2015 (7) TMI 691 - HC - Income Tax

Set off of business loss - ITAT treating income of ₹ 1,00,98,672/- as income falling under the head income from other sources and not treating as deemed income as provided under the scheme of Section 69 of the Act? - Whether ITAT is justified in deleting an addition of ₹ 1,00,98,672/- by treating the same as business income and thus allowing set off of business loss? - Held that - Section 71 of the Act permits an assessee to set off loss other than that of capital gains against income from other head. In our opinion, the statutory provisions contained in Section 71 was applicable in the present case. By applying the decision in case of Fakir Mohmed Haji Hasan (2000 (8) TMI 44 - GUJARAT High Court ) as explained in case of Radhe Developers Incia Ltd. (2009 (4) TMI 21 - GUJARAT HIGH COURT ), the same cannot be declined. In the result, no question of law arises. Tax appeal is, therefore, dismissed. - Decided against revenue.

Summary

Issues:
1. Tax treatment of income declared from undisclosed source.
2. Set off of current year business loss against undisclosed income.
3. Applicability of Section 71 of the Income Tax Act.

Issue 1: Tax treatment of income declared from undisclosed source:
The case involved an appeal by the revenue challenging the treatment of income of Rs. 1,00,98,672 as falling under the head 'income from other sources'. The Assessing Officer contended that such income from an unlisted source should be taxed separately and not allowed to set off against current losses. The assessee argued for tax treatment based on Section 71 of the Income Tax Act and relied on relevant case laws. The Commissioner (Appeals) allowed the appeal, emphasizing that income declared must fall under a specific head of income to be taxed. The Tribunal upheld this decision, highlighting that the undisclosed income was part of the total income and should be considered for set off against losses.

Issue 2: Set off of current year business loss against undisclosed income:
The revenue argued against allowing the set off of current year business loss against income from an undisclosed source, citing previous judgments. However, the Tribunal emphasized the provisions of Section 71 of the Act, allowing set off of losses against income from other heads. The Madras High Court's decision in Chensing Ventures supported this view, stating that once a loss is determined, it should be set off against income from any other head, including income from undisclosed sources.

Issue 3: Applicability of Section 71 of the Income Tax Act:
The High Court analyzed the applicability of Section 71 in the context of the case. It referred to previous judgments to clarify that income not falling under specified heads in Section 14 of the Act cannot be taxed. The Court emphasized that the Act does not envision taxing income under unspecified heads and upheld the Tribunal's decision to allow set off of losses against undisclosed income. The Court dismissed the tax appeal, concluding that no legal question arose, and affirmed the application of Section 71 in the case.