2022 (4) TMI 1564 - AT - Income Tax

Allowability of making new claim made in return filed u/s 153A - disallowance of the carry forward of business loss - assessee had not claimed loss in the return of income filed u/s 139(1) of the I.T. Act but claimed losses when filing the return u/s 153A - HELD THAT - Assessments were not abated and the claim of business losses admittedly emanated from incriminating material i.e the foreign bank account of the assessee. Income from incriminating material is to be considered after defraying all expenses that are incurred for earning such income. The decision of CIT vs Piara Singh 1980 (5) TMI 2 - SUPREME COURT is relevant for the same. The business losses therefore qualified as being in the nature of Income from incriminating material required to be assessed to tax in such cases. There is no provision of law pointed out to us debarring claim of expenses or losses emanating from incriminating material. To put it otherwise there is no provision of law requiring only positive incomes emanating from incriminating material to be disclosed/added to the incomes of the assessee in assessment framed u/s 153A of the Act denying claim of expenses and losses emanating therefrom. The legislature we are aware has debarred claim of losses/expenses against incomes assessed u/s 68/69/69A /69B/69C of the Act specifically so providing u/s 115BBE of the Act which provides for levy of taxes at special rates on such incomes. The returns filed u/s 153A of the Act disclosing losses emanating from incriminating material is therefore as per law to be treated as filed in returns u/s 139 of the Act and entitled to be set off against profits from such incriminating material in subsequent years. And to this extent of set off they certainly do not qualify as fresh claim made in return filed u/s 153A of the Act since they were necessarily to be disclosed at the same time and alongwith the positive incomes arising from the incriminating material. These losses cannot be considered in isolation from the profits to qualify as fresh claim not originally claimed in the return filed u/s 139 of the Act. We may clarify that set off of these business losses from any other income originally returned other than profits from this business would have qualified as a fresh claim and to which the assessee would not be entitled. The proceedings u/s 153A of the Act being in consequence to search undertaken u/s 132 of the Act cannot be utilized by the assessee to seek relief not claimed earlier. The proceedings are analogous to proceedings u/s 147 of the Act as being for the benefit of the Revenue and not the assessee. The decision of the Hon ble apex court in the case of CIT vs Sun Engineering Works Pvt. Ltd. 1992 (9) TMI 1 - SUPREME COURT is relevant for the purpose. Having held so that the claim of losses emanating from incriminating material made in returns filed u/s 153A of the Act are to be treated as filed u/s 139 of the Act and noting that the said returns undisputedly were filed within the stipulated time the assessee we hold was entitled to the benefit of carry forward and set off of the same in subsequent years as per law. The findings of the Ld. CIT(A) in this regard are also upheld. The order of the Ld. CIT(A) deleting the disallowance of losses and their carry forward and set off in the assessment years before us is therefore upheld. Ground of appeal No. 1 of the Revenue is dismissed. Addition u/s 68 - Credits in the foreign bank account of the assessee unexplained - Addition deleted by the ld. CIT(A) - HELD THAT - As noted from the order of the Ld. CIT(A) filed all explanations regarding the credits in the bank account which were noted by the CIT(A) as relating to transactions in securities dividend income interest distribution etc. The assessee also filed portfolio statements and calculation of profits and reconciled the figures in the bank statement with the profits /losses computed and returned in the income filed by the assessee u/s 153A of the Act. Assessee also filed evidences showing declaration of certain credits in the bank account under the Black Money Act as also evidences of certain credits wrongly given being reversed subsequently by the Bank. Each and every entry was so explained by the assessee as having been duly accounted for and returned as business income or disclosed under the Black Money Act or wrongly credited and thus subsequently reversed by the Bank. After thoroughly examining these evidences and reconciliations the Ld. CIT(A) has accepted the plea of the assessee that the said entries could not be taxed as unexplained having been returned as business income or explained otherwise. All these evidences were also filed before us in voluminous paper book. The Ld. DR was unable to point out any infirmity in the finding of the Ld.CIT(A). He was unable to point out any credit entry wrongly accepted by the Ld.CIT(A) as duly explained. Thus no merit in the ground raised by the Revenue for treating the impugned credits as unexplained and thus taxable u/s 68 - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of business losses and their carry forward.
2. Addition of unexplained credits in the foreign bank account under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Disallowance of Business Losses and Their Carry Forward:

Background:
- The assessee was subjected to a search action under Section 132 of the Income Tax Act on 12/02/2015, revealing a foreign bank account in Merrill Lynch Bank, New York.
- Notices under Section 153A were issued, and returns were filed for Assessment Years (AY) 2009-10 to 2014-15.
- The assessee disclosed income from various sources, including business and profession, with losses in AY 2009-10 and 2010-11 carried forward to subsequent years.

Assessing Officer's (AO) Stand:
- The AO disallowed the losses and their carry forward, arguing:
1. The assessee had denied ownership of the foreign bank account.
2. Losses not claimed in the original returns filed under Section 139(1) cannot be claimed in returns filed under Section 153A.
3. The Black Money Act precludes the allowance of such losses.

Contentions by Assessee:
- The assessee argued that returns filed under Section 153A should be treated as returns filed under Section 139, allowing the carry forward and set off of losses.
- Cited judicial precedents supporting that returns under Section 153A can claim deductions as if filed under Section 139.

Tribunal's Findings:
- The Tribunal agreed with the CIT(A) that:
1. The foreign bank account was accepted as belonging to the assessee, evidenced by the acceptance of profits in subsequent years and disclosure under the Black Money Act.
2. The Black Money Act does not override the Income Tax Act regarding the allowance of losses.
3. Returns filed under Section 153A are to be treated as returns filed under Section 139 for the purpose of claiming losses.

Conclusion:
- The Tribunal upheld the CIT(A)’s decision to allow the carry forward and set off of business losses, rejecting the AO's disallowance.

2. Addition of Unexplained Credits in the Foreign Bank Account Under Section 68:

Background:
- The AO added credits in the foreign bank account as unexplained under Section 68, totaling substantial amounts across various assessment years.

Assessing Officer's (AO) Stand:
- The AO argued that the assessee failed to satisfactorily explain certain credits, particularly transactions with M/s Prime Trade Ltd.

Contentions by Assessee:
- The assessee provided detailed reconciliations and explanations for all credits, including:
1. Bank statements and portfolio statements.
2. Computation of gains/losses from securities transactions.
3. Evidence of subsequent reversal of incorrect credits by the bank.
4. Disclosure of certain credits under the Black Money Act.

CIT(A)’s Findings:
- The CIT(A) found that:
1. The credits were already part of the gross business receipts and duly accounted for in the returns.
2. The AO’s addition led to double taxation.
3. The assessee's explanations and reconciliations were satisfactory, and the AO’s adverse inference was without basis.

Conclusion:
- The Tribunal upheld the CIT(A)’s order deleting the additions under Section 68, agreeing that the credits were satisfactorily explained and already included in the business income.

Final Judgment:
- The Tribunal dismissed all appeals by the Revenue, affirming the CIT(A)’s decisions on both the disallowance of business losses and the addition of unexplained credits.