered under the provisions of Section 68. Accordingly we answer the question of law under clause (F) in favour of the Assessee and as against the Revenue. In view of the decision of the said question of law, other questions framed are not of consequence and become irrelevant. 15. Hence, the above appeal is hereby allowed and the impugned order of the tribunal is set aside. The original order of assessment passed by the Assessing Officer on 30.03.2016 will stand sustained. Needless to observe that, any coercive steps for recovery initiated based on the revised assessment cannot be allowed to continue.”

9 ITA NO.1084/MUM/2019 (A.Y: 2013-14) M/s. Innovative Construction Pvt. Ltd., that the assessee is entitled to set off the addition/disallowance made u/s.69A of the Act against the losses, if any, for the assessment Year under consideration. Ground No. 2 is allowed.

Order pronounced on 11.12.2020 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board.

Sd/- Sd/- (RAJESH KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 11/12/2020 Giridhar, Sr.PS

Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.

//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum