TMI Blog2017 (8) TMI 721X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendment to Section 115BBE is explained and has been stated that this amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years. Given the fact that the AO has invoked the provisions of section 11BBE in the instant case, the provisions of sub-section (2) to section 11BBE are equally applicable. 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 April 2017 and will accordingly, apply to assessment year 2017-18 onwards. Accordingly, for the year under consideration, there is no restriction to set off of business losses against income brought to tax under section 69B of the Act. Further, the provisions relating to set off of losses are contained in Chapter-VI relating to aggregation of income and set off of losses. Whenever legislature desires to restrict set-off of loss or allowance of loss, in a particular manner, usually, the provisions are made in Chapter-VI such as non-allowance of business loss against salary income as provided in section 71(2A), and treatment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xport, import and manufacture of precious semi precious stones and jewellery. A survey u/s 133A was conducted on 31.10.2012 at the business premises of the assessee which was converted into search. 2.1 During the survey, the assessee s Manager, Shri Rakesh Sharma, in reply to question no. 21 admitted to excess stock of ₹ 2,43,77,004/-. This was confirmed by Shri Sanjay Bairathi, Director of the assessee company in reply to question no. 17. Thereafter on verification, Shri Sanjay Bairathi vide letter dated 04.02.2013 (reproduced at pages 4 5 of AO order) explained that the correct excess stock found in survey works out to ₹ 231.41 lakhs as against the amount of ₹ 243.77 lakhs worked out at the time of survey due to the valuation of the stock at market price instead of the purchase price. 2.2 In the return of income filed for the year under consideration, the assessee credited the amount of excess stock of ₹ 2,31,41,217/- in the trading account and declared an income of ₹ 1,44,61,040/- (after considering the loss in business). 2.3 The AO accepted the value of excess stock surrendered in search at ₹ 2,31,41,217/-. However, he assessed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded u/s 133A of Sh Rakesh Kumar Sharma, Manager of M/s Sanjay Bairathi Gems Ld are reproduced here as under:- c) AO has made the addition of ₹ 2,31,41,217/= u/s 69B of the Act and thereafter invoked the provisions of sec 115BBE of the Act and not allowed set off of business loss against the addition made. The assessee vide letter dt 09.03.2015 has made submission before the AO. Form the above, it is seen that assessee has shown net business income ₹ 1,44,44,484/= in ITR filed on 28/9/2013 vide acknowledgment no 799563911280913 for the AY 2013-14. d) It is pertinent to mention here that applicability of set off provision as contained in sec. 115BBE of the Act is effective from 1.4.2017. e) AO has relied on the decision of cases decided by Hon ble Punjab Haryana High Court in Kim Pharma Pvt. Ltd. (cited supra) and liberty India (cited supra). It is submitted that in case of Kim Pharma (P.) limited report in 258 CTR 454 amounts surrendered in course of survey was not reflected in books of accounts and no source from where it was derived was declared by the assessee and therefore it was held that the same cannot be assessed as business income. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ralal Maganlal vs. DCIT, 141 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclosed business receipt invested in unidentifiable unaccounted asset and only on failure it should be considered to be taxed under section 69 on the premises that such excess investment is not recorded in the books of account and its nature and source is not identifiable. Once such excess investment is taxed as undeclared business receipt then taxing it further as deemed income under section 69 would not be necessary. From the above, it is seen that the excess stock found during the search operation is not separately and clearly identifiable but is part of mixed lots of stock found at the premises which included declared stock as per books and also the excess stock as computed by the Authorized Officers during the search operation at the premise. Since excess stock is a result of suppression of profit from business over the years and has not been kept identifiable s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not satisfactorily explained or any investment which is not found recorded or otherwise explained and taxed u/s 68, 69, 69A, 69B or 69C has to be taxed under any one of the above five heads. If such income can t be linked to any of the first four heads as provided in section 14, it has to be assessed under the fifth head i.e. income from other sources. Section 56 (1) also provides that income of every kind which is not to be excluded from the total income under this head shall be chargeable to income tax under the head Income from other sources , if it is not chargeable to income tax under any of the heads specified in section 14, item A to E Thus even an income assessable under section 69B has to be given a specific head in terms of section 14 and in case it can t be given any specific head as per item A to E of section 14, it has to be given the residuary head i.e. items F of section 14. e) It may also be noted that Chapter XII of the Act provides for determination of the tax in certain Special cases. Even when tax is to be charged on certain income in this chapter at a specific rate, still such income has to be classified under any one of the heads provided in section 14. F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent identity as an asset but as mixed part of overall stock found in the survey/search then such excess stock would represent business income only. 4.2 Recently the Hon ble ITAT Jaipur Bench in case of DCIT vs. Ramnarayan Birla 482/JP/2015 dated 30.09.2016 in the similar facts held that the excess stock is to be assessed as part of the normal stock and to be taxed under the head income from business. The relevant finding of the ITAT is as under:- We have heard rival contentions and perused the material available on record. Undisputed facts emerged from the record that at the time of survey excess stock was found. It is also not disputed that the assessee is engaged in the business of jewellery. During the course of survey excess stock valuing ₹ 77,66,887/- was found in respect of gold and silver jewellery. The Coordinate Bench in the case of Chokshi Hiralal Maganlal vs. DCIT, 131 TTJ (Ahd.) 1 has held that in a cases where source of investment/expenditure is clearly identifiable and alleged undisclosed asset has no independent existence of its own or there is no separate physical identity of such investment/expenditure then first what is to be taxed is the undisclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case also the excess stock offered in survey is part of the business income. The excess stock is determined by valuing the business stock at current price instead of the purchase price. Nothing was brought to suggest that this was not a regular item of the stock dealt by the assessee. Hence the case laws relied by the AO is not applicable. 