2007 (4) TMI 204 - HC - Income Tax

Undisclosed income u/s 69 - Set off of the loss u/s 71 - Business loss can be set off against the other income even though the assessee surrendered the income at the time of survey u/s 133A ? - HELD THAT - In this case the Assessing Officer made addition as undisclosed income u/s 69 of the Act. Once the loss is determined the same should be set off against the income determined under any other head of income. In the assessment no reasons were given by the Assessing Officer to deny the benefit of section 71 of the Act. The benefit provided under section 71 of the Act cannot be denied and the learned standing counsel appearing for the Revenue is also unable to explain or give reasons why the assessee is not entitled to the benefit of section 71 of the Act. The reasons given by the Tribunal are based on valid materials and evidence and the same is in accordance with the provisions of section 71 of the Act. We find no error or legal infirmity in the impugned order. Thus we are of the view that no substantial question of law arises for consideration in this tax case and hence the tax case is dismissed.

Summary

Issues:
1. Whether business loss can be set off against other income when the assessee surrenders income under section 133A of the Income-tax Act, 1961?

Analysis:
The case involved an appeal by the Revenue against the order of the Income-tax Appellate Tribunal regarding the set off of business loss against other income. The assessee, a firm, surrendered Rs. 28.50 lakhs as income from undisclosed sources during a survey under section 133A. The firm also declared a business loss of Rs. 11,95,384 for the assessment year 2002-03. The Assessing Officer restricted the business loss to Rs. 8,20,384 and did not set it off against the undisclosed income. The Commissioner of Income-tax (Appeals) allowed the set off, which was upheld by the Tribunal.

The Revenue contended that since the undisclosed income was voluntarily surrendered for taxation, the Assessing Officer was correct in denying the set off of the business loss. However, the court noted that the Assessing Officer did not provide any reason for denying the set off as per Section 71 of the Act. Section 71 allows set off of losses against income under any other head. The court emphasized that Income-tax is a single tax levied on the total income, and losses under one head can be set off against income from another head, except for capital gains.

The court highlighted that the Assessing Officer's failure to provide reasons for denying the set off was unjustified. The court upheld the Tribunal's decision, stating that the benefit of Section 71 cannot be denied without valid reasons. The judgment concluded that no substantial question of law arose, and the tax case was dismissed with no costs.

In summary, the judgment clarified the applicability of Section 71 for setting off losses against income under different heads, emphasizing the unity of Income-tax on total income. The court upheld the set off of business loss against undisclosed income, emphasizing the need for valid reasons to deny such set off.