2022 (2) TMI 30 - AT - Income Tax

Disallowing set off of losses claimed by the appellant set-off of business losses and carried forward losses against the undisclosed income - AO stated that the income disclosed u/s 69A of the Act is a headless income and accordingly it cannot be treated as income from other sources - HELD THAT - Finally, the Legislature has put to rest the controversy by making an amendment in Section 115BBE (Charging section for income under section 68 to 69D) by expressly inserting in a sub-section (2) of section 115BBE, the word set off any loss vide Finance Act, 2017 which is applicable w.e.f. from 01/04/2017 - CBDT vide its Circular No 11 of 2019 has clarified that for period up to A.Y. 2016-17, the income computed u/s 115BBE (Section 68 to 69D) can be used for setting off losses if any. We are of the view according to the CBDT Circular No. 11 of 2019 business losses and brought forward losses can be set-off against the income assessed under section 115BBE - respectfully following the above CBDT circular as well as the orders passed by the Coordinate Benches of the various Tribunals and the Hon ble High Courts, we direct to delete the addition made by the A.O. and confirmed by the ld. CIT(A). - Decided in favour of assessee.

Summary

Issues:
- Disallowance of set off of losses claimed by the appellant
- Failure to follow judgments of various High Courts in favor of the appellant
- Legality of disallowing set off of losses against undisclosed income

Analysis:
1. The appellant, an individual, declared total income of ?93,97,830/- for the Asstt. Year 2011-12. Following a search & seizure action, the appellant voluntarily offered ?50,00,000/- for taxation, reported as income from other sources. The Assessing Officer re-opened proceedings to disallow set off losses claimed by the appellant against the disclosed income. The AO disallowed the set-off of business losses and carried forward losses against the undisclosed income, considering it as 'headless income.'

2. The appellant appealed to the ld. CIT(A), who upheld the AO's decision, citing the Kerala High Court judgment in Kerala Sponge Iron Ltd case. However, various High Courts have allowed set off losses, creating a conflict. The CBDT Circular No. 11/2019 clarified that for years up to A.Y. 2016-17, income under Section 115BBE can be used to set off losses. The Kolkata Tribunal also supported this view in multiple cases, emphasizing the legislative intent behind amendments.

3. The ITAT, considering judicial precedents and the CBDT Circular, held that the business losses and brought forward losses can be set off against the income assessed under Section 115BBE of the Act. Relying on the CBDT Circular and consistent tribunal decisions, the ITAT allowed the appeal, directing the deletion of the addition made by the AO and confirmed by the ld. CIT(A). The ITAT's decision was based on legal sustainability and jurisdictional aspects, aligning with the CBDT Circular and relevant case laws.

4. Ultimately, the ITAT's decision to allow the appeal was based on the legislative intent behind the relevant amendments and the consistent interpretation provided by the CBDT Circular and tribunal decisions. The ITAT's order to delete the addition made by the AO and confirmed by the ld. CIT(A) was in line with the CBDT Circular No. 11/2019 and supported by various tribunal and High Court judgments, ensuring the correct application of set off provisions against the assessed income under Section 115BBE of the Act.