2019 (7) TMI 1413 - AT - Income Tax

Revision u/s 263 - Set off of business loss against the income brought to tax u/s 69B r.w.s 115 BBE - A.O did not allow the claim of any expenditure against the surrendered income which in his view was taxable u/s 69 as unexplained investment and assessee was liable to tax on the amount - claim of deduction being the expenses on account of depreciation, interest, remuneration and other expenses claimed against the income surrendered by the assessee as unaccounted investment in hotel building during the course of survey u/s 133A conducted on 12.7.2011 - HELD THAT - Similar issue was dealt in the case of M/s. Sanjay Bairathi Gems Ltd, Jaipur 2017 (8) TMI 721 - ITAT JAIPUR wherein l after considering the various judgments of Hon ble courts held that the assessee is eligible for set off of business loss against the income brought to tax u/s 69B r.w.s 115 BBE Departmental Representative failed to place any other material or judgment favouring the revenue in order to controvert the finding of Ld. CIT(A). At any stage revenue has not disputed the fact that the alleged amount surrendered during the survey was unaccounted business income of the assessee and not from any other sources. Section 115BBE of the Act was inserted by Finance Act, 2012 w.e.f. 1.4.2013 which restricts the claim of deduction in respect of any expenditure or allowance or set off of any loss against the income shown by the assessee or assessed u/s 68, 69, 69A,69B, 69C 69D of the Act. The instant appeal relates to Assessment Year 2012-13 and therefore the assessee s case will not be hit by provisions of Section 115BBE(2) of the Act. We therefore find no inconsistency in the finding of Ld. CIT(A) and the same requires no interference. - Decided against revenue

Summary

Issues Involved:
1. Deduction of expenses against surrendered income.
2. Classification of surrendered income as business income or income from undisclosed sources.
3. Applicability of Section 115BBE of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deduction of Expenses Against Surrendered Income:
The primary issue was whether the assessee could claim deductions for expenses such as depreciation, interest, remuneration to partners, and other expenses against the surrendered income of ?1,25,01,135/-. The Assessing Officer (A.O.) disallowed these deductions, treating the surrendered income as income from undisclosed sources under Section 69 of the Income Tax Act. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deductions, noting that the surrendered income was offered as business income and thus eligible for deductions. The CIT(A) relied on various judicial precedents, including the Hon'ble Calcutta High Court's decision in Md. Serajuddin & Brothers and the Karnataka High Court's decision in S.K. Srigiri & Bros, which supported the view that surrendered income could be treated as business income and thus eligible for deductions.

2. Classification of Surrendered Income as Business Income or Income from Undisclosed Sources:
The A.O. classified the surrendered income as income from undisclosed sources, thereby disallowing any deductions. Conversely, the CIT(A) and the ITAT Indore Bench observed that the surrendered amount was related to the business operations of the assessee, specifically the unaccounted investment in the construction of a hotel. The CIT(A) emphasized that the income arising from the business should be treated as business income, allowing for the deduction of related expenses. The CIT(A) also cited the ITAT Indore Bench's decision in M/s Shahnai vs. ITO, which held that income declared during a survey related to business operations should be treated as business income, thereby allowing for the deduction of business-related expenses.

3. Applicability of Section 115BBE of the Income Tax Act:
Section 115BBE, introduced by the Finance Act 2012 and effective from April 1, 2013, restricts deductions against income assessed under Sections 68, 69, 69A, 69B, 69C, and 69D. The CIT(A) noted that this amendment was not applicable to the assessment year 2012-13. The ITAT Indore Bench upheld this view, noting that the provisions of Section 115BBE(2), which prohibit deductions for expenses or allowances against income assessed under the specified sections, were not applicable for the assessment year in question. The Tribunal referenced the ITAT Jaipur Bench's decision in ACIT vs. Sanjay Bairathi Gems Ltd, which held that the amendment to Section 115BBE is prospective and not applicable to earlier assessment years.

Conclusion:
The ITAT Indore Bench dismissed the revenue's appeal, upholding the CIT(A)'s decision to allow the deductions claimed by the assessee. The Tribunal concurred with the CIT(A) that the surrendered income should be treated as business income, thereby permitting the deduction of related business expenses. The Tribunal also affirmed that Section 115BBE's restrictions were not applicable for the assessment year 2012-13, supporting the CIT(A)'s interpretation. The order was pronounced in the open court on July 26, 2019.