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TMI Blog2022 (4) TMI 1564X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a bank account in Merill Lynch Bank, New York. Notices u/s. 153A of the Act were issued to the assessee in response to which returns were filed for all the impugned assessment years i.e. A.Y. 2009 10 to 2014-15, i.e six years prior to the year in which search was conducted. The assessee declared income under different heads including income from salary, house property, income from other sources, income from business and profession and capital gains. The income from business and profession disclosed related to transaction revealed in the aforesaid foreign bank account. For the first two years i.e. A.Y 2009-10 and 2010- 11, the assessee returned losses from business and profession, which since could not be set off against current years income comprising majorly of salary income, were carried forward for set off against profits of business returned in the subsequent years. Computation for A.Y 2009-10 and 2011-12 is reproduced hereunder for clarity: A.Y 2009-10 Computation of Total Income Income Heads Income Before set off Income After set off Income from salary 13425427 13425427 Income from House Property 37470 0 Income from Business of Profession -75454914 0 Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (Foreign Assets) Net Loss As per P&L A/c -75454914 Total of Business & Profession 0 Loss adjusted with House Property 37470 Loss adjusted with Other Income 21720 Current Year Losses Carry Forward Nature of Loss Assessment Year Loss C/F Business income (Ordinary) Cannot C/F 2009-10 75395724 Capital Loss (ST) Cannot C/F 2009-10 48829 A.Y. 2011-12 Computation of Total Income Income Heads Income Before set off Income After set off Income from salary 20534840 20534840 Income from House Property 45097 45097 Income from Business of Profession 8547101 0 Income from Capital Gains -2089 0 Income from other sources 4286177 4286177 Gross total income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts framed for each year is as under: Particulars Income declared in the return u/s. 153A Disallowance of loss Disallowance of set off loss Addition of Unexplained credits Total Income assessed A.Y. Amount Amount Amount Amount Amount 2009-10 1,33,25,430/- 7,54,54,914/- -------- 30,80,31,610/- 32,13,57,040/- 2010-11 2,52,16,680/- 56,61,579/- --------- 15,04,94,322/- 17,57,11,000/- 2011-12 2,47,61,110/- ----------- 85,47,101/- 27,02,68,615/- 30,35,76,830/- 2012-13 1,98,40,220/- ------------- 1,32,25,391/- 16,57,62,670/- 19,88,28,280/- 2013-14 2,27,37,640/- ------- 46,12,131/- 64,56,398/- 3,38,06,170/- 2014-15 44,26,850/- ---------- 1,40,04,621/- 66,50,702/- 2,50,82,170/- 5. All the above additions were deleted by the ld. CIT(A), against which the present appeals have been filed by the Revenue raising identical grounds in all the years involved ; i.e against deletion of disallowance of business losses/ disallowance of set off of losses and against addition u/s. 68 of the Act. For the sake of convenience we are reproducing the grounds for A.Y 2009-10 & 2011-12, which include grounds relating to disallowance of loss and setoff of loss resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies that during search action on the assessee u/s 132 of the Act on 12/02/2015 and in post search enquiry it was gathered that Shri Rakesh Agarwal, the assessee, was maintaining a bank account (ICA03C46) with Merill Lynch Bank, New York in the name of M/s Pinky Ltd. During another search on 05/01/2012 at the residence of one Shri Satish Sawhney at Sainik Farm, New Delhi it was further gathered that there were few transactions between his foreign bank account No. ICA03A13, in the name of Prime Trade Ltd., with the foreign bank account of M/s Pinky Ltd. The assessee denied the existence of any foreign account in his name or in the name of any family member or any group entity and also denied any transaction with the bank account of Shri Satish Sawhnay, but later on in the month of September 2015 he declared the foreign assets i.e. foreign bank account No. ICA03C46 prior to A.Y 2009-10 under the Black Money(Undisclosed Foreign Income and Assets)And Imposition of Tax Act,2015 (hereinafter referred to as "Black Money Act"). In the returns filed for the subsequent years u/s 153A of the Act the assessee claimed business loss of Rs. 7,54,54,929/- for the A.Y. 2009-10 and Rs. 56,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t given by the assessee for the year under consideration could not be relied upon particularly in view of the fact that the assessee had failed to give any documentary proof to explain the source of credit entries in the said bank account and therefore the entire credit in the bank account during the years under consideration, was added to the total income of the assessee in the respective years as unexplained credits in the bank accounts of the assessee u/s 68 of the Income Tax Act. The AO has discussed various issues related thereto at paragraphs 12 to 12.5 from pages No. 12 to 15 of the assessment order. 