2018 (6) TMI 1450 - AT - Income Tax

Addition for share of loss from two firms while computing the profit of the assessee for the purpose of applying Sec.115JB - MAT - Held that - What is excluded from total income by the above sub-section (2A) of Section 10 is the share of the partner in the total income of the firm. Share of loss in a firm is not an expenditure relatable to any exempt income and application of clause f explanation was in our opinion incorrect. It was Clause (ii) of the explanation which was applicable. Share of loss in our opinion is nothing but share of negative income. Explanation (ii) to Section 115JB mandates reduction of income to which Section 10 applies, if such income is credited in the Profit & Loss A/c. When share of income from firm is exempt u/s.10 2(A) of the Act, necessarily share of loss is also exempt. What the AO did by adding the loss from the two firms to the profits was reducing, the negative Profit, since loss is nothing but negative profit. We are of the opinion what the AO did was in accordance with Clause(ii) of the Explanation and that the Ld.CIT(A) fell in error in relying on a wrong clause for giving relief to the assessee. Accordingly, we set aside the order of the Ld.CIT(A) and reinstate the addition made by the AO. - Decided in favour of revenue.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deletion of an addition for share of loss from two firms while computing the profit of the assessee for the purpose of applying Section 115JB of the Income Tax Act, 1961.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal filed by the Revenue was delayed by two days. A condonation petition was submitted, and the delay was condoned, allowing the appeal to be admitted.

2. Deletion of an Addition for Share of Loss from Two Firms:
The primary issue contested by the Revenue was the deletion of an addition for the share of loss from two firms, M/s. Fixit & Co., and M/s. Walker & Greig, made by the Assessing Officer (AO) while computing the profit of the assessee under Section 115JB of the Income Tax Act, 1961.

The assessee had computed its profit without adding back the share of loss from the two firms, although these losses were debited in its Profit & Loss Account. The AO added the share loss of ?2,11,346 from M/s. Walker & Greig and ?68,564 from M/s. Fixit & Co. to the profits as per the Profit & Loss Account, arguing that share income from firms, being exempt under Chapter-III of the IT Act, should be added back even if it was a loss.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the additions, agreeing with the assessee's argument that the share of loss could not be considered as an expenditure relatable to exempt income and thus should not be added back while computing profit under Section 115JB.

The Revenue, represented by the Departmental Representative (DR), argued that Clause (ii) of the Explanation under Section 115JB mandated the deduction of any income to which Section 10 applied if such amount was credited to the Profit & Loss Account. The DR contended that when share of profits from firms were to be reduced, share of loss, being a negative income, had to be added back to profits.

Upon review, the Tribunal found that the AO's action of adding the share of loss from the two firms to the profits was correct, as it effectively reduced the negative profit, aligning with Clause (ii) of the Explanation to Section 115JB. The Tribunal concluded that the CIT(A) erred in relying on Clause (f) of the Explanation, which was not applicable in this context.

Conclusion:
The Tribunal set aside the order of the CIT(A) and reinstated the addition made by the AO, allowing the appeal filed by the Revenue. The judgment emphasized the correct application of Clause (ii) of the Explanation to Section 115JB in dealing with the share of loss from firms.

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