SHRI RAJESH KUMAR JAIN, BHOPAL V. ACIT CENTRAL CIRCLE (2)-1, NAGPUR

ITA 211/NAG/2018

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0158 (ITAT-NAGPUR)
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 15-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGNES P THOMAS
• Keywords: Transactions in derivatives
• Section: 147; 68; 263; 69C; 143(3); 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI O.P. KANT, AM ITA No. 211/NAG/2018 Assessment Year: 2011-12 Shri Rajesh Kumar Jain, Shree 2 Shree Homes, Kolar Road, Chuna Bhatti, Bhopal, Madhya Pradesh-462016. Vs. A.C.I.T., Central Circle (2)-1, Nagpur. PAN No.: ABOPJ 0439 R Appellant Respondent Assessee by: Shri Mahavir Atal (CA) Revenue by : Mrs. Agnes P Thomas (Sr.DR) Date of Hearing: 28/10/2021 Date of Pronouncement: 17/01/2022 ORDER PER: SANDEEP GOSAIN, J.M. The present appeal has been filed by the assessee against order dated 25/05/2018 passed by the ld. CIT(A)-3, Nagpur for the Asstt. Year 2011-12. The grounds of appeal raised by the assessee are as under “1. On the facts and circumstances of the case, the ld. CIT(A)-III, erred in indorsing Assessing Officer’s order disallowing sett off of losses claimed by the appellant. 2. On the facts and circumstances of the case, CIT(A) erred in not following judgment of various High Courts which were in the favour of the appellant, in the absence of any judgment of jurisdictional High Court and conflicting judgments of non-jurisdictional High Courts. 3. Assessee craves leave to add or alter any ground that may be taken during the course of hearing.” ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 2 2. The brief facts of the case are that the assesseee is an individual, derived income from salary, business or profession and other sources. The assessee files his return of income on 29/09/2011 declaring total income of Rs. 93,97,830/-. On 16/03/2011, search & seizure action was conducted on business premises of M/s Mahavir Global Coal Ltd and residential premises of directors & other related concerns. Assessee being one of the member of above group, was also searched. During the search proceedings, certain incriminating materials were found in the assessee’s premises. To cover discrepancies and to buy peace of mind assessee voluntarily offered income of Rs. 50,00,000/- for taxation. The assessee reported said income as income from other sources and filed a return of income on 29/09/2011 declaring total income of Rs. 93,97,830/-(Inclusive of income offered during search proceedings). During block assessment proceedings, the return of income was scrutinized by the department and the assessment was finalized under section 143(3) of the Income Tax Act, 1961 (In short, the Act) on 28/02/2013 determining total income of Rs. 1,08,97,500/-. The Assessing Officer again re-opened the proceedings U/s 147, with a view to disallow the set off losses claimed by the assessee. During the year, as mentioned above, the assessee has disclosed an amount of Rs 50,00,000/- during search proceedings, which was then reported in the return of income as income from other sources. During the year the assessee also had business ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 3 losses of Rs 14,31,600/- and carried forward loss of 68,072/-. The assessee in its return of income set off above losses against the amount of Rs 50,00,000/- reported as income from other sources. The Assessing Officer held that the income disclosed U/s 69A of the Act is a headless income and accordingly it cannot be treated as income from other sources. Therefore, the Assessing Officer disallowed the above set-off of business losses and carried forward losses against the undisclosed income. 3. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who, after considering the submissions of both the parties and material placed on record and after relying on the decision of the Hon’ble Kerala High Court in the case of Kerala Spone Iron Ltd (379 ITR 330) (Ker) upheld the action taken by the A.O. Against the said order of the ld. CIT(A), the assessee has preferred the present appeal before the ITAT on the grounds mentioned above. 