8. With regards to the issue raised in ground no. 1 by the Revenue challenging the order of the Ld. CIT(A) for deleting the disallowance of business loss in the first two assessment years before us and their carry forward and set off in subsequent years, the ld. D.R. relied on the order of the A.O. His contention in brief being that: (i) the assessee had all along denied ownership of the foreign bank account of M/s. Pinky Ltd. and also being beneficiary of the said bank account. Therefore how then could he claim the losses incurred on transactions in the said account. (ii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad claimed the set off of loss in the revised return of income filed on 02-03-2016. The revised return of income was filed within the time allowed u/s 139(5) of the Act i.e. before the completion of 1 year from the end of relevant assessment year. The issue is directly covered in favour of the Appellant by the recent decision of the Hon'ble Gujarat High Court in the case of PCIT vs. Babubhai Ramanbhai Patel [2017] 84 taxmann.com 32. The observations of the High Court are as under: Under sub-section (1) of section 139, every person whose income for the previous year exceeds the maximum amount not chargeable to tax, is required to file a return before the due date. Sub-section (3) of section 139 provides that any person who has sustained a loss and claims that the loss should be carried forward would file a return of loss within the time prescribed under sub-section (1) and thereupon all the provisions of the Act shall apply as if it was a return under sub-section-(1) of section 139 of the Act. Under sub-section (4) of section 139, a person who has not furnished a return within the time allowed under subsection (1), may still furnish a return at any time before the end of the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Act shall be applicable to return filed u/s 153A as if the return is filed u/s 139(1). Hence, we request your kind office to allow the set off of brought forward business loss. 3.6.11 The Appellant further submits that the AO blows hot and cold in the same breath. The AO while does make addition of the income earned in the said bank account but when it comes to computing the losses in the said bank account, he suddenly refuses to recognize the said bank account as the account belonging to the Appellant. It is submitted that the said stand of the AO is self contradictory. If the AO denies losses to the Appellant on the ground that the said bank account is not in the name of the Appellant, or the Appellant has not owned up the said bank. Cannot though having paid tax on the transactions reflected therein, then the AO cannot tax the income generated from the said bank account also, leave apart making addition U/s. 68, The fact, that the AO makes addition U/s, 68, the AO himself takes the position that the said bank account is that of the Appellant. In view of the same, it would be wholly incorrect for the AO to deny the losses merely on the ground that the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out to the Ld. ARs; this issue also has been responded to by the appellant as reproduced earlier (in para 3,8). 3.9.7 Apart from mentioning that the loss which had not been claimed in original return filed u/s. 139(1) cannot be claimed in the return u/s. 153A and in view or no evidence having been filed in respect of claim of loss the AO has also opined that the Black Money Act mandates that the losses are not allowable under the Inconel Tax Act also and that the Black Money Act only governs the provisions of the said Act and does not have ant overriding effect In this context the Appellant submits that the Black Money Act expects the income for the subsequent period or the period not covered by the compliance window to be computed as per the normal provision and therefore vide Question Number 5 of the FAQ issued under the Black Money Act, it is provided that subsequent disposal of the assets after the compliance window would be covered by the normal provision and for that purpose the value adopted for the declaration would be treated as the cost of acquisition. It is the case of the appellant that the Black Money Act recognizes the fact that there could be income/loss subse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied losses in earlier years stating that the account does not belong to the assessee, that the provisions of the Benami Act had no overriding effect and could not apply to the Income Tax Act and taking a holistic view on the issue that if an assessee is required to disclose income revealed from /emanating from the incriminating material/evidences found, he should also be entitled to claim deductions/setoffs emanating from the same evidences. 12. After hearing both the parties and going through the orders of the authorities below we concur with the Ld. CIT(A) that the disallowances of business losses and their carry forward and set off against business losses in succeeding years could not have been denied to the assessee. 13. We shall elucidate our reasons for holding so, but before proceeding to do so it is relevant to highlight certain undisputed facts which are necessary for adjudicating the issue. 