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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: MS. SUCHITRA R. KAMBLE & SHRI MAKARAND V. MAHADEOKAR, ACCOUNTNAT MEMBER
PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER:
The present appeal is filed by the Department against the order dated 14.11.2023 passed by Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre (NFAC) (hereinafter referred as “CIT(A)”) under section 250 of the Income Tax Act, 1961 (hereinafter referred as “the Act”) arising in the matter of assessment order passed by the Assessing Officer (hereinafter referred to as "the AO") under section 147 r.w. section 144B of the Act, relating to the Assessment Year (AY) 2016-17. 2. The revenue has raised following grounds of appeal:
CIT(A) has erred in quashing notice issued u/s. 148 of the Act without appreciating the fact that the A.O. has sufficient material to form his belief and Ld. CIT(A) has erred in ignoring the fact that the AO has adhered to all the machinery provisions of the Income-tax Act, 1961. ITO Vs. Digital Biotech Pvt. Ltd. Asst. Year : 2016-17 2
CIT(A) has erred in ignoring the fact that the assessee has transacted in a scrip viz. Nyssa Corpn which were pre-arranged method to evade taxes and in an organized tax racket.
The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary.
It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the assessing officer be restored.
Facts of the case
The assessee is a company engaged in business of Trading of Medicines, Trading of Shares & Security and Investment activity. The assessee filed its return of income on 16.10.2016 declaring total net loss of Rs.2,65,25,195/- as per normal provision of the Act and declared Book Profit u/s 115JB of Rs.3,88,005/-. The case was selected for Scrutiny u/s 143(3) of the I.T. Act and the Assessing Officer passed order on 17.12.2018 u/s 143(3) of the I.T. Act by assessing total loss of Rs.2,65,25,195/- by accepting the returned income.
Thereafter, Ld. Assessing Officer, on the basis on information received from Investigation Wings, issued notice on 30.03.2021 u/s 148 of the Act and assessment proceeding was completed u/s 147 r.w. 144B of the Act on 30.03.2022, by making addition of Rs. 2,43,53,198/- u/s 68 of the Act on account of trading in scrip namely Nyssa Corporation Limited.
Aggrieved by the order of AO, the assessee filed an appeal before the CIT(A). Following the judgement of Hon’ble High Court of Gujarat in case of Motto Tiles Pvt. Ltd. Vs. Assistant Commissioner Of Income Tax – Morbi Circle, (SPECIAL CIVIL APPLICATION NO. 20109 of 2015), Ld. CIT(A) allowed the appeal of the assessee without adjudicating on other grounds relating to addition u/s 68 of the Act and initiating penalty proceedings u/s 271(1)(c) of the Act. While allowing the appeal, Ld. CIT (A) relied on the judgement of Hon’ble High Court of Gujarat in case of Motto Tiles Pvt. Ltd.(supra) and held Asst. Year : 2016-17 3
that the notice u/s 148 is not sustainable and the same is quashed since it can’t be said that there was sufficient material before the AO to form the belief that income chargeable to tax has escaped assessment.
Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us with the aforesaid mentioned grounds of appeal.
Ground number 1, 2 and 4
At the time of hearing before us, Ld. DR stated that Ld. CIT(A) has failed in appreciating the fact that the reduction in loss on account of addition u/s 68 r.w.s. 115BBE of the Act will prevent assessee to carry forward the loss and set off in subsequent year’s income. Ld. DR heavily relied on the order of the AO and further stated that in many judicial pronouncements it has been held that income includes loss. Ld. DR placed reliance on the following judicial pronouncements:- i. Hon'ble SC in the case of CIT(Central) Delhi v/s. Hariprasad and company (P) Ltd., (1975) 99 ITR 118; ii. Hon'ble Supreme Court in CIT vs Gold Coin Health Food Private Limited, [2008] 304 ITR 308; iii. Hon'ble Supreme Court in the case of CIT v. J.H. Gotla, [1985] 156 ITR
The Ld. DR submitted that if the addition is deleted, assessee would get the benefit of carrying forward of this loss in subsequent years and will set it off against its income in subsequent years. She further submitted that the above income by way of addition has escaped assessment, though it may not have any effect on the tax liability in the year under consideration but there is a loss, on which right of revenue accrues as it is being carried forward to be utilized against income of subsequent years and such benefit to the assessee is to the detriment of the revenue. Asst. Year : 2016-17 4
On the other hand, the counsel for the assessee explained the facts of the case and stated that the reopening of the assessment is not justified in the eyes of the law. He further contented that even after considering addition made by AO, the assessee would be governed by the provisions of section 115JB of the Act and assessee is taxed on the same book profit and, therefore, there is no escapement of income chargeable to tax.
