2023 (5) TMI 825 - AT - Income Tax

Revision u/s 263 - computation of income where the surrendered income is considered separately as deemed income and not as business income, after setting off the same against the business loss it will still show a net loss figure and there wouldn t be any taxable income resulting in nil tax liability for the impugned assessment year 2016-17 - HELD THAT - The phrase prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the AO. In the instant case, we find that even where the AO had considered amount surrendered as deemed income as against business income, he would still be required to allow set off of the same against regular business income, being the legal position under pre-amended law (as we have discussed subsequently) and the order so passed cannot therefore be held as erroneous in allowing set off of business income against income surrendered irrespective of different classification and also cannot be held as prejudicial to the interest of the Revenue as there is clearly no loss to the Revenue. As regard the assessee s eligibility to set off business loss against deemed income for the impugned assessment year 2016-17, the matter is no more res integra as it has held by various Benches of the Tribunal that the amendment brought in by the Finance Act, 2016 is prospective in nature. We refer to case of Sanjay Bairathi Gems Ltd. 2017 (8) TMI 721 - ITAT JAIPUR wherein, speaking through one of us, it was held that the amendment brought in by the Finance Act, 2016, whereby set off of losses against income referred to in section 69B has been denied is stated clearly to be effective from 1-4-2017 and will accordingly, apply to assessment year 2017-18 onwards and for the year under consideration i.e, assessment year 2013-14, there is no restriction to set off of business losses against income brought to tax us 69B. In the instant case, the show-cause pertaining to assessment year 2016-17 has been issued by the ld PCIT on 31/01/2022 which is subsequent to issuance of aforesaid CBDT Circular dated 19/06/2019 which itself shows that the initiation of proceedings u/s 263 are not in compliance with the aforesaid CBDT Circular. As been emphasized by the CBDT that the pending assessment and litigations should be handled taking into consideration the clarification so issued and in the instant case, a fresh litigation has been started by the Department by initiation of action u/s 263 which is clearly in the teeth of the CBDT Circular and cannot be sustained in the eyes of law. Thus the impugned order passed by the ld PCIT u/s 263 of the Act cannot be sustained in the eyes of law. Decided in favour of assessee.

Issues Involved:
1. Jurisdiction under Section 263.
2. Original assessment's due application of mind.
3. Nature of surrendered income.
4. Set-off of business loss against income under Section 115BBE.
5. Audit objections as basis for Section 263.

Summary:

Jurisdiction under Section 263:
The assessee challenged the jurisdiction of the Ld. PCIT to issue a notice under Section 263, arguing that the original assessment was framed with due application of mind. The Tribunal held that the AO had duly applied his mind during the assessment proceedings and had taken a possible view on the taxability of the surrendered income. Thus, the revision proceedings under Section 263 initiated merely on the basis of a difference of opinion cannot be sustained.

Original Assessment's Due Application of Mind:
The assessee contended that the original assessment was completed after due consideration of various replies and the AO had taken a possible view. The Tribunal noted that specific queries were raised, detailed replies were filed, and the AO had accepted the surrendered income as business income. Therefore, it was not a case of lack of enquiry.

Nature of Surrendered Income:
The Ld. PCIT argued that the nature of the surrendered income was not specified, and the AO made no inquiry regarding it. The Tribunal found that the surrendered income was considered as business income by the AO, and the assessee had provided detailed explanations during the assessment proceedings. The Tribunal concluded that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue.

Set-off of Business Loss Against Income Under Section 115BBE:
The assessee argued that even if the surrendered income is considered deemed income under Section 115BBE, the set-off of losses should be allowed as per the pre-amended law applicable up to AY 2016-17. The Tribunal referred to various judicial pronouncements and CBDT Circular No. 11/2019, which clarified that set-off of losses against deemed income is allowed up to AY 2016-17. The Tribunal held that the AO's order was not prejudicial to the interest of the Revenue as there was no revenue loss.

Audit Objections as Basis for Section 263:
The assessee argued that the proceedings under Section 263 were initiated based on audit objections, which is incorrect. The Tribunal did not address this issue in detail as it was not pressed during the hearing.

Conclusion:
The Tribunal set aside the order of the Ld. PCIT passed under Section 263 and sustained the original assessment order by the AO. The appeal of the assessee was allowed, and the grounds related to jurisdiction and audit objections were dismissed as infructuous or not pressed.

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