14. Search action u/s 132 of the Act was conducted on the assessee on 12-2-2015 revealing a foreign bank account in the name of M/s Pinky Ltd in Merrill Lynch Bank New York being operated by the assessee. The search year accordingly was A.Y 2015-16 and six years prior to the year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en accepted by the Department and also the fact that the assessee has disclosed this very bank account under the Black Money Act upto A.Y 2009-10, which has been accepted and nothing has been pointed out at any stage by the department showing revocation of the acceptance. Also noting this fact of disclosure made by the assessee of the foreign bank account under the Black Money Act, the reassessment proceedings initiated by the AO on the assessee for A.Y 1998-99 to 2008-09, resulted in no addition being made on account of transactions in the said foreign bank account, accepting the assesses plea that for the said years the assessee had made disclosure of the bank account in the window period provided under the Black money Act. 17. The Department therefore, there is no doubt, has accepted the bank account in the name of M/s Pinky Limited in Merrill Lynch, New York, as pertaining to the assessee or in other words the assessee being the beneficiary of the said account. There is no reason therefore to deny losses on account of transactions undertaken in the said account in A.Y 2009-10 & 2010-11 for the reason that the bank account does not belong to the assessee. We therefore concur w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (emphasis supplied by us) (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made 4591[and of the relevant assessment year or years]: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years 4592[and for the relevant assessment year or years]: Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years 4593[and for the relevant assessment year or years] 4594[referred to in this sub-section] pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate: and the return filed u/s 153A in the present case being in time, it is entitled as per law to claim carry forward and set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessments stood completed, the scrutiny /addition was to be restricted only with respect to incomes emanating from incriminating material, while where assessments stood abated the entire case was open to scrutiny. Almost all the Hon'ble High Courts have taken this view, including the Hon'ble jurisdictional High Court in the case of Principal Commissioner of Income Tax vs Saumya Constructions P. Ltd (2016) 387 ITR 529(Guj). 24. Taking a cue from this proposition of law and going forward, Courts have also dealt with the issue of fresh claim of expenses/ deduction in the return filed u/s 153A of the Act, not claimed in the original return filed u/s 139 of the Act. Conversely courts have dealt with the issue whether returns filed u/s 153A of the Act could be treated as returns filed u/s 139(1) of the Act, for the purposes of making fresh claims therein. Two such decisions have been referred to in the case before us, as pointed out above, * Jai Steel (India), Jodhpur vs ACIT (2013) 259 CTR 281 (Raj) * CIT vs B G Shirke Construction Technology (P) Ltd. (2017) 395 ITR 371(Bom.) 25. The Hon'ble Rajasthan High Court, in the case of Jai Steel (supra), held no fresh claim can be made in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of such search or requisition, then the question of reassessment of the concluded assessments does not arise, which would require more reiteration and it is only in the context of the abated assessment under second proviso which is required to be assessed. The underline purpose of making assessment of total income under Section 153A of the Act is, therefore, to assess income which was not disclosed or would not have been disclosed. The purpose of second proviso is also very clear, inasmuch as, once a assessment or reassessment is 'pending' on the date of initiation of search or requisition and in terms of Section 153A a return is filed and the AO is required to assess the same, there cannot be two assessment orders determining the total income of the assessee for the said assessment year and, therefore, the proviso provides for abatement of such pending assessment and reassessment proceedings and it is only the assessment made under Section 153A of the Act would be the assessment for the said year. The necessary corollary of the above second proviso is that the assessment or reassessment proceedings, which have already been 'completed' and assessment orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years immediately preceding the assessment year relevant to the previous year in which the search or requisition was made. Another significant feature of this Section is that the Assessing Officer is empowered to assess or reassess the "total income" of the aforesaid years. This is a significant departure from the earlier block assessment scheme in which the block assessment roped in only the undisclosed income and the regular assessment proceedings were preserved, resulting in multiple assessments. Under Section 153A, however, the Assessing Officer has been given the power to assess or reassess the 'total income' of the six assessment years in question in separate assessment orders. This means that there can be only one assessment order in respect of each of the six assessment years, in which both the disclosed and the undisclosed income would be brought to tax. 20. A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(1)(a) or Section 143(3) of the Act. If such an order is already