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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K. & Shri Laxmi Prasad Sahu
This is an appeal filed by the assessee against the order of the learned Principal Commissioner of Income Tax dated 31.01.2019 for AY 2014-15 on the following grounds of appeal: - “1. On the facts and circumstances of the case, and in law, the Principal Commissioner of Income-tax, Trivandrum ('Learned PCIT') erred in passing an order dated 31 January 2019 under section 263 of the Income-tax Act, 1961 ('Act') which was unjustified, unwarranted and bad in law.
2. On the facts and circumstances of the case, and in law, the Learned PCIT has erred in holding that the order dated 29 December 2016 passed under section 143(3) of the Act (,Order') by the Assistant Commissioner of Income-tax, Circle - 1 (1), Thiruvananthpuram ('Learned AO') was erroneous and prejudicial to the interest of revenue.
3. On the facts and circumstances of the case, and in law, the Learned PCIT has erred in holding that the amount of INR 71,56,000 being sum received from JM Financial Trustee Company Private Limited for subscribing to the debentures 2 M/s. Heera Kerala Developers Pvt. Ltd. issued by the Appellant should be added to the total income of the Appellant under section 68 of the Act.
4. On the facts and circumstances of the case, and in law, the Learned PC IT has erred in holding that the provisions of section 115BBE of the Act with respect to set-off of income taxable under section 68 of the Act against business loss of the Appellant is applicable for AY 2014-15 and erred in directing the Learned AO to apply the tax-rate mentioned in section 115BBE of the Act.”
2. The brief facts of the case are that the assessee is a company engaged in the business of development of property. The assessee filed its return of income for AY 2014-15 on 30.09.2014 showing a loss of Rs.57,39,937/-. Later on the assessee revised the return of income on 31.07.2015 and revised the loss to Rs.53,25,931/-. The case was selected for scrutiny and statutory notices were issued to the assessee. During the course of assessment proceedings the AO observed that the assessee has received an amount of Rs.71,56,000/- from M/s. J.M. Financial Trustee Company Pvt. Ltd. through issue of secured debentures. The assessee was required to prove the ingredients as per Section 68ofthe Income Tax Act, 1961 (hereinafter "the Act"). The assessee was unable to prove the ingredients as per Section 68 of the Act. Accordingly the AO added the sum to the income of the assessee under Section 68 of the Act and computed the income at Rs.18,30,069/- after setting off the loss for the current year from the additions made under Section 68 of the Act. The learned PCIT later on called for the record and observed as under: -
“I have considered the arguments raised by the assessee's authorized representative and the written submission filed. His first contention is that "a confirmation letter obtained from the Investor was submitted by the Company with the Assessing Officer on 29.12.2016". It is seen that the assessment U/S 143(3) was completed by the Assistant Commissioner of Income Tax, Circle 1(1), Thiruvananthapuram on the said date, i.e. 29.12.2016 and in the said assessment order, the assessing officer has clearly mentioned, that "the assessee was required to prove the genuineness of the said transaction and to furnish the confirmation from M/s JM Financial Trustee Company Private Limited regarding the said investment. The assessee was also required to furnish the relevant bank account details through which the said amount was received. However, the assessee could not furnish the said details and requested for more time to furnish the details called for". Moreover, the assessee has not produced any proof or evidence
3 M/s. Heera Kerala Developers Pvt. Ltd. before the undersigned to prove his genuineness. So it is clear that this reply of the assessee / Authorised Representative is found to be unsatisfactory. As per provisions of section 68 of the Income Tax Act, 1961, if the resident in whose name the credit is recorded in books does not satisfactorily explain the source of investment, the amount received should be added back u/s 68 of the Income Tax Act. Here, as the assessee failed to explain the source of investment before the Assessing Officer, the said amount of Rs. 71.66,000/- credited in the books of the assessee which is stated to be obtained from M/s JM Financial Trustee Company Private Limited is to be added back to the total income of the assessee u/s 68 of the Income Tax Act, 1961. Since there is no valid proof or satisfactory explanation to prove the source of income, assessee's request to drop the proposal for revision u/s 263 cannot be considered and I am forced to initiate the proceedings u/s 263 in