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2018 (8) TMI 1247 - AT - Income TaxRevision u/s 263 - unexplained credits - set off of net loss from capital assets with cash credit - applicable rate of tax @30% u/s 115BBE on unexplained cash u/s 68 - eligibility for set off of brought forward business loss and unabsorbed depreciation - Held that - The assessee has treated the unexplained credit to the tune of ₹ 1.86 crores which was credited to the capital account as unexplained income u/s. 68 of the Act and thereafter, set off the net business loss of ₹ 1,76,24,221/- against that unexplained income. - As such, the AO allowed excess relief to the assessee which is prejudicial to the interest of the Revenue. In other words, the failure on the part of the AO to make necessary enquiry rendered the assessment order erroneous which also resulted in allowing excess relief which rendered the assessment order prejudicial to the interest of the revenue. As such, the CIT remitted the issue back to the file of the AO to examine the issue afresh. Treatment of unexplained cash as business income or income from other sources - Held that - the assessee has not proved the source of unexplained credit, the identity, capacity, genuineness and credit worthiness of the transactions in question and further, it has also not shown the amount in its duly audited accounts as its business income. This leads to the inference that once the assessee has not shown the receipt as its business income, there is no reason as to how the accounting treatment given by the assessee can be overruled by the authorities. Therefore, in our opinion, the aforesaid case law is not applicable in the assessee s case. We are unable to hold that unexplained cash credits assessed under section 68 are to be assessed as income from other sources under section 56. Decided against the assessee.
Issues Involved:
1. Whether the assessment order under section 143(3) was erroneous and prejudicial to the interest of the revenue. 2. Whether the unexplained credits under section 68 can be set off against business losses. 3. The applicability of section 115BBE to the assessment year in question. 4. The relevance and application of various judicial precedents cited by both parties. Issue-wise Detailed Analysis: 1. Erroneous and Prejudicial Assessment Order: The appeal filed by the assessee challenges the order passed under section 263 of the Income Tax Act by the Principal Commissioner of Income Tax (Pr. CIT), Kozhikode. The Pr. CIT noted that the assessment order under section 143(3) was prima facie erroneous and prejudicial to the interest of the revenue. The Pr. CIT observed that the Assessing Officer (AO) did not apply his mind to the issue of unexplained credits amounting to ?1,86,00,000/- in the capital account and the set-off of a net business loss of ?1,76,24,221/- against this cash credit. The CIT(A) set aside the assessment for reconsideration by the AO, emphasizing the need for further verification and inquiry. 2. Set-off of Unexplained Credits Against Business Losses: The assessee argued that the unexplained credits should be treated as business income and set off against business losses. The AO had allowed this set-off in the original assessment order. However, the Pr. CIT and the Tribunal highlighted that the AO had failed to make necessary inquiries to ascertain whether the unexplained income under section 68 could be set off against business losses. The Tribunal referred to the Kerala High Court's judgment in the case of Kerala Sponge Iron Ltd., which held that unexplained cash credits cannot be treated as business income and are not eligible for set-off against business losses. 3. Applicability of Section 115BBE: The assessee contended that section 115BBE, which mandates a flat tax rate of 30% on income referred to in sections 68 to 69D without allowing set-off of losses, was amended by the Finance Act, 2016, to apply prospectively from the assessment year 2017-18 onwards. Therefore, for the assessment year 2013-14, the assessee argued that there was no prohibition on setting off unexplained credits against business losses. However, the Tribunal emphasized that the AO's failure to make necessary inquiries rendered the assessment order erroneous and prejudicial to the revenue, regardless of the applicability of section 115BBE. 4. Judicial Precedents: The assessee relied on several judgments, including the Madras High Court's decision in Chensing Ventures, which allowed the set-off of business losses against income declared under other sources. The Tribunal, however, distinguished these cases, noting that the facts were different and that the unexplained credits in the present case were not shown as business income in the assessee's audited accounts. The Tribunal also referred to the Gujarat High Court's judgment in Fakir Mohmed Haji Hasan, which held that deemed income under sections 68 to 69D does not fall under any specific head of income and is not eligible for set-off against business losses. Conclusion: The Tribunal upheld the Pr. CIT's order under section 263, remitting the issue back to the AO for fresh examination. The Tribunal concluded that the AO's failure to make necessary inquiries and the acceptance of the assessee's claims without proper verification rendered the assessment order erroneous and prejudicial to the interest of the revenue. The appeal of the assessee was dismissed, and the Tribunal emphasized the need for thorough investigation and proper classification of income under the appropriate heads as per the Income Tax Act. Order Pronouncement: The order was pronounced in the open court on August 20, 2018.
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