in existence, having obviously been passed prio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub Section (1) of Section 153A that any proceedings for assessment or reassessment of the assessee which are pending on the date of initiation of the search or making requisition "shall abate". Once those proceedings abate, the decks are cleared, for the Assessing Officer to pass assessment orders for each of those six years determining the total income of the assessee which would include both the income declared in the returns, if any, furnished by the assessee as well as the undisclosed income, if any, unearthed during the search or requisition. The position thus emerging is that the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in case where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of orders) of the Act. The plea raised on behalf of the assessee that as the first proviso provides for assessment or reassessment of the total income in respect of each assessment year falling within the six assessment years, is merely reading the said provision in isolation and not in the context of the entire section. The words 'assess' or 'reassess' have been used at more than one place in the Section and a harmonious construction of the entire provision would lead to an irresistible conclusion that the word 'assess' has been used in the context of an abated proceedings and reassess has been used for completed assessment proceedings, which would not abate as they are not pending on the date of initiation of the search or making of requisition and which would also necessarily support the interpretation that for the completed assessments, the same can be tinkered only based on the incriminating material found during the course of search or requisition of documents. The Allahabad High Court in Commissioner of Income-tax (Central, Kanpur v. Smt. Shaila Agarwal (supra) has held as under:- "19. The second proviso to Section 153A of the Act, ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already stands completed, only because a assessment under Section 153A of the Act in pursuance of search or requisition is required to be made. 26. In the case of Shirke Constructions (supra) the facts before the Hon'ble Bombay High court was regarding a new claim made in return filed u/s 153A of the Act in the year in which search was conducted and where the assessment proceedings stood abated. In this backdrop the Hon'ble high court held it was this return filed u/s 153A of the Act which would be assessed for the first time, and that the assessee therefore was eligible to make a fresh claim and the return filed u/s 153A of the Act be treated as filed u/s 139 of the Act. The relevant findings of the Hon'ble High Court are as under: 11. In the present facts for the subject assessment years it is an undisputed position that the pending assessment before the Assessing Officer consequent to return filed under Section 139(1) of the Act for the subject Assessment years had abated. This was on account of the search and as provided in second proviso to Section 153A(1) of the Act. The consequence of notice under Section 153A(1) of the Act is that assessee is required to furnish fresh r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gh 124 ITR 40(SC) is relevant for the same. The business losses therefore qualified as being in the nature of Income from incriminating material required to be assessed to tax in such cases. There is no provision of law, pointed out to us, debarring claim of expenses or losses emanating from incriminating material. To put it otherwise, there is no provision of law requiring only positive incomes emanating from incriminating material to be disclosed/added to the incomes of the assessee in assessment framed u/s 153A of the Act denying claim of expenses and losses emanating therefrom. The legislature, we are aware has debarred claim of losses/expenses against incomes assessed u/s 68/69/69A /69B/69C of the Act specifically so providing u/s 115BBE of the Act, which provides for levy of taxes at special rates on such incomes. SECTION 115BBE. Tax on income referred to in section 68 or section 69 or section 69A or section 69B or section 69C or section 69D. 3613[3614[(1) Where the total income of an assessee,- (a) includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D and reflected in the return of income furnished under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and noting that the said returns undisputedly were filed within the stipulated time, the assessee, we hold, was entitled to the benefit of carry forward and set off of the same in subsequent years, as per law. The findings of the Ld. CIT(A) in this regard are also upheld. 32. The order of the Ld. CIT(A) deleting the disallowance of losses and their carry forward and set off, in the assessment years before us, is therefore upheld. Ground of appeal No. 1 of the Revenue is dismissed. 