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Shri Anil Nandiram Ahuja Versus ITO, Ward-1 (3) , Kolhapur and Vica-Versa

2016 (4) TMI 821 - ITAT PUNE

Set off of business loss against the income added by the AO u/s.69A - Held that:- when two views are possible on the same issue the view which is favourable to the assessee should be followed in view of the decision of Hon’ble Supreme Court in the case of Vegetable Products Ltd. (1973 (1) TMI 1 - SUPREME Court ). In this view of the matter, we hold that the assessee is entitled to get set off of ₹ 13,86,925/- out of the addition of ₹ 28,94,581/- made by the AO u/s.69A of the I.T. Act .....

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brief, are that the assessee is an individual and filed his return of income on 04-12-2008 declaring total income at ₹ 1,21,750/-. During the course of assessment proceedings the AO on verification of the bank account extract of the assessee maintained with Kolhapur Mahila Sahakari Bank Limited noticed that the assessee had made transactions totaling to ₹ 58,34,629/-. The AO asked the assessee to explain the source of the deposits made with the bank. However, no reply was received fr .....

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cheque 2,80,000 Total cash deposited 35,04,581 4 Less : Amount withdrawn in cash (Self) utilised for depositing in the account 6,10,000 5 Net cash deposited in Bank 28,94,581 2.1 The assessee explained that he utilized the cash deposited in the bank account for payment towards share trading transactions with Joindre Capital Services Ltd. 2.2 The AO noted that the assessee was repeatedly asked about the source of cash deposited in the bank vide Question Nos. 7, 8, 11 & 12. It was explained b .....

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wn money. In reply to this Question the assessee answered that he suffered heavy loss of ₹ 13,86,925/- in share trading and his monetary condition was affected. It was argued that he had taken hand loans from relatives and deposited the cash in the bank but he was unable to state the names of the persons from whom he had taken hand loans. It was further stated that it is true that he should have disclosed the transactions in the income tax return but it remained to be disclosed due to loss .....

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7; 28,94,581/- in the bank account as his unexplained money u/s.69A of the income tax Act. He accordingly made addition of ₹ 28,94,581/- to the total income of the assessee. 4. Before CIT(A) the assessee reiterated the same submissions as made before the AO. In addition it was submitted that the loss suffered by the assessee from share trading business was evident from the cheque payments made to the broker. It was argued that this fact was brought to the notice of the AO in answer to Ques .....

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reated as business loss and not as a loss from speculative transactions, it was argued that the loss suffered by the assessee ought to have been set off against the income assessed on account of unexplained money as the business loss can be set off against the other income. Various decisions were also brought to the notice of the CIT(A). 5. However, the CIT(A) was also not convinced with the explanation given by the assessee and upheld the action of the AO by observing as under : 7. I have consi .....

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fered a loss of ₹ 13,86,925/- which was not allowed to be set off against the income taxed u/s.69A of the I.T. Act. 8. The issue is whether the loss of ₹ 13,86,925/ - suffered by the appellant can be set off against income of ₹ 28,94,581/- which was brought to tax u/s.69A of the Act. I find that the Hon ble Chandigarh Tribunal, 'A' Bench, has recently had the occasion to deliberate on this issue in the case ITO, Ward V(1) Ludhiana V. Dulari Digital Photo Services (P.) L .....

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r section 68 should be treated as income from other sources under section 56 and the same should be set-off against the losses under other heads of income in terms of section 71. The Assessing Officer rejected aforesaid claim. The appellant succeeded in first appeal. The Department appealed before the ITAT. The issue before the Tribunal was whether unexplained cash credits, can be considered for set-off against losses under various heads of income under section 14. The Tribunal went into the sch .....

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is Act". It is relevant to note that the principal charging section 4 makes the "total income of the previous year" subject to the charge of income-tax. Section 5 defines the scope of total income referred to in the principal charging section. Section 14 classifies the heads of income while sections 15 to 59 provide for its quantification. Chapter VI of the Income-tax Act provides for aggregation of income and set off or carry forward of loss. Thus Chapter VI is in two parts; firs .....

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me under specific provisions of the I.T. Act outside Chapter IV. For the reasons aforestated, the income assessable u/s.68 cannot be assessed as income from other sources u/s.56. 15. Thus what is taxed under Chapter IV is income from a known source including income from other sources. A source of income means a specific source from which a particular income springs or arises. Once a source giving rise to a particular income is identified, it has then to be placed under a particular head of incom .....