The Counsel for the assessee relied on the following judicial pronouncements:-
i. Motto Tiles (P.) Ltd. vs. ACIT, 386 ITR 280 (Gụj); ii. PKM Advisory Services P. Ltd. v ITO, 339 ITR 585 (Gụj); iii. India Gelatine and Chemicals Ltd. v ACIT, 364 ITR 649 (Guj); iv. Ban Labs Ltd. vs. ACIT, SCA 7176 of 2012 (Gụj).
Submissions on other aspects of the reopening have also been made by the counsel for the assessee inter alia reasons are absolutely vague, scanty and non-specific; reopening is merely based on borrowed satisfaction; reopening is beyond a period of four years from the end of relevant assessment year; reopening is merely based on changed opinion. However, considering the fact that Ld. CIT(A) has not dealt with the same in his order, the said contentions are not set out in detail.
We have noted that while recording the reasons for reopening the case, AO has dealt with the information received from two independent sources namely Shri Naresh Manakchand Shah and M/s Looks Health Services Pvt. Ltd., but the Ld. CIT(A) has not dealt with the same in his order.
While dealing with the Revenue’s ground number 1 of challenging the action of AO in issuing the notice under section 148 of the Act, Ld. CIT(A) reproduced the part of Computation Sheet (DIN & Document No. Asst. Year : 2016-17 5
ITBA/REC/S/116/S/2022-23/1043794838(1)) in his order and stated that the deemed income u/s 115JB of the Act remains same at Rs. 3,88,005/- after considering the impugned addition. In our opinion, Ld. CIT(A) has not taken into account the impact of carry forward of losses which can be set off in the subsequent assessment years.
Both assessee and Ld. CIT(A) have placed their reliance on the judgment of Hon’ble High Court of Gujarat in case of Motto Tiles Pvt. Ltd. Vs. Assistant Commissioner Of Income Tax – Morbi Circle, in SPECIAL CIVIL APPLICATION NO. 20109 of 2015. At this juncture, we would like to deal with the issue discussed in the same judgement at para 6. 3. For the sake of clarity, the same is reproduced below:
“6.3 It was further submitted that the petitioner in the computation of his income, has claimed loss which will be set off in the subsequent years. Hence, despite the fact that for the year under consideration, he may be assessed on the book profit under section 115JB of the Act, the loss claimed under the regular computation would remain and the petitioner would get the benefit thereof in subsequent years. Therefore, the income chargeable to tax has escaped assessment, though it may not have any effect on the tax liability in the year under consideration. It was submitted that here, there is a loss on which a right accrues as there is carry forward effect which would have a direct impact on future years. Benefit accrues to the assessee which is to the detriment of the revenue. It was, accordingly, urged that at the threshold, at the stage of notice under section 148 of the Act, the revenue should not be precluded from examining the issues. It was contended that the decision of this court in the case of PKM Advisory Services P. Ltd. v. Income Tax Officer (supra), would not be applicable to the facts of the present case, in as much as, in the said case, it was not a case where the assessee had declared a loss. It was submitted that in so far as the decision of this court in the case of India Gelatine and Chemicals Ltd. v. Assistant Commissioner of Income Tax (No.1) (supra) is concerned, though the same has been rendered in a similar set of facts, such decision has to be reconsidered.”
