2023 (3) TMI 973 - AT - Income Tax

Set off of business loss u/s 71 - as per DR assessee had not filed return of income on time therefore, he was not eligible for set off of business loss - HELD THAT - We find merit into the contention of the assessee that it was eligible for set off of business loss as per section 71 - As per this provision, income under any head of income, other than capital gains is loss and the assessee has no income under the head capital gain . He shall be entitled to have the amount of such loss set off against the income, if any, assessable for that assessment year under any other head. If the net result is still a loss, the assessee can set off the said loss u/s 71 of the Act. We set aside the orders of the authorities below and restore this issue to the file of AO to verify the claim of the assessee and allow set off of loss as per the provisions of law. Grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues involved:
The issues involved in this case are related to the legality of the assessment process and the treatment of unexplained credit entries in the bank account under section 68 of the Income Tax Act.

Legality of Assessment:
The appellant challenged the validity of the assessment order due to the absence of a valid notice issued under section 148. The appellant contended that the reopening of the assessment proceedings and the subsequent reassessment were illegal and lacked jurisdiction without a valid notice under section 148. The appellant also argued that the reasons recorded for reopening the assessment did not meet the requirements under section 147. The CIT(A) confirmed the reopening, stating that there was no live nexus between the reasons recorded and the assessing officer's belief. The Tribunal found that the appellant had a strong case on merits and allowed the appeal, directing the AO to verify the claim and allow the set off of loss as per the provisions of law.

Treatment of Unexplained Credit Entries:
The AO made an addition of Rs. 38,79,684 on account of credit entries in the bank account, treating them as unexplained under section 68 of the Income Tax Act. The appellant argued that the AO failed to consider the business loss declared by the assessee and wrongly categorized the credit entries. The appellant provided explanations for the source of the funds related to the losses, including loans and investments. The CIT(A) upheld the addition, stating that the appellant had not adequately explained the credit entries. However, the Tribunal found merit in the appellant's contention that they were eligible for set off of business loss under section 71 of the Act. The Tribunal set aside the orders of the authorities below and restored the issue to the AO for verification and allowance of the set off of loss as per the law.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, directing the AO to verify and allow the set off of business loss as per the provisions of section 71 of the Income Tax Act. The general grounds raised by the appellant were dismissed, and the appeal was concluded on 7th March, 2023.