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urces of which are not known. The aforesaid two Chapters are completely different in their nature, scope and effect. Though the incomes assessable under them are part of total income as defined in sections 2(45)/4/5/ of the I.T Act yet that does not mean that the income assessable under section 68 has to be assessed u/s 56. In the case before us, source of unexplained cash credits is not known and hence they cannot be linked to any known source/head of income including income from other sources. .....

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of the Incometax Act, 1961, would show that in cases where the nature and source of investments made by the assessee or the nature and source of acquisition of money, bullion, etc., owned by the assessee or the source of expenditure incurred by the assessee are not explained at all, or not satisfactorily explained, then, the value of such investments and money or the value of articles not recorded in the books of account or the unexplained expenditure may be deemed to be the income of such asses .....

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be possible to classify such deemed income under any of these heads including income from "other sources" which have to be sources known or explained. When the income cannot be so classified under any one of the heads of income under section 14, it follows that the question of giving any deductions under the provisions which correspond to such heads of income will not arise. If it is possible to peg the income under any one of those heads by virtue of a satisfactory explanation being .....

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is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from "other sources" because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the sourc .....

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to be assessed as income from other sources u/s.56. 9. In view of the above discussion, I hold that the appellant is not entitled to have set off of so-called business loss against the deemed income brought to tax u/s.69A of the Act. 10. The appellant has also relied on the certain case laws and a circular of the Deptt. They are discussed hereunder. 11. The appellant has relied on the decision given by the Hon ble ITAT, Delhi in the case of G.K. Anand Builders (P) Ltd. Vs. ITO 132 SOT 439, wher .....

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CIT Vs. Chensing Ventures, 291 ITR 258 (2007) in which it is held - After setting off losses against the income under the same head, if the net result is still a loss, the assessee can set off the said loss under s. 71 against income of the same year under any other head, except for losses which arise under the head "capital gains". The income tax is only one tax and levied on the sum total on the income classified and chargeable under the various heads. Sec. 14 has classified differe .....

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under each head may be well below the taxable limit. Hence the loss sustained in any year under any head of income will have to be set off against income under any other head. The A.O. made addition of ₹ 28,50,000/- as undisclosed income under s.69. 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 A.O. to deny the benefit of s.71. The benefit provided under s. 71 cannot be .....

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axed under a particular head enumerated in Section 14 of the Act. Therefore, the decision does not come in aid of the appellant. 14. Thereafter, the appellant cited the decision given by Hon ble ITAT, Ahmedabad Bench D in the case of ITO Vs. Hytaisum Magnatics Ltd., in ITA No.2897, 2898/AHD/2008 for A.Y. 1997-98, in which the Hon ble Tribunal observed in para 11 that - Further, there is no provision under the Income Tax Act to prohibit set off of current year s business loss against income of th .....

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head 'Income from Other sources" u/s 56 of the Act. In these circumstances the business loss for current year was allowed to be set off against current year's income from other sources. In the instant case of the appellant, I find that the A.O. has rightly not assessed the aforesaid income as income from other sources u/s. 56 of the Act, but had simply added as unaccounted income of the appellant which is liable to be taxed u/s. 69A of the Act. Therefore, the case laws relied upon .....

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e way, particularly in the matter of claiming Gild securing reliefs and in this regard the Officers should take the initiative in guiding a tax payer where proceedings or other particulars before them indicate that some refund or relief is due to him .... " I am unable to figure out as to how this circular comes out in favour of the appellant while deciding the issue of whether incomes described under Chapter VI are available for set off u/s.71 of the I.T. Act. 17. In view of the above disc .....

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the facts and in the circumstances of the case and in law the Ld.CIT(A) failed to appreciate that once loss is determined the same should be set off against the income determined and the benefit given by statute cannot be denied. 7. The Ld. Counsel for the assessee submitted that during the year under consideration, the assessee suffered loss of ₹ 13,86,925/- in share trading of futures and options. In his return of income filed, by mistake, inadvertence and lack of proper knowledge, the a .....

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edings as well as appellate proceedings, the assessee has filed all the necessary documents in support of his claim of loss suffered in share trading transactions. The CIT(A) vide Para No.11 of his appellate order has directed the A.O. to treat the said loss as business loss, but has rejected the prayer of the assessee to set off the said loss against the additions made u/s. 69A by placing reliance on following decisions: i] ITO Ward vs. Dulari Digital Photo Services [P] Ltd reported in 53 SOT 2 .....

