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TMI Blog2018 (5) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... t after insertion of Section 115BBE, any income assessed under sections 68 to 69D will be taxed under section 115BBE and not under regular provisions w.e.f. A.Y. 2013-2014. Further, Section 115BBE has got amended w.e.f. A.Y. 2017-2018 that loss will not be allowed against such income. Therefore, it is clear that w.e.f. A.Y. 2017- 2018 any type of loss will not be allowed deduction and this Amendment is not retrospective in nature. Therefore, claim of assessee-company shall have to be allowed by authorities below. The issue is covered in favour of the assessee-company X X X X Extracts X X X X X X X X Extracts X X X X ..... any submitted before A.O. that original return filed under section 139(1) may be treated as return having filed in response to the notice issued under section 153C of the I.T. Act. The A.O. noted that assessee-company is running business of manufacturing of HDPE/PP Bags and Fabric. It's head office is situated in Chandigadh and factory is situated in Industrial Area Manakpur District, Yamuna Nagar. During the year under consideration, assessee has shown gross receipts of ₹ 37,43,40,387/- which includes other income of ₹ 40,65,312/-. The assessee-company has claimed net profit of ₹ 13,51,427/- that after adjustment of eligible depreciation of current year under Income Tax Act, the unabsorbed depreciation of current year comes to ₹ 48,03,674/-. The assessee company has carried forwarded unabsorbed depreciation of ₹ 1,78,93,656/- from earlier year, resulting unabsorbed depreciation upto this year at ₹ 2,26,97,330/- and net business income at NIL. In the return of income, the assessee has declared income from other sources of ₹ 1.51 crores which has been set off against this unabsorbed deprecation resulting carried forward of remaining unabsorb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relied upon the decision of Fakir Mahamed Haji Hasan. iii) The judgment of Hon'ble Gujarat High Court in Fakir Mahamed Haji Hasan is contrary to the decision of Punjab & Haryana High Court in the case of CIT vs. Ram Chander 159 ITR 689 and decision of Jurisdiction High Court should prevail. iv) In the case of M/s Liberty plywood P Ltd vs. ACIT, ITA No. 727/Chd/2012 dated 17.12.2012 the issue has been dealt after considering the judgment of Punjab and Haryana High Court in the case of Kim Pharma P Ltd and held that unabsorbed depreciation should be allowed against surrender Income." 8.1. The A.O. however, did not accept the contention of assessee-company and noted that the income surrendered was on account of deemed income which would not fall under any source of income provided under section 14 of the I.T. Act and it will not even fall under the Head "Income from other sources". A.O. also noted that assessee-company relied upon the order of ITAT, Chandigadh Bench in the case of M/s. Liberty Plywood Private Ltd., Ambala Cantt. vs. ACIT, Ambala ITA.No.727/Chd/ 2012 dated 17.12.2012. However, Department has not accepted the same decision and it was decided to file appeal before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Punjab & Haryana High Court rendered in the case of Kim Pharma Pvt. Ltd. and assessee was required to show cause as to why the income voluntarily disclosed during survey should not be separately assessed as deemed income under section 69, 69A, 69B and 69C. The assessee filed detailed reply before Assessing Officer to explain the above surrendered amount. The Assessing Officer after considering reply of the assessee and following decision in the case of Kim Pharma Pvt. Ltd.(supra) held that income disclosed during the course of survey was to be taxed as deemed income. It was also held that against the deemed income, set off of business loss/depreciation loss cannot be allowed. 5. The assessee challenged the addition before Ld.CIT (Appeals) and detailed written submission of the assessee is noted in which assessee also made a claim that request was made at assessment stage to adjust the unabsorbed depreciation claim under section 32(2) of the Income Tax Act against the surrendered amount as per provisions of the Act. It was pleaded that the adjustment of current year or unabsorbed depreciation can be made against such deemed income as per decision of jurisdictional ITAT Chandig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der to allow set-off of unabsorbed depreciation of current year from deemed income surrendered during the survey. In the said case it has been observed that the decision of Hon'ble Punjab and Haryana High court in the case of M/s Kim Pharma (P) Ltd. vs. CIT. it was held that surrendered income during the survey has to be assessed separately as deemed income and set-off of losses under section 70 and 70(1) was not possible against such income. However, the said decision does not deal with the issue of setting off of depreciation under section 32(2) and that unabsorbed depreciation which is carried forward as current depreciation u/s 32(2) is clearly available for setting-off. The Hon'ble 1TAT referred to the case of the special Bench of the Hon'ble Tribunal in the case of DC1T vs. Guaranty Ltd. (2010) 4 ITR (Trib) 210 (Mum) SB for the same and held as under:- "From the above it is clear that unabsorbed depreciation for the block of Assessment Year 1997-98 to 2001-02 which could