4.4 The AO further referred to the provisions of section 115BBE and held that no deduction or set off of business loss will be allowable. The provisions of section 115BBE reads as under:- ( 1) Where the total income of an assessee includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, the income-tax payable shall be the aggregate of- ( a) the amount of income-tax calculated on income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of thirty per cent; and ( b) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (a). ( 2) Notwithstanding anything contained in this Act, no deduction in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rao Anr. vs. ACIT ANR. 2016 ITL 4940 where at Para 11 of its order, it held as under: 11. The CIT, assumed jurisdiction to revise the assessment order on the ground that there is a lack of enquiry on the part of the A.O., in examining the issue of cash found during the course of search at the time of completion of assessment u/s 143(3) of the Act. The CIT was of the opinion that the A.O. has applied incorrect provisions of the Act, to deal with cash found during the course of search, as against separate provisions provided by way of section 115BBE of the Act. The CIT further, observed that as per the provisions of section 115BBE of the Act, where the total income of an assessee includes any income referred to in section 68 to 69D of the Act, then notwithstanding anything contained in this Act, no deduction in respect of any expenditure or allowance (or set off of any loss) shall be allowed to the assessee under any provision of this Act, in computing his income referred to in clause (a) of sub section (1) of section 115 BBE of the Act. The CIT was of the opinion that the A.O. ignoring the provisions of section 115BBE of the Act, accepted income declared by the assessee un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax. The provision of section 115BBE does not relate to the computation of total income. It was submitted that for quantification of tax, in respect of income referred in the said provisions, the amendment by the Finance Act 2016 would not affect the computation of total income. Hence, the business losses in the instant case cannot be allowed set off against the amount brought to tax under section 69B in terms of investment in undisclosed stock of stones and jewellery. 5.1 Further, in support of his contentions, he relied upon the following decisions: Dhanush General Stores vs CIT (2012) 20 taxman.com 853 (Chhattisgarh) Razakbhai R. Arabiani vs ITO (2013) 40 taxman.com 245 (Gujarat) Vipul Kumar Kiritlal Shah vs ITO (2013) 33 taxman.com 370 (Gujarat) Krishnamegh Yarn Industries vs ACIT (2016) 68 taxman.com 103 (Gujarat) CIT vs Kuwer Fibers (P) Ltd (2017) 33 taxman.com 345 (Del) 6. Per contra, the ld AR drawn our reference to the decision of the Coordinate Bench in case of Satish Kumar Goyal vs JCIT (2016) 70 taxmann.com 382 (Agra) wherein it was held that business losses of the assessee could be set off under section 71 against the income assessabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XII providing for determination of rate of tax in certain special cases and accordingly, it relates to quantification of the amount of tax and not to the computation of total income and therefore, the amendment brought in by the Finance Act 2016 would not affect the computation of total income. It was accordingly contended that the business losses in the instant case cannot therefore be allowed set off against the amount brought to tax under section 69B in terms of undisclosed investment in stock of stones, gold and jewellery. 9. It is noted that by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Hon ble Gujarat High in case of Fakir Mohmed HajiHasan (supra) and subsequent decision of the Hon ble Madras High Court in case of Chensing Ventures (supra) are two earliest decisions on the subject where the Hon ble Courts have taken a divergent view in the matter. As per the decision of Hon ble Gujarat High Court, the addition on account of unexplained investment would be considered as total income of the previous year without allowing set-off of business loss. As per Madras High Court s decision, the addition would be set-off against the business loss and the balance addition, if any, would form part of the total income and attract tax. 13. It is noticed that the Hon ble Gujarat High Court in case of CIT vs Shilpa Dyeing Printing Mills (P) ltd (supra) had an occasion to consider an identical issue where the said divergent view has been reconciled. In that decision, the Hon ble High Court has considered its earlier decision rendered in case of Fakir Mohmed HajiHasan (supra) as explained in another decision in case of Radhe Developers India Ltd (supra) and also the decision of Madras High Court in case of Chensing Ventures (supra). It would therefore to relevant to refer to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome 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 made addition of ₹ 28,50,000/- as undisclosed income under Section 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 71of 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 (supra) came-up for consideration in case of Radhe Developers Incia Ltd. (supra), it was observed as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,06,987/- was not recorded in the books of account. However, it is admitted by the assessee himself that he has not completely disclosed the stock in the books of account. Now, considering the proviso of Section 69(B) of the act, we are of the opinion that the assessee had not fully disclosed the stocks in the books of account and therefore, the Assessing Officer as well as the CIT (Appeals) have rightly observed that the case of the assessee would fall under the proviso of Section 69(b) of the act. We are also of the opinion that the submissions made by the learned advocate is that the case would fall under the proviso of Section 69(c) of the act does not apply to the facts of the present case. It is not the case of the revenue that there is an unexplained expenditure, which would cover under the proviso of this Act and therefore, the assessee would not be entitled for the set off under the proviso of Section 71 of the act. As far as applicability of the case of Shilpa Dyeing Printing Mills (P.) Ltd. (Supra) is concerned, the same would be applicable since the Court had held that the amount of excess stock would fall under the definition of income as per Section 14 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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