2016 (6) TMI 1006 - AT - Income Tax

Inclusion of income under the deeming provisions of section 68 under the head income from other sources - Set off of business loss against the income under the head income from other sources - Held that - Respectfully following the judgment of Fakir Mohammed Haji Hassan (2000 (8) TMI 44 - GUJARAT High Court ), Kim Pharma Private Limited Vs. CIT (2013 (1) TMI 495 - PUNJAB AND HARYANA HIGH COURT) and Gujarat Infra Pipes Private Limited (2009 (12) TMI 976 - ITAT AHMEDABAD) held that deemed income under 69, 69A, 69B, & 69C of the Act are not assessable under the head income from other sources we hold that business loss in the case of assessee cannot be set off against the income assessed under the deeming provisions of section 68, which is not falling under any of the five heads of income Addition to income - amount added by the assessee himself in his computation of income - Held that - Commissioner of Income Tax(Appeals) has deleted these two additions on the ground that same were not discussed in the body of the assessment order. We find that whether those two additions are made by the assessee itself in the computation of income, is a matter of verification and, therefore, in the interest of justice, we restore the matter to the file of the Assessing Officer with the direction to verify whether the same was already added by the assessee in the computation of income, and if so, then the additions made by the AO are justified.

Summary

Issues Involved:
1. Set-off of business loss against income determined under section 68 of the Income Tax Act.
2. Classification of income under section 68.
3. Verification of self-added amounts in the computation of income.

Issue-wise Detailed Analysis:

1. Set-off of Business Loss Against Income Determined Under Section 68:

The primary issue in both appeals was whether the business loss could be set off against income assessed under section 68 of the Income Tax Act. The Revenue contended that such income, being unexplained, could not be classified under any head of income, including "income from other sources," and thus, the business loss could not be set off against it. The Commissioner of Income-tax (Appeals) had allowed the set-off, classifying the income under "income from other sources."

The Tribunal examined various judicial precedents, including the Supreme Court's ruling in CIT Vs. DP Sandu Brothers Chamber (P) Ltd., and found that the context of those cases was different as they dealt with known sources of income. The Tribunal relied on the Gujarat High Court's decision in Fakir Mohamad Haji Hasan, which held that deemed income under sections 68, 69, etc., where the source is not known, cannot be classified under any head of income, including "income from other sources." Consequently, the Tribunal concluded that business loss could not be set off against income assessed under section 68, and allowed the Revenue's appeal on this ground.

2. Classification of Income Under Section 68:

The Tribunal addressed whether income assessed under section 68 should be classified under "income from other sources." The Revenue argued that unexplained income under section 68 could not be classified under any head of income as per section 14 of the Act, which specifies heads of income. The Tribunal supported this view, referencing the Gujarat High Court's analysis in Fakir Mohamad Haji Hasan, which clarified that deemed incomes under sections 68, 69, etc., are not to be classified under any head, including "income from other sources." The Tribunal thus held that such income could not be set off against business losses.

3. Verification of Self-Added Amounts in the Computation of Income:

In the appeal for the assessment year 2008-09, the Revenue challenged the deletion of two additions made by the Assessing Officer, which were allegedly added by the assessee in its computation of income. The Commissioner of Income-tax (Appeals) had deleted these additions on the ground that they were not discussed in the assessment order. The Tribunal restored the matter to the Assessing Officer for verification, directing that if the amounts were indeed self-added by the assessee, the additions made by the AO would be justified.

Conclusion:

The Tribunal allowed the Revenue's appeal for the assessment year 2003-04, holding that business loss could not be set off against income assessed under section 68. For the assessment year 2008-09, the Tribunal allowed the appeal for statistical purposes, directing verification of self-added amounts in the computation of income. The decision was pronounced in the open court on 2nd June 2016.