not have been set off earlier, cannot be allowed to be set off now. Therefore, we set aside the order of the id. CIT(A) and remit the matter back to the file of Assessing Officer with a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taxable. On revenue's appeal to the High the issue was decided against the Department. When this matter traveled to the Hon'ble Supreme Court after detailed discussion, it was held that tenancy rights constituted capital assets. While dealing with the alternative argument of the Revenue that sale tenancy rights should be taxable under the head of income from other sources the Hon'ble Apex Court observed at placitum 14 to 16 as under:- "Section 14 of the Income-tax Act, 1961 as it stood at eh relevant time similarly provided that "all income shall for the purpose of charge of income-tax and computation of total income be classified under six heads of income", namely:- (A) Salaries; (B) Interest on Securities; (C) Income from house property; (D) Profits and gains of business or profession; (E) Capital gains; (F) Income from other sources unless otherwise, provided in the Act has not to be excluded from the total income under the Act, only if it is not chargeable to income tax under any of the heads specified in section 14, items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable to that previous year, or owing to the profits or gains chargeable being less than the allowance, then subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has not been given, as the case may be, shall be added to the amount of the allowance for depreciation for the following previous year and deemed to be part of that allowance, or if there is no such allowance for that previous year, be deemed to be the allowance for that previous year, and so on for the succeeding previous years.]. The plain reading of the above clearly shows that if the depreciation cannot be fully adjusted against profits and gains chargeable in the relevant year because of inefficiency of the profits then the same would be addled to the depreciation of the following year. This means that unabsorbed depreciation which can not be set off in a particular year, would become current depreciation in the following year and there is no restriction aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of set-off of the brought forward unabsorbed depreciation allowance was restricted to the income under the head "Profits and gains of business or profession". Under clause (i) of substituted sub-section (2), the unabsorbed depreciation allowance could be set off against "profits and gains" of any business or profession carried on by the assesses for that assessment year. Under clause (ii) of sub-section (2) if the unabsorbed depreciation allowance could not be wholly set off under clause (i), the amount not so set off could be set off from the "income under any other head", if any, assessable for that assessment year. The provision for carry forward and set-off of unabsorbed depreciation for any number of years against income under any head, was further diluted by way of clause (iii)(b) to section 32(2) restricting the right to set-off of unabsorbed depreciation for a period of not more than eight assessment years succeeding the assessment year in which the allowance was first computed. This part of the provision did not deal with the treatment of unadjusted brought forward depreciation allowance for and up to the assessment year 1996-97. The Fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation allowance for the current year. It is only when the assessment of the assesses from assessment year 2002-03 onwards is made in which depreciation allowance for the current year under section 32(1) cannot be given full effect, owing to the inadequacy of profits, that the directive of the deeming provision under section 32(2) shall apply. Wherever there is mention of loss under a particular head for the current year which is sought to be set off against the income under the same head or other heads of the income for that very year, the words "cannot be" and "has not been" have been brought into play. The words, "cannot be" and "has not been" used in the present tense in section 32(2) suggest that the reference to depreciation allowance under section 32(1), which could not be adjusted due to inadequacy of profits, is for the current year alone starting from assessment year 2002-03 onwards. The brought forward unabsorbed depreciation of earlier years cannot be included within the scope of section 32(2). In section 32(2) the depreciation allowance for the current year to which full effect cannot be given due to the paucity of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the relaxation given by the Finance Minister in Parliament, the brought forward unadjusted depreciation of the period prior to the amendment made by the Finance (No. 2) Act, 1996 with effect from April 1,1997 would have elapsed. There is no such concession given by the Finance Minister while substituting the provisions of section 32(2) with effect from April 1, 2002. Therefore, the brought forward unabsorbed depreciation allowance of the period after substitution by the Finance (No. 2) Act, 1996 cannot be treated as the current depreciation in the assessment years under consideration. The position can be summed up as follows : For the assessment years 1997-98 to 2001-02 brought forward unadjusted depreciation