2016 (4) TMI 821 - AT - Income Tax

Set off of business loss against the income added by the AO u/s.69A - Held that - when two views are possible on the same issue the view which is favourable to the assessee should be followed in view of the decision of Hon ble Supreme Court in the case of Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court ). In this view of the matter, we hold that the assessee is entitled to get set off of ₹ 13,86,925/- out of the addition of ₹ 28,94,581/- made by the AO u/s.69A of the I.T. Act. - Decided in favour of assessee

Issues Involved:
1. Whether the cash deposits amounting to ?28,94,581/- should be treated as unexplained money under Section 69A of the Income Tax Act.
2. Whether the business loss of ?13,86,925/- from share trading can be set off against the income added under Section 69A.
3. The maintainability and timeliness of the cross objection filed by the Revenue.

Issue-wise Detailed Analysis:

1. Treatment of Cash Deposits as Unexplained Money under Section 69A:
The assessee filed a return declaring an income of ?1,21,750/-. During the assessment, the AO found transactions totaling ?58,34,629/- in the assessee's bank account. The assessee explained that the transactions included amounts from Joindre Capital Services Ltd. for share sales and hand loans from Vandana Sarees. However, the AO found the explanation unsatisfactory as the assessee could not provide the names of the lenders. Consequently, the AO treated ?28,94,581/- as unexplained money under Section 69A and added it to the assessee's total income. The CIT(A) upheld this addition, noting that the assessee failed to substantiate the source of the hand loans.

2. Set-off of Business Loss Against Income Added under Section 69A:
The assessee claimed a business loss of ?13,86,925/- from share trading in Futures, which was not disclosed in the return but was pointed out during the assessment. The CIT(A) acknowledged this as a business loss but held that it could not be set off against the income added under Section 69A. The CIT(A) relied on the decision of the Chandigarh Tribunal in ITO, Ward V(1) Ludhiana V. Dulari Digital Photo Services (P.) Ltd and the Gujarat High Court in Fair Mohmed Haji Hasan v. CIT, which stated that income under Sections 69, 69A, 69B, and 69C cannot be classified under any heads of income and thus, cannot be set off against business losses. However, the ITAT referred to the Gujarat High Court's decision in CIT Vs. Shilpa Dyeing & Printing Mills Pvt. Ltd., which allowed the set-off of business loss against income from undisclosed sources under Section 71. The ITAT concluded that the assessee was entitled to set off the business loss of ?13,86,925/- against the income added under Section 69A, favoring the assessee's argument that when two views are possible, the one favorable to the assessee should be adopted.

3. Maintainability and Timeliness of the Cross Objection Filed by the Revenue:
The Revenue filed a cross objection challenging the CIT(A)'s decision to treat the loss from Futures trading as a business loss. The assessee argued that the cross objection was filed 184 days late without a proper application for condonation of delay. The ITAT noted that the application for condonation was signed by the CIT-I, Kolhapur, not the AO, which is required under Section 253(4). The ITAT referred to the Supreme Court's decision in O/o. Chief Post Master General and Others Vs. Living Media India Ltd., emphasizing that government bodies must provide a reasonable explanation for delays. Given the lack of a valid condonation petition and insufficient reasons for the delay, the ITAT dismissed the cross objection as barred by limitation.

Conclusion:
The ITAT allowed the appeal filed by the assessee, permitting the set-off of the business loss against the income added under Section 69A. The cross objection filed by the Revenue was dismissed due to the delay and procedural lapses.

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