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2019 (5) TMI 8 - AT - Income TaxCategorization/characterization of income surrendered during survey proceedings - deemed income from undisclosed sources u/s 69 69A 69B and 69C or income from business - whether from disclosed or undisclosed sources and the allowability of claim of set off of losses both current and brought forward against the same? - tax rate u/s 115BBE HELD THAT - To put it simply the unrecorded investments/assets/expenditures made out of unexplained sources are treated as deemed incomes of the assessee. The onus is on the assessee to establish the source of the surrendered income failing which it is to be categorized as deemed income u/s 69/69A/B/C. And establishing the source of income is a factual matter. Surrender was on account of debtors/receivables relating to the business of the assessee only. The Revenue has accepted the surrender as such as being on account of receivables. It follows that the debtors were generated from the sales made by the assessee during the course of carrying on the business of the assessee which was not recorded in the books of the assessee. Though the said income was not recorded in the books of the assessee but the source of the same stood duly explained by the assessee as being from the business of the assessee. Even otherwise no other source of income of the assessee is there on record either disclosed by the assessee or unearthed by the Revenue. The preponderance of probability therefore is that the debtors were sourced from the business of the assessee. Therefore there is no question of treating it as deemed income from undisclosed sources u/s 69 69A 69B and 69C and the same is held to be in the nature of Business Income of the assessee. Having held so the same was assessable under the head business and profession and as stated above the benefit of set off of losses both current and brought forward was allowable to the assessee in accordance with law. Contention of the Revenue therefore that the income be treated as deemed income u/s 69, 69A/B/C is accordingly rejected and as a consequence thereto the plea that no set off of losses be allowed against the same u/s 115BBE of the Act also is rejected. Therefore as per the facts of the case and as per the provisions of law relating to the issue the surrendered income we hold was assessable as business income of the assessee and set off of losses was to be allowed against the same as rightly claimed by the assessee. Whether the set off of losses is to be allowed against the same - whether amendment denying the set off of losses by the Finance Act 2016 w.e.f. 1.4.2017 was clarificatory in nature and retrospective? - HELD THAT - The assessee on the other hand has drawn our attention to several decisions of the I.T.A.T. ; 2017 (8) TMI 721 - ITAT JAIPUR ; 2018 (4) TMI 19 - ITAT JAIPUR which have held the amendment to be prospective in nature. No contrary decision either of the I.T.A.T. or of any higher judicial authority has been brought to our notice by the Revenue. The decisions rendered by the I.T.A.T. will therefore apply following which we hold that in the impugned year the assessee was entitled to claim set off of losses against the income assessed as deemed income u/ss 68 69 69A 69B and 69C of the Act as per the provisions of section 115BBE of the Act as it stood prior to amendment by Finance Act 2016.
Issues Involved:
1. Characterization of income surrendered during survey proceedings. 2. Allowability of set off of losses against the surrendered income. 3. Applicability and interpretation of Section 115BBE of the Income Tax Act, 1961. Detailed Analysis: 1. Characterization of Income Surrendered During Survey Proceedings: ITA No.408/Chd/2018: - The assessee, engaged in manufacturing and selling auto parts, had unaccounted receivables of ?1.25 crores surrendered during a survey under Section 133A. - The Assessing Officer (A.O.) treated the surrendered income as deemed income under Sections 69A and 69B, disallowing set off against business losses, citing precedents from the Hon'ble Jurisdictional High Court and ITAT Chandigarh Bench. ITA No.1494/Chd/2017: - The assessee surrendered ?4 crores during a survey, which included investments, sundry creditors, advances, gross profit on out-of-books sales, and miscellaneous discrepancies. - The A.O. treated the surrendered income as deemed income under Sections 69, 69A, 69B, and 69C, denying set off of losses. 2. Allowability of Set Off of Losses Against the Surrendered Income: ITA No.408/Chd/2018: - The CIT(A) held that the surrendered income, being part of unrecorded receivables, was business income and allowed set off of losses, referencing the ITAT Jaipur Bench decision in M/s Sanjay Bairathi Gems Ltd. - The CIT(A) stated that the amendment to Section 115BBE, disallowing set off of losses, was prospective from 1.4.2017. ITA No.1494/Chd/2017: - The CIT(A) treated the entire surrendered income as deemed income and upheld the A.O.'s denial of set off of losses, considering the amendment to Section 115BBE as retrospective. 3. Applicability and Interpretation of Section 115BBE: Arguments by Assessee: - The income surrendered was business income, allowing set off of losses as per law. - Even if assessed under Sections 69, 69A, 69B, and 69C, the set off of losses should be allowed as the amendment to Section 115BBE was prospective. Arguments by Revenue: - The surrendered income was deemed income under Sections 69, 69A, 69B, and 69C, taxable under Section 115BBE without set off of losses. - The amendment to Section 115BBE was retrospective, aligning with the decision of the Jurisdictional High Court in Kim Pharma Ltd. vs CIT. Tribunal's Findings: - ITA No.408/Chd/2018: The Tribunal held that the surrendered income was business income as it related to unaccounted receivables, allowing set off of losses. - ITA No.1494/Chd/2017: The Tribunal held that part of the surrendered income was business income (sundry creditors, advances, gross profit) and part was deemed income (investment in Kothi, miscellaneous discrepancies). Set off of losses was allowed for both categories, considering the amendment to Section 115BBE as prospective. Conclusion: - ITA No.408/Chd/2018: The appeal by the Revenue was dismissed. The surrendered income was characterized as business income, allowing set off of losses. - ITA No.1494/Chd/2017: The appeal by the assessee was allowed. The surrendered income was partly business income and partly deemed income, with set off of losses permitted for both categories. The Tribunal's decisions emphasized the nature of the surrendered income and the prospective application of the amendment to Section 115BBE, allowing set off of losses for the assessment years in question.
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