2020 (1) TMI 909 - AT - Income Tax

Unexplained credit u/s 68 - brokers had not appeared in response to the summons sent by AO - HELD THAT - Assessee has demonstrated from the records that all the requisite details were submitted to the Assessing Officer to prove the genuineness of the transactions entered into by the assessee in commodity trading activity. In our view, merely because the brokers had not appeared in response to the summons sent by the Assessing Officer that itself cannot be the sole ground to reject the entire evidence produced by the assessee. The assessee not only furnished the names and addresses of the brokers and the other concerned parties but also the other details like their PAN numbers, bank account details and even the trading license, telephone bills and other evidences as detailed above. The assessee has also produced the details of the commodity transactions carried out by the assessee alongwith purchase and sales invoices. Under the circumstances, the action of the lower authorities in assessing the income u/s 68 of the Act cannot be held to be justified Set off of loss from one head against income from another - Set off of losses against deemed income u/s 68 - As per the section 71(1) of the Income Tax Act, losses, from one head can be set off against the income from another head of income. This controversy has been settled by the CBDT Circular No. 11 of 2019 dated 19.6.2019, wherein it has been provided that even if the said income is treated as an income assessed u/s 68 of the Act, still the assessee is entitled to set off of the said income against the business loss - There is no merit in the action of the lower authorities in making the impugned additions and not allowing the set off of income from commodity transactions as business losses of the assessee. Accordingly, the impugned order of the CIT(A) is set aside and the additions made by the lower authorities is ordered to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Confirmation of addition of ?1,74,10,040/- as unexplained credit under Section 68 of the Income Tax Act.
2. Disallowance of set-off of business loss against the unexplained income.
3. Deletion of penalty imposed under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Confirmation of Addition of ?1,74,10,040/- as Unexplained Credit under Section 68 of the Income Tax Act:
The assessee declared ?1,74,10,040/- as miscellaneous income from commodity transactions. The Assessing Officer (AO) treated this income as unexplained credit under Section 68 of the Income Tax Act, citing insufficient evidence to establish the source and genuineness of the income. The AO disallowed the set-off of this income against business losses and assessed it separately, creating a tax demand. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision.

Before the Tribunal, the assessee argued that all necessary evidence, including broker details, PAN, bank accounts, and transaction records, were provided to the AO. The Tribunal noted that the AO's sole reason for treating the income as unexplained was the non-appearance of brokers in response to summons. The Tribunal found that the assessee had sufficiently demonstrated the genuineness of the transactions through various documents and details provided. Consequently, the Tribunal held that the action of the lower authorities in assessing the income under Section 68 was unjustified.

2. Disallowance of Set-off of Business Loss Against the Unexplained Income:
The AO disallowed the set-off of the unexplained income against business losses, arguing that income assessed under Section 68 does not fall under any head of income as prescribed under Section 14 of the Act and thus cannot be set off against business losses. The Tribunal referred to CBDT Circular No. 11 of 2019, which clarified that for assessment years prior to 2017-18, losses could be set off against income assessed under Section 68. The Tribunal concluded that the lower authorities' action of not allowing the set-off was incorrect and directed the AO to set off the commodity income against the business loss.

3. Deletion of Penalty Imposed Under Section 271(1)(c) of the Income Tax Act:
The Revenue appealed against the CIT(A)'s decision to delete the penalty imposed under Section 271(1)(c) for alleged concealment of income or furnishing inaccurate particulars. The Tribunal noted that since the addition made by the AO under Section 68 was deleted, there was no basis for the penalty. The Tribunal upheld the CIT(A)'s decision to delete the penalty, finding no merit in the Revenue's appeal.

Conclusion:
The Tribunal allowed the assessee's appeal, deleting the addition of ?1,74,10,040/- and directing the set-off of this income against business losses. The Tribunal also dismissed the Revenue's appeal, upholding the deletion of the penalty imposed under Section 271(1)(c). The judgments highlight the importance of providing sufficient evidence to substantiate income claims and the applicability of set-off provisions for deemed income under Section 68 for assessment years prior to 2017-18.