this case. It is also evident from the assessment records that the assessing officer had failed to apply the provisions of Section 115BBE of the Income Tax Act, 1961 while completing the assessment u/s 143(3) dated 29.12.2016 allowing set off against business loss and thereby erred while completing, the assessment. Thus, absence of applying the correct provision of sections / laws has made the impugned order erroneous and prejudicial to revenue. The following judicial decisions need to be considered in this context. I. Assessment made on A. wrong assumption of facts or B. on-incorrect application of law or C. without due application of mind or D. without following the principles of natural justice would be 'erroneous' [CIT Vs. Jawahar Bhatacharjee (2012) 341 ITR 434 (Gau.)(FB)) II. The Honorable High Court of Delhi in Toyoto Motor Corporation 306 ITR 49 had given a finding that "The order passed by the Assessing Officer should be a self- contained order giving the relevant facts and reasons for coming to the conclusion based on those facts and law." Incorrect application of law / and section has made the assessment order u/s 143(3) dated 29.12.2016 erroneous and prejudicial to the revenue and I therefore, set aside the said order of the Assessing Officer with a direction to apply special tax rate as per Section 115BBE of the Income Tax Act, 1961 on the addition u/s 68 of the Income Tax Act, 1961. This revision u/s 263 is to be done after affording the assessee necessary opportunity of being heard. The same is to be done after examining all relevant facts as per provisions of the Income Tax Act, 1961 within three months
4 M/s. Heera Kerala Developers Pvt. Ltd. from the end of month in which order under Section 263 is passed. Assessing Officer is so directed.” Aggrieved by the order of the PCIT the assessee is in appeal before the Tribunal.
3. The learned A.R. reiterated the submissions made before the learned PCIT and submitted that there was a business loss during the year which has been accepted by the AO after verification of the detailed documents submitted and the assessee could not satisfy the AO as per Section 68 of the Act. Therefore the income was offered as income from other sources which has been set off from the current years loss as per Section 71 of the Act. He also submitted that the learned PCIT has directed the AO for computing tax as per Section 115BBE of the Act. The assessment year is 2014-15 and it was not applicable for the impugned assessment year. Section 115BBE is applicable from 01.04.2017. In support of his argument he relied on Circular No. 11/2019 dated 19.06.2019 issued by the CBDT and he also relied on the judgement of the Hon'ble jurisdictional High Court in the case of Vijaya Hospitality and Resorts Ltd. (2019) 419 ITR 322 (Ker).
4. On the other hand, the learned D.R. on the order of the learned PCIT.
After hearing the rival submissions we observe from the assessment order passed under Section 143(3) of the Act that there was an addition made by the AO under Section 68 of the Act to the tune of Rs.71,66,000/- which has been set off from the returned loss of Rs.53,25,931/-. The order of the learned PCIT has been passed on 30.01.2019 for exercising his power under Section 263 of the Act. The CBDT has issued circular in regard to setting off of loss against deemed income under Section 115BBE of the Act prior to ay 2014-15 which reads as under: -
“Circular No. 1.1 /2019 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes
5 M/s. Heera Kerala Developers Pvt. Ltd. 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/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 pt 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 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 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.
5. The contents of this Circular may be circulated widely for information of all stakeholders and departmental officers. The 6 M/s. Heera Kerala Developers Pvt. Ltd. pending assessments and litigations on this issue may be handled accordingly.”
From the above circular it is clear that before 1st April 2017 the assessee was eligible to claim set off of loss against the income under Section 115BBE of the Act and the impugned case on hand relates to AY 2014-15. The Revenue officers are bound to follow the circular issued by the CBDT but here in this case the learned PCIT has exercised his jurisdiction in spite of the clear cut clarification of the CBDT in the circular cited above. Therefore, the learned PCIT’s order is not sustainable. Accordingly the order passed by the AO which is para materia with the circular issued by the CBDT is not erroneous and not prejudicial to the interest of Revenue.
In the result, the appeal filed by the assessee is allowed.
Dictated and pronounced in the open Court on 30th June, 2022.