9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (5) TMI 1038 - AT - Income TaxRevision u/s 263 - business loss cannot be set off against other sources as per sec.71 - Held that - We are of the opinion that there is a divergent view on the issue of set off of business loss out of unexplained income u/s.71 of the Act while computing the income of assessee. Being so, the AO had taken one of the possible views, which is supported by the judgement in the case of Chensign Ventures (2007 (4) TMI 204 - MADRAS High Court) and we are of the opinion that the ld.CIT is not justified in exercising the jurisdiction u/s.263 of the Act on this issue. Accordingly, the order of Learned Commissioner of Income Tax u/s.263 of the Act is quashed. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 263 of the Income Tax Act. 2. Merits of the additions made by the Assessing Officer (AO). Detailed Analysis: Jurisdiction of the CIT under Section 263 of the Income Tax Act: The primary issue in this appeal is the jurisdiction of the CIT under Section 263 of the Income Tax Act. The CIT invoked Section 263 to revise the order passed by the AO under Section 143(3), which allowed the set-off of business loss against income from other sources. The CIT contended that business loss cannot be set off against other sources as per Section 71 of the Act, unless the income is from any of the five heads specified. Consequently, the CIT set aside the assessment made by the AO and directed the AO to reframe the assessment after giving an opportunity to the assessee. Section 263 of the Income Tax Act is designed to remove any prejudice caused to the revenue by an erroneous order passed by the AO. It empowers the Commissioner to initiate suo moto proceedings if the AO takes a wrong decision without considering the available materials or fails to make necessary inquiries. The Commissioner can regard an order as erroneous if the AO should have made further inquiries before accepting the assessee's claim. The AO's role is not only that of an adjudicator but also of an investigator, and he must discharge both roles effectively. An order passed by the AO becomes erroneous and prejudicial to the interests of the Revenue under Section 263 in the following cases: - The order contains an error of reasoning, law, or fact on its face. - The order proceeds on incorrect assumptions of facts or incorrect application of law. - The order is a stereotype that simply accepts what the assessee has stated without making requisite inquiries or examining the genuineness of the claim. Merits of the Additions Made by the AO: The AO treated the unexplained cash credit of ?5 lakhs as the income of the assessee and allowed the set-off of business loss against this income. The CIT, however, opined that unexplained income cannot be set off against business loss under Section 71 of the Act. The CIT relied on the judgment of the Gujarat High Court in the case of Fakir Mohmed Haji Hasan Vs. CIT, which held that unexplained investments or money, when not satisfactorily explained, are deemed to be income and cannot be classified under any specific head of income. Consequently, deductions applicable to incomes under specific heads do not apply to deemed incomes under Sections 69, 69A, 69B, and 69C of the Act. Further, the CIT relied on the Chandigarh Tribunal's decision in ITO Vs. Dulari Digital Photo Services (P.) Ltd. and the Chennai Tribunal's decision in ITO Vs. M/s. AKR Poly Industries, which supported the view that additions under Section 68 cannot be treated as business income. However, the jurisdictional High Court in CIT Vs. Chensing Ventures held that when two views are possible on an issue, and the AO had taken one of the possible views, it cannot be said that there is an error in the AO's order. The Supreme Court in Malabar Industrial Co. Ltd. and CIT Vs. Max India Ltd. emphasized that for the Commissioner to exercise jurisdiction under Section 263, the order must be both erroneous and prejudicial to the interests of the Revenue. The Bombay High Court in Gabriel India Ltd. further clarified that the Commissioner cannot substitute his judgment for that of the AO unless the AO's decision is erroneous. In the present case, there is a divergent view on the issue of set-off of business loss against unexplained income under Section 71. The AO had taken one of the possible views supported by the jurisdictional High Court's judgment in Chensing Ventures. Therefore, the CIT is not justified in exercising jurisdiction under Section 263 on this issue. Consequently, the order of the CIT under Section 263 is quashed. Conclusion: The appeal of the assessee is allowed, and the order of the Commissioner of Income Tax under Section 263 of the Act is quashed. The AO's decision to allow the set-off of business loss against unexplained income is upheld as it represents one of the possible views supported by judicial precedents. Order pronounced on 11th May, 2017 at Chennai.
|
