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TMI Blog2023 (5) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Notwithstanding the above said grounds of appeal, it is submitted that even on merits, the finding of Ld. PCIT that no set-off of losses is to be allowed, if the income offered during survey is to be taxed as per provisions of Section 115BBE, is wholly misconceived and not correct finding, because as per the Board Circular No. 11/2019 dated 19th January, 2019, it has been clarified that the set-off of the deemed income, so determined u/s 115BBE is liable to be set-off against the normal business loss upto Assessment Year 2016-17 and the amendment of sub-section (2) of Section 115BBE, is only effective from Assessment Year 2017-18 and hence, the finding of the Ld. PCIT of this issue is devoid of any substance. 6. Without prejudice to the above ground of appeal, it is submitted that the order of the Ld. Assessing Officer as passed u/s 143(3) in the light of the above Board Circular is, therefore, neither erroneous nor prejudicial to the interest of the revenue and hence the order of the Ld. PCIT vide order dated 22.03.2022 deserves to be set-aside. 7. Notwithstanding the above said ground of appeal, the Ld. PCIT has erred in assuming the jurisdiction u/s 263 on the basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the AO is erroneous and prejudicial to the interest of the Revenue and needs to be revised under section 263 of the Act and an opportunity was granted to the assessee to show cause and file necessary submission where so advised. In response, the assessee filed its submissions which were considered but not found and the assessment order so passed was held by the Ld. PCIT as erroneous as well as prejudicial to the interest of the Revenue and the same was set aside to the file of the AO for passing the order afresh in accordance with law. 3. Against the said findings and direction of the Ld. PCIT, the assessee is in appeal before us. 4. During the course of hearing, the Ld. AR submitted that the ground of appeal no. 1 to 4 challenges the exercise of jurisdiction u/s 262 by the ld PCIT as the original assessment was framed with due application of mind after taking into consideration all the replies and the amount surrendered during survey and, therefore, the Ld. PCIT could not have exercised his jurisdiction u/s 263. It was submitted that Ground of Appeal No. 5 6 deal with the fact that, even if the loss as determined by the Ld. Assessing Officer is accepted then the same had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee furnished a detailed reply which have been placed in the paper book pages 33 to 40 of the paper book and the followings contentions were raised: a. The amount offered was over above the normal business income and, since no other activity was noticed of any other business carried on by the assessee, the same had to be treated as business income and, thus, the said income have been derived from the regular business carried on by the assessee. b. During the course of survey, certain transactions which contained entries of receivables were found which were not recorded in the books of accounts and the same was offered has been derived from the same business. Various case laws had been referred to and further it was submitted as an alternative ground that, even if, the income offered, is taken as the deemed income as per provisions of Section 115BBE of the Act, even then the loss would be allowable as per books as per the Board Circular, for which, a computation was given at page 38 to 39 of the paper book and, thus, it was stated that the assessment was not prejudicial to the interest of revenue. Copy of the Board Circular was also relied upon, for which, a copy is placed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on the same. Therefore, even after the thorough application of mind by the AO, merely because it seems to the ld PCIT that issue had remain unattended by the AO, he cannot call for application of section 263 of the Act by treating the order passed by the AO as erroneous and prejudicial to the interest of the revenue 10. Further reliance was placed on the Coordinate Chandigarh Benches decision in the case of Famina Knit Fab Vs. ACIT reported in 104 Taxmann.com 306 (Chd-Trib.) wherein it was held that the surrender was made on account of debtors/ receivables, relating to the business of the assessee and the i revenue has accepted the surrender and, thus, it follows that the debtors were generated from the sales, made by the assessee during the course of carrying of 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 and, thus, it is the business income of the assessee and cannot be tax u/s 69 of the Act. 11. It was further submitted that two conditions have to be satisfied before resorting to action u/s 263 that the assessment should be prejudicial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dhiana is totally misplaced as the facts of those cases are entirely different from the fact of the case of the assessee. In assessee s case the assessee himself has admitted (in its surrender letter) that during the survey proceedings on his business premises, certain discrepancies were pointed out and such transactions were not reflected in regular books of account, it clearly shows that such surrendered amount was unexplained income of the assessee and can't be treated as business income 13. It was submitted that under section 115BBE, it has been specifically provided that no benefit or deduction of any expenses or set off of any losses shall be allowed against the income in nature of sections 68 to 69D. This also reinforces the view that once any income falls under deeming provisions, such income loses its nexus or live link to the legitimate expenses or losses of the business/ profession which assessee might have been carrying. By implication it would mean that income in nature of incomes prescribed u/s 68 to 69D shall be subject to higher tax rate @60% u/s 115BBE, irrespective of whether such income is otherwise in nature of business income or not. 14. It was accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed income Loss under business head (15428534) Add: depreciation debited to P/L 8369043 Net Loss before depreciation (7059491) Add: deemed income (surrendered Income) 10700000 3640509 Less: depreciation u/s 32 (allowable 3640509 depreciation is Rs. 8369043/- but restricted to Rs. 3640509/- to the extent of income. Net Taxable income NIL From the above it is clear that there is no revenue loss even if the surrendered income is to be considered as deemed income for the time being for the relevant assessment year (i.e. A.Y. 2016-17) thus the assessment is not prejudicial to the interest of the revenue. The respective amendment made by the taxation laws (second amendment) Act 2016 in sec. 115BBE which prohibits the setting up of the losses against the deemed income is prospective in nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be satisfied. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. 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. 17. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 2016, an amendment has been brought-in in section 115BBE(2) wherein it has been provided that notwithstanding anything contained in this Act, no set off of any loss shall be allowed to the assessee under any provision of this Act in computing his income as referred to clause (a) of subsection (1) of the Act. If we were to accept the contentions of the ld CIT(DR), the question that arises is would that interpretation render sub-section (2) otiose and what was the necessity for bringing in the subject amendment. The intent of the legislature has been provided in the memorandum explaining the said amendment which reads as under: Currently, there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the provisions of the sub section (2) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7, sub-section (2) of section 115BBE of the Income-tax Act, 1961 (Act) provides that where total income of an assessee includes any income referred to in section(s) 68/69j69A/69B/69Cj69D of the Act, no deduction in respect of any expenditure or allowance or set off of any loss shall be allowed to the assessee under any provisions of the Act in computing the income referred to in section 115BBE(1) of the Act. 2. In this regard, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that in assessments prior to assessment year 2017-18, while some of the Assessing Officers have allowed set off of losses against the additions made by them under Section(s) 68/69j69A/69B/69C/69D, in some cases, set off of losses against the additions made under Section 115BBE(1) of the Act have not been allowed. As the amendment inserting the words 'or set off of any loss' is applicable with effect from pt of April, 2017 and applies from assessment year 2017-18 onwards, conflicting views have been taken by the Assessing Officers in assessments for years prior to assessment year 2017-18. The matter has been referred to the Board so that a consistent approach is ado ..... X X X X Extracts X X X X X X X X Extracts X X X X
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