33. Vis-à-vis the addition relating to the cash credits in the bank account of the assessee deleted by the ld. CIT(A) raised in ground no. 2 above, the contention of the ld. D.R. before us, relying on the order of the A.O. was to the effect that the assessee was unable to satisfactorily explain certain credits therein received from the bank account of one Mr. Satish Sawhney who was also searched as under: Sr. No Date Amount in $ Bank Account number held in Merill Lynch Name of the company - 1 14/10/2010 2,10,000 1CA03685 Pinky Ltd 2 03/12/2010 1,00,000 1CA03685 Pinky Ltd 3 21/04/2011 1,48,950 1CA03685 Pinky Ltd 4 21/04/2011 16,550 1CA03685 Pinky Ltd 5 12/05/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r under consideration; viii) Giving evidences including the evidences of subsequent recovering of the sum for the incorrect credits in the said Bank Accounts. 3.6.2 Further, the Appellant also submitted a complete list of credits for each year and also submitted the computation of the business income after incorporating the foreign bank credits. Refer Pg. No. FBA 11-12, wherein the Appellant has submitted the computation of income outside India and has also submitted the summary of list of credits in the foreign bank accounts. On Pg. No. FBA 13-68, each and every individual credit item has been explained by the Appellant. The AO has not found any discrepancy in the details furnished by the Appellant, The AO on the basis of irrelevant observations has rejected the detailed submission of the Appellant. The AO, merely on the basis of the presumptions, made addition u/s 68 of the Act, 3.6.3 In respect of the entry of $540,500, it is submitted that the credit entries were incorrectly credited in the account of the Appellant. The incorrect credit entries which could have been possibly fraudulent, entries in the account of the Appellant, were reversed by the Bank in the month of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I have perused the assessment order and considered the appellants' submission. It is noted that during the course of search the Department made enquiries in respect of a foreign bank account maintained in the name of M/s. Pinky Limited. As per the appellant no document or paper was found during the course of search or in post search enquiries. Subsequent to the search the Appellant Money (Undisclosed Foreign Income and foreign Asset) and Imposition of Taxes Act, 2015 (in short, the Black Money Act) and made the disclosure for the years prior to A.Y, 2009-10 with respect to the said bank account before the Department as per the provisions of section 59 of the Black Money Act and various circulars issued by the Government, as no disclosure of the said bank account could have been done with respect to A.Y, 2009-10 to A.Y. 2015-16 - the years for which the notice u/s. 153A has been or could have been issued consequent upon search, After disclosure of foreign income and assets prior to A.Y. 2009-10 under the Black Money Act, the Appellant. has calculated income from the transactions reflected in the said bank account for the later period and income of the respective period was disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted by the appellant for the A. Yrs. 2009-10 to 2015-16 which are pending [in appeal before the CTT(A) should not be accepted......... and accordingly no further addition needs to be made on the same..........We request your kind office to delete the addition(s) made by the AO. Thus there remains no doubt that the disclosure of receipts and computation of income & loss on account of the foreign bank account and investments through that account for the A.Y. 2009-10 to A.Y. 2015-16 are correct on facts and computations. 3.9.3 The common submission of the appellant in context of addition made on account of unexplained credit entries in the foreign bank account with M/s. Merrill Lynch Bank, NY in the name of M/s. Pinky Ltd. has been considered diligently. In total 5 entries - 2 entries aggregating to US $310,000 for F.Y. 2010-11 and 3 entries aggregating to US $230,000 for A.Y. 2011-12 were identified by the AO and they were found made from M/s. Prime Trade Ltd. of one Shri Satish Sawhney of Sainik Farm, Delhi. Neither the appellant nor Shri Satish Sawhney (who also was searched separately) explained the transactions and the connections among them. Only contention supported by proo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt $47,93,285 offered to tax is part of total credit of $222,685.14 computed by the AO for the purpose of addition u/s Q68.) Thus it is evident that the disallowance of loss and the addition of all credits u/s 68 has lead to double taxation of the amount of $47.93,285 which is not at all permissible. Further the appellant has reconciled the gross receipt $47,93,285 as part of profit and loss on account of foreign bank account and total credit of $222,685.14 adopted by the AO for the purpose of section 68. It has been further clarified by the appellant that $2,03,092 shown in the reconciliation as "sales credited in bank but not in transaction summary and offered under Black Money Act". It has been further explained that the appellant has excluded these credits (F.Y. 2008-09 & 2009-10) on account of the fact that the said investments were made prior to 01/04/2008. It has been pointed out that the appellant had made declaration u/s 59 of the Black Money Act and disclosed therein all the investments held as on 31/03/2008 including the investment concerned (circular No. 13 of 2015 dated 06/07/2015) and that as per provisions of section 64 of the Black Money Act it is explicitly provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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