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Facts
The assessee, a partner in 'Double Seven Plaza', was subjected to reassessment proceedings following a survey action. An amount of INR 8,50,000 was treated as unexplained investment under Section 69 of the Income Tax Act and taxed under Section 115-BBE. The Assessing Officer denied the set-off of 'House Property' loss against this income, citing Section 115-BBE(2), which the assessee contended was not applicable for AY 2014-15.
Held
The Tribunal, following the Kerala High Court judgment in Vijaya Hospitality and Resorts Ltd. v/s CIT, held that the provisions of Section 115-BBE(2) are applicable only from April 1, 2017. Therefore, for Assessment Year 2014-15, the Assessing Officer was directed to allow the set-off of 'House Property' loss against the income assessed under Section 69 of the Act.
Key Issues
Whether Section 115-BBE(2) of the Income Tax Act, which restricts the set-off of losses against certain incomes, applies prospectively from April 1, 2017, or retrospectively to Assessment Year 2014-15.
Sections Cited
250, 154, 147, 143(3), 69, 115-BBE, 115-BBE(2), 133A, 148, 68, 14, 69A, 69C, 69D, 72(2), 32(2)
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Inturi Rama Rao & Shri Sandeep Singh Karhail
O R D E R
Per Sandeep Singh Karhail, JM :
The assessee has filed the present appeal against the impugned order dated 26/03/2024, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], which in turn arose from the order passed under section 154 of the Act, for the assessment year 2014-15.
The solitary grievance of the assessee is against the denial of the set-off of loss under the head “House Property” against the addition
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is one of the partners of the building named “Double Seven Plaza”. Pursuant to the survey action under section 133A of the Act conducted in the business premises of M/s NA Fashion Village, which is functioning in the above mentioned building, it was revealed that the building belongs to a group of 8 people including the assessee, wherein 50% of the shares of the building belongs to the assessee and his 5 brothers and the balance 50% belongs to two other individuals. It was further revealed that the building was constructed by all of them jointly and the total cost of construction was INR 3,07,60,000, for which they have obtained a loan of INR 2,40,00,000 and the same was paid over a period of time. The balance amount of INR 67,60,000 for the construction of the building was met by the partners jointly. During the survey, evidences were collected regarding the unaccounted investments made by the partners in the property over a period of 4 years ranging from the assessment year 2009-10 to the assessment year 2014-15. Accordingly, notice under section 148 of the Act was issued to the assessee on 30/03/2017 and proceedings under section 147 of the Act were initiated. During the reassessment proceedings, it was observed on the verification of the cash flow statement and statement of income filed by the assessee, it . Sri.Sahul Hameed. was observed that the assessee has shown an income of INR 8,50,000 under the head “Income from Other Sources”, which was not duly explained by the assessee. Accordingly, the Assessing Officer (“AO”), vide order dated 24/09/2018 passed under section 143(3) read with section 147 of the Act, treated the aforesaid income as an unexplained investment under section 69 of the Act and taxed the same under the provisions of section 115-BBE. Further, the AO held that the loss under the head “House Property” cannot be set off with the income which falls within the ambit of section 69 as per the provisions of section 115- BBE(2) of the Act. Accordingly, the loss under the head “House Property” was carried forward.
Against the assessment order passed under section 143(3) read with section 147 of the Act, the assessee filed rectification application under section 154 of the Act on the basis that the provisions of section 115-BBE(2) of the Act are applicable for the assessment year 2017-18 onwards, and therefore cannot be applied to the assessment year under consideration. The said rectification application filed by the assessee was dismissed vide order dated 31/01/2022. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee against the rectification order passed under section 154 of the Act and held that the conclusion drawn in the order passed under section 143(3) read with section 147 of the Act was a result of conscious decision taken by the AO based on his interpretation of the . Sri.Sahul Hameed. law in the provisions of the Act, therefore is not an issue which could be corrected by way of rectification. Being aggrieved, the assessee is in appeal before us.
We have considered the submissions of both sides and perused the material available on record. In the present case, there is no dispute regarding the basic facts of the case that during the year under consideration, the assessee declared loss under the head “House Property”, which was set off against the income declared under the head “Income from Other Sources”. The AO, vide order passed under section 143(3) read with section 147 of the Act, treated the income declared under the head “Income from Other Sources” as an unexplained investment under section 69 of the Act, and therefore, applied the provisions of section 115-BBE for computing the tax liability of the assessee. It is evident from the record that while assessing the total income of the assessee, the AO carried forward the loss declared under the head “House Property” instead of setting off the same against the income added under section 69 of the Act by placing reliance upon the provisions of section 115-BBE(2) of the Act. It is the plea of the assessee that the amendment, whereby the set-off of any loss is denied against the income, inter-alia, referred to in section 69 of the Act, was brought into the statute with effect from 01/04/2017 and, therefore, is applicable for the assessment years 2017-18 onwards.
. Sri.Sahul Hameed.
We find that a similar issue pertaining to the prospective applicability of the provisions of section 115-BBE(2) of the Act as introduced in the Act with effect from 01/04/2017, came for consideration before the Hon’ble Jurisdictional Kerala High Court in Vijaya Hospitality and Resorts Ltd. v/s CIT, reported in [2019] 419 ITR 322 (Kerala), wherein it was held that amendment brought in section 115-BBE(2) by Finance Act, 2016 whereby set off of losses against income referred to in section 68 was denied, would be effective from 01/04/2017. The relevant findings of the Hon’ble High Court, in the aforesaid decision, are reproduced as follows: –
“14. Based on the rival contentions, on analyzing the factual situation, it is evident that the assessment pertains to the period from 1st April 2013 to 31st March 2014. It is not in dispute that the addition of Rs.56,24,264/- made in the assessment is undisclosed income coming within the purview of section 68, it being a sum found credited in the books of the assessee with respect to which the explanation offered was not found to be satisfactory by the Assessing Officer. Since section 115BBE was introduced with effect from 01.04.2013, it cannot be disputed that no deduction in respect of any expenditure or allowance can be allowed with respect to the said amount. But question is whether set off of any loss shall be allowed against the said undisclosed income. In order to decide the question it is crucial to decide the nature of such income. Contention 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, A.Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 it is held that, "there is ample authority for the position that where an assessee fails to prove . Sri.Sahul Hameed. 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 Lakhmichand 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 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 set-off 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 . Sri.Sahul Hameed. 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.”
Accordingly, respectfully following the decision of the Hon’ble Jurisdictional High Court, we are of the considered view that the provisions of section 115-BBE(2) of the Act are applicable only with effect from 01/04/2017, and, thus, are not applicable to the year under consideration, i.e. the assessment year 2014-15. Therefore, we direct the AO to allow the set-off of loss declared under the head “House Property” against the income assessed under section 69 of the Act. As a result, the grounds raised by the assessee are allowed.
In the result, the appeal by the assessee is allowed.
Order pronounced on this 27th day of March, 2025.