2017 (4) TMI 450 - AT - Income Tax

Nature of loss - forex loss or busniss loss - carry forward of the business loss - whether loss in question ought to have been allowed by the AO in the light of the admitted position that the loss and finance costs were genuine business losses? - Held that - The only basis on which the AO could have successfully denied the claim of the Assessee was to show that the forex loss and finance cost were incurred post search with a view to reduce the income surrendered in the course of search. The finding of fact by the CIT(A) in this regard is that forex loss incurred by the Assessee was not post search event to reduce the taxability of additional income as alleged by him as forex transactions were carried out by the Assessee throughout the relevant financial year and not post search period. - This finding of fact was not challenged before us as these facts were not disputed even by the AO in the order of Assessment. Therefore forex loss and financial costs were not incurred by the Assessee in the year under consideration for the first time to reduce the taxability of the additional income offered for taxation. It is not disputed that the sum of ₹ 30 crores offered to tax in the course of search was duly credited in the profit and loss account. Thus the Assessee has complied with the surrender made at the time of surrender. There is nothing brought on record by the revenue to show that the sum of ₹ 30 crores offered in the course of search as undisclosed income was net of any other loss of the Assessee. In the circumstances, as per the provisions of section 70(1) of the Act, which provides that where the net result for any assessment year in respect of any source falling under any head of income, other than Capital gains , is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head, will apply. In the case of Assessee there is no dispute that the loss of ₹ 14,90,97,080/- computed by the AO as per the assessment order is business loss and the additional income of ₹ 30 crores admitted by the Assessee in the course of search operation is the business income. Thus they are income and loss under the same head from different sources. Both the loss and income are assessable under the head Profit and gains from Business or Profession . Thus, as per the provisions of section 70(1) of the Act, loss incurred by the Assessee from one source is allowable as set off from the income of another source under the same head. Therefore, there is no reason to assess the business income of ₹ 30 crores separately and allow the carry forward of the business loss of ₹ 14,90,97,080/-. The action of the AO in doing so was contrary to the provisions of the Act. We therefore find no grounds to interfere with the order of the CIT(A) - Decided against revenue

Issues Involved:

1. Set off of business loss against additional business income disclosed under Section 132(4) of the Income Tax Act.
2. Classification of additional business income as "Other Income" arising from unaccounted and undisclosed business.
3. Adjustment of additional income with regular business loss.
4. Carry forward of business loss for set off in subsequent years.

Detailed Analysis:

1. Set off of business loss against additional business income disclosed under Section 132(4) of the Income Tax Act:

The Revenue appealed against the CIT(A)'s order allowing the set off of business loss against additional business income disclosed under Section 132(4). The Assessee had disclosed ?30 crores as additional income during a search operation, which was included in the profit and loss account. The AO refused to adjust forex loss and finance costs against this additional income, considering them as an afterthought to reduce taxable income. However, the CIT(A) found these expenses genuine and allowed the set off under Section 70(1) of the Act, which permits the set off of loss from one source against income from another source under the same head.

2. Classification of additional business income as "Other Income" arising from unaccounted and undisclosed business:

The Revenue contended that the additional business income disclosed under Section 132(4) should be classified as "Other Income" from unaccounted and undisclosed business, separate from regular business income. The CIT(A) disagreed, noting that the ?30 crores was credited in the profit and loss account, and the forex loss and finance costs were not post-search events but consistent business expenses. The Tribunal upheld this view, confirming that the additional income was part of the regular business income.

3. Adjustment of additional income with regular business loss:

The AO argued that the additional income disclosed during the search should not be adjusted with regular business loss. The CIT(A) found that the forex loss and finance costs were genuine and incurred throughout the financial year, not just post-search. The Tribunal agreed, stating that the provisions of Section 70(1) allow the set off of business loss against business income, and there was no basis to treat the additional income separately.

4. Carry forward of business loss for set off in subsequent years:

The AO allowed the business loss to be carried forward for set off in subsequent years but did not permit its adjustment against the additional income for the current year. The CIT(A) and the Tribunal found this contrary to the provisions of the Act. The Tribunal emphasized that both the loss and the additional income were under the same head, "Profit and gains from Business or Profession," and thus, the set off should be allowed in the current year as per Section 70(1).

Conclusion:

The Tribunal upheld the CIT(A)'s order, allowing the set off of business loss against the additional business income disclosed under Section 132(4). The appeal by the Revenue was dismissed, confirming that the additional income was part of regular business income and should be adjusted with business loss as per the provisions of the Income Tax Act.

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