2023 (2) TMI 625 - AT - Income Tax

Addition u/s 68 - genuineness of the income earned by the assessee in the form of commodity profit - whether the Assessing Officer was justified in making the addition u/s 68 - HELD THAT - We notice that the assessee is mainly into the business of manufacturing of TMT bars. During the year it entered into transactions of purchase and sale of commodities and earned a profit - These transactions were carried out through a broker, namely, Sidhsilver Commodities Pvt. Ltd.. AO doubted the transactions of the said profit on account of linkage of the broker with Universal Commodity Exchange of India Ltd.. However, we find that apart from referring to the said investigation, no other concrete evidence have been put forth by the revenue authorities to prove that the commodity profit was an accommodative profit. The complete details including the contract notes, financial ledgers, bank statement showing the relevant transactions and the audited financial statements of the broker, assert this fact that the assessee has earned a genuine commodity profit. Set-off of current year losses against the addition made u/s 68 - We have held above that the assessee has earned genuine commodity profit but even for academic discussion if it is presumed that the action of the Assessing Officer is found to be correct and the alleged commodity profit is treated as unexplained cash credit u/s 68 of the Act, even then the losses for the year which have not been disputed by the revenue authorities deserves to be setoff against the unexplained income u/s 68 of the Act. The restriction for setoff has been brought into the Act by the Finance Act, 2016 w.e.f. 01/04/2017. Now, going through sub-Section (2) of Section 115BBE of the Act, the words set off of any loss appearing in second line was inserted from 01/04/2017. Before this insertion, there was no bar on setting off of any losses incurred during the year against the income referred to in Section 68, 69, 69A, 69B, 69C or 69D of the Act. Further to remove the confusion, the CBDT has come out with a Circular being no. 11/2019 dated 19/06/2019. Going through the above Circular, there remains no ambiguity regarding interpretation that prior to 01/04/2017, the assessee is entitled to claim of set-off of losses in the income determined u/s 115BBE of the Act. Delay in depositing the employees contribution to PF ESI before the due date as prescribed under the relevant Acts governing PF ESI - HELD THAT - Recently, the Hon ble Supreme Court in the case of Checkmate Services (P.) Ltd. 2022 (10) TMI 617 - SUPREME COURT dealing with this issue has settled down the controversy deciding in favour of the revenue holding that strict compliance with Section 36(1)(va) r.w.s. 2(24)(x) is a must to claim deduction and provisions of Section 43B of the Act cannot be applied on employees contribution to PF ESI and further held that the High Court rulings favouring the assessee had not laid down the correct law and further held that the position of law stands well settled and such employees contribution towards PF ESI if not deposited before the due date prescribed under the relevant Act governing PF ESI, then in view of the provisions u/s 36(1)(va) r.w.s. 2(24)(x) of the Act, all such amounts shall be added to the income of the assessee. Therefore, we uphold the findings of the ld. CIT(A) in this respect and dismiss Ground No. 3 raised by the revenue.

Summary

Issues Involved:
1. Genuineness of commodity profit and its treatment under Section 68 of the Income Tax Act.
2. Allowability of set-off of losses against additions made under Section 68.
3. Disallowance under Section 36(1)(va) for delayed deposit of employees' contribution towards PF/ESI.

Issue-wise Detailed Analysis:

1. Genuineness of Commodity Profit and its Treatment under Section 68:
The revenue contested that the Learned CIT(A) erred in law by allowing the disallowance under Section 68 of Rs. 2,30,75,391/- as income chargeable to tax under 'Income from Business or Profession' instead of treating it as Commodity Profit under Section 68 of the Act. The assessee, a Private Limited Company engaged in manufacturing TMT bars, declared a loss of Rs. 2,26,20,205/- for the Assessment Year 2014-15. The Assessing Officer questioned the genuineness of the commodity profit earned through broker Sidhsilver Commodities Pvt. Ltd., citing an investigation report that suggested the broker was involved in managing benefits for Indian beneficiaries through operators. The Assessing Officer added the commodity profit as unexplained cash credit under Section 68.

The CIT(A), after detailed examination, concluded that the assessee earned genuine income in the form of commodity profit, supported by banking channels, bills, and contract notes. The CIT(A) found no discrepancies in the transactions and held that the commodity profit was genuine income. The Tribunal upheld this finding, noting that the revenue failed to provide concrete evidence to prove the commodity profit was accommodative.

2. Allowability of Set-off of Losses Against Additions Made under Section 68:
The revenue challenged the CIT(A)'s decision to allow the set-off of current year losses against the addition made under Section 68. The CIT(A) held that even if the commodity profit was treated as unexplained cash credit under Section 68, the losses incurred by the assessee during the year should be set off against the unexplained income. The CIT(A) noted that the restriction on set-off was introduced by the Finance Act, 2016, effective from 01/04/2017, and thus not applicable for the assessment year in question.

The Tribunal agreed, referencing Section 115BBE and the CBDT Circular No. 11/2019, which clarified that prior to 01/04/2017, there was no bar on setting off losses against income referred to in Section 68. The Tribunal cited various judicial pronouncements supporting the view that the assessee was entitled to claim set-off of losses against income determined under Section 115BBE before the amendment. The Tribunal confirmed the CIT(A)'s findings and dismissed the revenue's grounds on this issue.

3. Disallowance under Section 36(1)(va) for Delayed Deposit of Employees' Contribution towards PF/ESI:
The revenue argued that the CIT(A) erred in deleting the addition of Rs. 7,60,123/- made by the Assessing Officer for delayed payment of employees' contribution towards PF/ESI. The CIT(A) had allowed the deduction, but the revenue cited the Supreme Court ruling in Checkmate Services (P.) Ltd. v. Commissioner of Income-tax-1, which held that strict compliance with Section 36(1)(va) read with Section 2(24)(x) is necessary to claim the deduction, and Section 43B does not apply to employees' contributions.

The Tribunal upheld the revenue's contention, following the Supreme Court's decision, and ruled that the employees' contribution to PF/ESI, if not deposited before the due date prescribed under the relevant Acts, should be added to the income of the assessee. Thus, the Tribunal dismissed the revenue's ground on this issue.

Conclusion:
The Tribunal partly allowed the revenue's appeal, confirming the CIT(A)'s findings on the genuineness of the commodity profit and the allowability of set-off of losses against additions made under Section 68, while upholding the disallowance under Section 36(1)(va) for delayed deposit of employees' contributions to PF/ESI.