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T vs Chensing Ventures reported in 291 ITR Page 258 has also held that loss can be set off under any head of income including undisclosed Income. 9.1 Referring to the decision of the Delhi Bench of the Tribunal in the case of G.K. Anand Brothers and Buildwell Pvt. Ltd. Vs. ITO reported in 34 SOT 439 he submitted that the Hon ble Tribunal in the said decision has held that loss arising in Future and Option transaction carried out in a recognized stock exchange is to be treated as a business loss .....

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not disclosed the loss from share trading of Futures in the return of income. The only income shown was from interest income and income from Divya Garments. He submitted that no such transaction in share trading of Futures was there in the preceding year or succeeding year. Therefore, the claim of loss from share trading of Futures is a bogus claim and should not be accepted. Even otherwise also, in view of the decision of Hon ble Chattisgrah High Court in the case of Dhanush General Stores Vs. .....

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nate submission the Ld. Counsel for the assessee submitted that it is a well settled law that in case 2 comparable constructions of statute are possible, then the construction which is favourable to the assessee is to be adopted. For the above proposition, he relied on the decision of Hon ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. reported in 88 ITR 192. 12. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper .....

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he assessee that during the course of assessment proceedings the assessee had explained before the AO that it has suffered a loss of ₹ 13,86,925/- in share trading in trading of Futures. However, inadvertently the same was not declared in the return of income. Therefore, the loss to the extent of ₹ 13,86,925/- should be set off against the addition made u/s.69A of the Act. We find although the CIT(A) directed the AO to treat the loss of ₹ 13,86,925/- as business loss, however, .....

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d identical issue had come up before the Hon ble Gujarat High Court in the case of CIT Vs. Shilpa Dyeing & Printing Mills Pvt. Ltd. In that case the assessee company was engaged in the business of Dyeing and Printing. During the course of scrutiny the AO noted that the assessee had declared a sum of ₹ 100.98 lakhs on account of excess stock during the course of survey. However, in the return of income, the assessee had set off the said income from the loss of current year. The AO held .....

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ourt dismissed the appeal filed by the Revenue by observing as under: 7. Before us, learned counsel for the revenue placed strong reliance on the decision in case of Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax (supra) and submitted that when the income from undisclosed source does not fall in any of the heads specified in Section 14 of the Act, the business loss of the current year could not have been set off against such income. He submitted that in Deputy Commissioner of Income Tax .....

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es (supra). The Division Bench of the Court considered the issue in following manner: 6. Heard counsel. The Assessing Officer has not given any reason whatsoever to deny the set off of the business loss against the income declared under the head & other sources . Section 71 deals with set off of loss against income under any other head. After setting off losses against the income under the same head, if the net result is still a loss, the assessee can set off the said loss under Section 71 o .....

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e and it is not an aggregate of various taxes computed with reference to each of the different sources separately. There is only one assessment and the same is made after the total income has been ascertained. The assessee is subject to income-tax on his total income though his income under each head may be well below the taxable limit. Hence the loss sustained in any year under any heads of income will have to be set off against income under any other head. In this case, the Assessing Officer m .....

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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. 9. We may further notice that the decision in case of Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax (supra) cameup for consideration in case of Deputy Commissioner of Income Tax Vs. Radhe Developers India Ltd. and anr (sup .....

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a transaction of surrender of tenancy right. The earlier decisions of the Apex Court commencing from case of United Commercial Bank Ltd.Vs. CIT (1957) 32 ITR 688 (SC) have been considered by the Apex Court and, hence, it is not necessary to repeat the same. Suffice it to state that the Act does not envisage taxing any income under any head not specified in section 14 of the Act. In the circumstances, there is no question of trying to read any conflict in the two judgments of this Court as submit .....

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n by the Ld. Departmental Representative is concerned, we find none of the decisions are of the jurisdictional High Court. Under these circumstances we find force in the submission of the Ld. Counsel for the assessee that when two views are possible on the same issue the view which is favourable to the assessee should be followed in view of the decision of Hon ble Supreme Court in the case of Vegetable Products Ltd. (Supra). In this view of the matter, we hold that the assessee is entitled to ge .....

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e transactions in Para 11 of the appellate order on the one hand while holding that the appellant was not entitled to set-off so called business loss against the deemed income brought to tax u/s.69A of the Act in paras 9 and 17 of the said order, thereby giving a contradictory finding for the loss claimed by the assessee during the course of assessment proceedings, which remained to be claimed in the return of income filed. 2. That That on the facts and in the circumstances of the case, the Ld.C .....