allowance for and up to assessment year 1996- 97 (the "first unadjusted depreciation allowance"), which could not be set off up to assessment year 1996-97, shall be carried forward for set off against income under any head for a maximum period of eight assessment years starting from assessment year 1997-98. Current depreciation for the year under section 32(1) (for each year separately starting from assessment years 1997-98 up to 2001-02) can be set off firstly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also followed decision of the Mumbai Special Bench in the case of Times Guaranty Ltd. (supra) and decided the issue in favour of the assessee. The issue is, therefore, covered in favour of the assessee by the order of the ITAT Chandigarh Bench in the case of M/s Liberty Plywood (supra). Following reasons for decision in this case, we dismiss the departmental appeal." 10.1. The ITAT, Agra Bench in the case of Shri Satish Kumar Goyal, Agra vs. JCIT, Range-1, Agra ITA.No.143/Ag/ 2014 dated 04.05.2016 has taken similar view in favour of assessee. The findings of the Tribunal are reproduced as under: "7. In the present case, it is more than evident that though assessee offered an aggregate cash receipt of ₹ 4,51,29,000/- as his income in the computation of income but the nature and source of the said receipts was not explained with reference to any cogent material or evidence. No name of the person(s) from whom such amount was allegedly received, was given. It was merely branded and sought to be passed as casual income. Even casual income has also some origin and at least there must be some explanation regarding such alleged casual income. Any receipt can not be treated as cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead with section 68 suggests that income referred u/s 68 would be assessable under the head income from other sources. This is so for the reason that all incomes are to be classified under the five given heads and 'nothing otherwise' as contemplated under section 14 has been provided in the Act in respect of the income covered u/s 68 so as to trigger the exception given in section 14. Similarly, the income referred in section 68 does not fall into the exclusions as given in section 56(1) i.e. such deemed income u/s 68 is not to be excluded from the total income under this head nor it is chargeable under the first four heads. Therefore, the natural and obvious result would be that such deemed income u/s 68 would be assessable under the head 'income from other sources' and we thus so hold. In fact, Hon'ble Punjab & Haryana High Court in the case of Kim Pharma P. Ltd. vs. CIT 258 CTR 454 held that deemed income u/s 69, 69A, 69B & 69C are not assessable under the head income from other sources. Hon'ble Punjab & Haryana High Court relied upon Gujarat High Court decision in the case of Fakir Mohmed Hazi Hasan vs. CIT 247 ITR 290. It is important to submit Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred by Ld. Counsel for the assessee and taken into account before the above mentioned decision was reached. 9. In effect, we hold that the impugned amount of ₹ 4,51,29,000/- received by the assessee is to be treated as income under section 68 of the Income Tax Act, assessable under the head "Income from other sources" and accordingly as per the provision of section 71, Business losses of the assessee are to be set off against the same. The separate addition of ₹ 4,51,29,000/- is therefore deleted." 10.2. The ITAT, Delhi Bench in the case of ACIT, Circle-1, Muzaffarnagar vs. M/s. Pushkar Steels P. Ltd., Muzaffarnagar in ITA.No.5473/Del./2011 dated 29.02.2012 have directed the A.O. to examine the issue in the light of decision of the Special Bench in the case of DCIT vs. Times of Guaranty Limited (2010) 131 TTJ 257 (Mum.) (SB). The issue is, therefore, covered in favour of the assessee by the above orders of different Benches of the Tribunal. It may also be noted here that A.O. denied the claim of assessee-company because decision of the Chandigadh Bench in the case of M/s. Liberty Plywood Private Ltd., Ambala Cantt. vs. ACIT, Ambala (supra) have not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. We, therefore, set aside the orders of the authorities below and direct the A.O. to allow set-off of the depreciation of assessee- company against the income surrendered during the course of survey. The appeal of assessee-company is accordingly allowed. 11. In the result, ITA.No.2777/Del./2017 of the assessee-company is allowed. ITA.No.2778/Del./2017 - A.Y. 2013-2014 : 12. In appeal for A.Y. 2013-2014 similar issues have been raised on the following grounds : 1. The Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the disallowance for set off unabsorbed depreciation of earlier year and Current year against the income declared and assessed u/s 68 amounting ₹ 80,00,000/-. 2. That learned Commissioner of Income Tax (Appeals) has erred in law and facts in confirming the action of AO that income u/s 68 is assessable as deemed Income ignoring the provisions of section 115BBE introduced from AY 2013-14 and restriction on loss set off u/s 115BBE (2) introduced w.e.f. 1.4.2007 and not retrospectively from A.Y. 2013-2014" 13. Following the Order for A.Y. 2012-2013 (supra), we set aside the orders of the authorities below and direct th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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