4. Having considered the rival contentions and carefully perused the material placed on record. From perusal of the record and as per the facts of the case, we observed that a search & seizure action was conducted on business premises of M/s Mahavir Global Coal Ltd and residential premises of directors & other related concerns on 16/03/2011 and the assesesee being one of the member of above group, was also searched. During the ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 4 search, certain incriminating materials were found and seized from the premises of the assessee. To cover discrepancies and also to buy peace of mind assessee voluntarily offered income of Rs. 50,00,000/- for taxation. The assessee reported said income as ‘income from other sources’ and filed a return of income on 29/09/2011 declaring total income of Rs. 93,97,830/- (Inclusive of income offered during search proceedings). The A.O. re- opened the proceedings U/s 147 of the Act with a view to disallow the set off lossess claimed by the assessee. During the year under consideration, the assessee had disclosed an amount of Rs 50,00,000/- during search proceedings, which was then reported in the return of income as income from other sources. During the year the assessee also had business losses of Rs 14,31,600/- and carried forward loss of 68,072/-. The assessee in his return of income set off above losses against the amount of Rs 50,00,000/- reported as income from other sources. In the assessment order, the A.O. stated that the income disclosed U/s 69A of the Act is a ‘headless income’ and accordingly it cannot be treated as income from other sources. Therefore, the A.O. disallowed the above set-off of business losses and carried forward losses against the undisclosed income. 5. We also observed from perusal of the impugned order that the ld. CIT(A) has upheld the action of the A.O. by relying on the judgment of the Hon’ble Kerala High Court in the case of CIT Vs Kerala Sponge Iron Ltd. ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 5 379 ITR 330 (Ker) dated 19/08/2015 wherein the it was held as under: 6. In our view, answer to this question should be in the negative. This is evident from the judgment of the Gujarat High Court in Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax, (2001) 247 ITR 290 distinguished by the Tribunal itself where it has been held that when income cannot be 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. Insofar as this case is concerned, admittedly the income has been treated as unexplained cash credit under Section 68 of the Act. Once it is so done for the purpose of set off or any other purpose, the said unexplained income cannot be treated as business income under any one of the head provided under Section 14 in which case the question of set off does not arise. The above judgment is dated 19/08/2015, however, there are many judgments of various Hon’ble High Courts which have allowed set off losses. Finally, the Legislature has put to rest the controversy by making an amendment in Section 115BBE of the Act (Charging section for income under section 68 to 69D) by expressly inserting in a sub-section (2) of section 115BBE, the word ‘set off any loss’ vide Finance Act, 2017 which is applicable w.e.f. from 01/04/2017. However, CBDT vide its Circular No 11 of 2019 has clarified that for period up to A.Y. 2016-17, the income computed U/s 115BBE (Section 68 to 69D) can be used for setting off losses if any. ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 6 For sake of brevity, the relevant portion i.e. para 4 of circular is reproduced as under: “Thus keeping the legislative intent behind amendment in section 115BBE(2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term 'or set off of any loss' was specifically inserted only vide the Finance Act 2016, w.e.f. 01.04.2017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17.” The judgment relied by the ld. CIT(A) in the case of CIT Vs Kerala Sponge Ltd. (supra) was rendered on 19/08/2015 and CBDT Circular is dated 19/06/2019. The above CBDT Circular was also considered by the Coordinate Bench of Kolkata Tribunal in the case of M/s Atbir Hightech Pvt Ltd Vs DCIT, ITA 1747/Kol/2017 dated 29/03/2019, wherein it was held that: “6. We shall now advert to the observation of the CIT(A) that the loss suffered by the assessee from F&O transactions could be 'set off against the income of Rs.5,73,96,307/- assessed by the A.O under Sec. 68 of the Act. We find that Sec. 115BBE was brought on the statute by the Finance Act, 2012 with effect from 01.04.2O13. On a perusal of the said statutory provision, as was then so available on the statute and was applicable to the case of the assessee for the year under consideration i.e A.Y. 20l3-14, no restriction was placed as regards 'set off of losses against the income referred to in Sec. 68, 69, 69A, 69B, 69C and 69D. Rather, the legislature in all its wisdom by amending Sec. 115BBE vide Finance Act, 2016 w.e.f 01.04.2017 had only w.e.f A.Y. 2017-18 placed a restriction on 'set off of losses, in addition to raising of any claim of ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 