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er to allow the business loss to the assessee when such business loss was not at all claimed in the return of income filed but claimed during the course of assessment proceedings. 4. That any other ground(s) the department intends to take for the above during the course of appellate proceedings. 16. The Ld. Counsel for the assessee at the outset raised his objection regarding the maintainability of the cross objection filed by the Department. He submitted that the assessee has filed the appeal o .....

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. Therefore, the cross objection is barred by limitation. Further, the cross objection is filed without any application for condonation of delay in filing of the cross objection. This is a serious lapse on the part of the Department. He submitted that the application for condonation of delay is signed by the CIT-I, Kolhapur on 15-05-2014 and filed before the Tribunal. Referring to provisions of section 253(4) of the I.T. Act he submitted that the right to file the cross objection vests with the .....

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Hon ble Supreme Court in the case of O/o. Chief Post Master General and Others Vs. Living Media India Ltd. and Another reported in 348 ITR 7 and Union of India Vs. Tata Yodogawa Ltd. reported in 1988 (SC- 1)-GJX-0610-SC he submitted that the cross objection has to be dismissed being barred by limitation as the revenue has not explained sufficient cause for the undue delay in filing of the cross objection. 18. The Ld. Departmental Representative on the other hand submitted that the delay in filin .....

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reads as under : No.KOP/CIT-I/ITO (HQ-I)/ITAT/2014-15/350 Date: 05-05-2015 To The Income Tax Appellate Tribunal, Pune Bench A, Pune Sir, Sub : Request to ITAT, Pune for condonation of delay in filing cross Objections in the case of Shri Anil Nandiram Ahuja, Prop. Divya Garments, Main Road, Gandhinagar, Tal : Panhala, Dist : Sangli - A.Y. 2008-09 - Reg. Kindly refer to the above, 1. The present appeal was initially directed against the order u/s.143(3) passed by the AO before the CIT(A), Kolhapur .....

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essee s contention in respect of treating the loss emanating from the future options transactions in a recognized stock exchange to be business loss even though the same was not claimed in the return of income by the assessee and also not allowed by the AO. Further the AO also has observed that in Para 17 of the order, the CIT(A) has held that the appellant assessee is not entitled to have set off so called business loss against the deemed income - 4. On going through the above decision of the C .....

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f Revenue. Hence, it is requested to kindly condone the delay. Yours faithfully, Sd/- (N.P.Singh) Commissioner of Income Tax-I, Kolhapur 20. From the above, it is noted that the cross objection has been filed belatedly and the condonation petition was filed by the CIT-I, Kolhapur and the AO who has filed the cross objection duly signed by him has not filed any condonation petition. Although Para 4 of the order of the CIT says that the cross objection was filed on 24-04-2014, however, the order s .....

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dia Ltd. and Another (Supra) has observed as under (short notes) : The respondent, a company publishing magazines registered as newspapers with the Department of Posts and entitled to transmit its publications by post under concessional rate of postage, was denied permission to post issues of two of its magazines containing advertisements at concessional rates. The company filed writ petitions which a single judge of the High Court allowed and, on appeal by the Postal Department, this was affirm .....

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ts counsel had applied for the certified copy of the judgment only on January 8, 2010, and the copy was received by the Department on the very same day. There was no explanation for not applying for certified copy of the judgment on September 11, 2009, or at least within a reasonable time. The fact remains that the certified copy was applied for only on January 8, 2010, i.e. after a period of nearly four months. Neither the Department nor the person in-charge had filed an explanation for not app .....

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by way of filing a special leave petition in the supreme Court. In the absence of plausible and acceptable explanation, the delay could not be condoned mechanically merely because the Government or a wing of the Government was a party before the Court. Though in a matter of condonation of delay when there was no gross negligence or deliberate inaction or lack of bonafide, a liberal concession had to be adopted to advance substantial justice, in the facts and circumstances, the claim on account o .....

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and acceptable explanation for the delay and there was bonafide effort, there is no need to accept the usual explanation that the file was kept pending for several months or years due to considerable degree of procedural red-tape in the process. Government Departments are under a special ob ligation to ensure that they perform their duties with diligence and commitment. Condonation of delay is an exception and should not be used as an anticipated benefit for Government Departments. The law shel .....

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