Further while dealing with the same issue Hon’ble High Court in para 11 stated that :– Asst. Year : 2016-17 6
“11. Insofar as the second contention raised on behalf of the petitioner is concerned, the controversy stands squarely concluded by the decision of this court in the case of India Gelatine and Chemicals Ltd. v. Assistant Commissioner of Income Tax (No.1) (supra) wherein, the court in a case where the assessee had declared a loss of 1.44 crores under the normal computation and the assessment was framed on book profit of 2.89, had held that even if the expenditure of 116.86 lakhs is disallowed, there would be no resultant change in the petitioner's tax liability since the petitioner had already paid much higher tax and had allowed the petition. It appears that the revenue has accepted the said decision and has not challenged the same before the higher forum. The learned counsel for the respondent has urged that the decision requires reconsideration. Having regard to the facts and circumstances of the case, as well as the fact that the revenue has accepted the said decision, the court does not find any reason to refer the matter for consideration to a Larger Bench.”
From the discussion re-produced above, it can be observed that the merit of the said case on account of carry forward of loss, set off in future and resulting loss to the revenue is not decided by the Hon’ble Court only because the issue was not challenged by the Revenue before higher forum. We have also gone through the judgement of Hon’ble High Court of Gujarat in case of India Gelatine and Chemicals Ltd. (supra) and observed the issue of carry forward of losses and set of in future was not contented by the Revenue therein and, therefore, need attention on its merit in the present case. We have also referred the other judgements relied upon by the assessee and observed that there is no mention of carry forward of losses and set off in the future.
In our humble opinion, the decision of Hon’ble High Court in the case of Motto Tiles Pvt. Ltd. Vs. Assistant Commissioner of Income Tax (supra), would not be applicable to the facts of the present case in its entirety.
As relied upon by Ld. DR, we have gone through the judgement of Hon’ble Supreme Court in the case of CIT(Central) Delhi v/s. Hariprasad and ITO Vs. Digital Biotech Pvt. Ltd. Asst. Year : 2016-17 7
company (P) Ltd. (1975) 99 ITR 118. We have noted the substance of the same. In the said judgement the Hon’ble Apex Court has stated that:-
“It may be remembered that the concept of carry forward of loss does not stand in vacuo. It involves the notion of set-off. Its sole purpose is to set off the loss against the profits of a subsequent year. It presupposes the permissibility and possibility of the carried-forward loss being absorbed or set off against the profits and gains, if any, of the subsequent year. Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand.
Hon'ble Supreme Court in case of CIT vs Gold Coin Health Food Private Limited, [2008] 304 ITR 308 decided that even in a case where on account of addition of concealed income the returned loss stands reduced and even if the final assessed income is a loss, still penalty was leviable thereon.
Hon'ble Supreme Court in the case of CIT v. J.H. Gotla [1985] 156 ITR 323 decided that: –
“Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature and produce a rational construction.
Considering the facts of the case, judicial pronouncements relied on the by Ld. DR and also that Ld. CIT(A) has not decided the case on merits of addition, we are of the opinion that the doors to merit should not be closed on the basis of deeming provisions of section 115JB of the Act. Therefore, in view of the above, the order of Ld. CIT(A) is set aside, and the matter is restored to the first appellate authority to decide on merit after giving opportunity of hearing to the assessee by following the principles of natural justice. Asst. Year : 2016-17
Ground number 3 is general in nature, hence not adjudicated. Accordingly, we partly allow the appeal filed by the revenue.
In the result, the appeal filed by the Revenue is allowed for statistical purposes.
Order pronounced in the Open Court on 17th May, 2024 at Ahmedabad. (SUCHITRA R. KAMBLE) ACCOUNTANT MEMBER Ahmedabad, Dated 17/05/2024 *Bt.
आदेश की "ितिलिप अ"ेिषत/Copy of the Order forwarded to : अपीलाथ" / The Appellant
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