7 6 expenditure and allowance against such income. The fact that the aforesaid amendment of Sec. 115BBE by the Finance Act, 2016, w.e.f 01.04.2O17 is prospective in nature can safely be gathered from a perusal of the CBDT Circular No. 3/2017, dated 20.01.2017. In the backdrop of our aforesaid observations, it can safely be gathered that there was no embargo to claim 'set off of losses in the year under consideration i.e A.Y. 20l3-14. We thus in terms of our aforesaid observations are persuaded to subscribe to the view taken by the CIT(A) that the loss suffered by the assessee from F&O transactions could be 'set off' against the income of Rs.5,73,96,307/- that was allegedly assessed by the A.O under Sec. 68 of the Act. The Ground of appeal No. 2 raised by the revenue is dismissed." The above CBDT Circular was also considered by the Coordinate Bench of Kolkata Tribunal in the case of M/s Amrit Hatcheries Pvt Ltd Vs PCIT, ITA 915/Kol/2019 dated 06/09/2019, where in it was held that “We further find that the contention of the appellant now stands further fortified by the Circular No. 11/2019 dated 19.06.2019 issued by the CBDT. The relevant extracts of the Circular is as follows: "With effect from 1-4-2017, 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) 68/69/69A/69B/69C/69D 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 ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 8 additions made by them under section(s) 68/69/69A/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 1st of April, 2017 and applies from assessment year 201718 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 adopted by the Assessing Officers while applying provision of section 115BBE in assessments for period prior to the assessment year 2017-18. 3. The Board has examined the matter. The Circular No. 3/2017 of the Board dated 20th January, 2017 which contains Explanatory notes to the provisions of the Finance Act, 2016, at para 46.2, regarding amendment made in section 115BBE(2) of the Act mentions that currently there is uncertainty on the issue of set-off of losses against income referred to in section 115BBE. It also further mentions that the pre-amended provision of section 115BBEof the Act did not convey the intention that losses shall not be allowed to be AY 2014-15 setoff against income referred to in section 115BBE of the Act and hence, the amendment was made vide the Finance Act, 2016. 4. Thus keeping the legislative intent behind amendment in section 115BBE(2) vide the Finance Act, 2016 to remove any ambiguity of interpretation, the Board is of the view that since the term 'or set off of any loss' was specifically inserted only vide the Finance Act2016, w.e.f. 1-42017, an assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17. 5. The contents of this Circular may be circulated widely for information of all stakeholders and departmental officers. The pending assessments and litigations on this issue may be handled accordingly." ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 9 Respectfully following the decisions cited above and the CBDT Circular No. 11/2019, we find that the order of AO on this issue cannot be termed as erroneous as well as prejudicial to the revenue. Therefore, we find that the show cause dated 30.01.2019 issued by the ld. Pr. CIT and the consequent order passed u/s 263 is legally unsustainable for want of jurisdiction and accordingly the same is hereby cancelled. 6. Considering the totality of the facts and circumstances of the case as well as the judicial precedents available on record in this regard, we are of the view according to the CBDT Circular No. 11 of 2019 business losses of Rs 14,31,600/- and brought forward losses of Rs 68,072/- can be set-off against the income assessed under section 115BBE of the Act. Therefore, respectfully following the above CBDT circular as well as the orders passed by the Coordinate Benches of the various Tribunals and the Hon’ble High Courts, we direct to delete the addition made by the A.O. and confirmed by the ld. CIT(A). We order accordingly. 7. In the result, this appeal of the assessee stands allowed. Order pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 by placing the details on the notice board. Sd/- Sd/- (O.P. KANT) (SANDEEP GOSAIN) Accountant Member Judicial Member Nagpur Dated:- 17/01/2022 *Ranjan ITA 211/NAG/2018_ Sh. Rajesh Kr. Jain Vs ACIT 10 Copy of the order forwarded to: 1. The Appellant- Shri Rajesh Kumar Jain, Bhopal (MP). 2. The Respondent- The A.C.I.T., Central Circle (2)-1, Nagpur. 3. CIT 4. The CIT(A) 5. DR, ITAT, Nagpur 6. Guard File (ITA No. 211/Nag/2018) By order, Asst. Registrar