AI Insights
The case involves M/s Lakshmi Farms, which appealed against the order of the PCIT, Patiala, setting aside the assessment order passed by the AO for the assessment year 2016-17. The PCIT had invoked section 263, claiming the original assessment was erroneous and prejudicial to the interest of the Revenue as it did not adequately inquire into the nature of income surrendered during a survey. The Tribunal examined whether the PCIT was justified in assuming jurisdiction under section 263 and whether the assessment order was indeed erroneous or prejudicial to the Revenue. The Tribunal concluded that the AO had made sufficient inquiries and applied his mind, thus the PCIT's order was set aside.
Appeal Details
Counselvise Citation
[2023] 140 COUNSELVISE.COM (IT) 127695 (ITAT-CHANDIGARH)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
9 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-03-2023
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
14-12-2022
Assessment Year
2016-2017
Appeal Filed On
09-05-2022
Judgement Text
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ “ए” , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “A”, CHANDIGARH ी संजय गग , या यक सद य एवं ी !व"म $संह यादव, लेखा सद य BEFORE: SHRI. SANJAY GARG, JM & SHRI. VIKRAM SINGH YADAV, AM ITA NO. 421/Chd/ 2022 Assessment Year : 2016-17 M/s Lakshmi Farms Nabha Road, Vill: Inderpura Patiala-147001 The Pr. CIT Patiala PAN NO: AAEFL4192Q Appellant Respondent ! " Assessee by : Shri Sudhir Sehgal, Advocate # ! " Revenue by : Shri Vivek Nangia, CIT, DR $ % ! & Date of Hearing : 15/12/2022 '()* ! & Date of Pronouncement : 09/03/2023 आदेश/Order PER VIKRAM SINGH YADAV, A.M. : This is an appeal filed by the Assessee against the order of the Ld. PCIT, Patiala dt. 22/03/2022 pertaining to A.Y. 2016-17, wherein the assessee has raised the following grounds of appeal: 1. That the Ld. PCIT (Central), Ludhiana has erred in assuming the jurisdiction to issue notice u/s 263 of the Income Tax Act, 1961 and, thereby, setting aside the order as passed after due application of mind by the Assessing Officer. 2. That the Ld. PCIT has failed to appreciate the fact that the original assessment was framed by the Assessing Officer after due application of mind and on that basis and after consideration of all the facts and circumstances of the case, has passed the assessment order on the basis of the survey material and other available information as per the assessment record and allowed the set-off of business loss against the income declared during survey. 3. That the Ld. PCIT has failed to appreciate that the assessment had been completed after due consideration of various replies by the Assessing Officer during the course of assessment proceedings and the Assessing Officer having 2 taken a possible view and, therefore, the assumption of jurisdiction u/s 263 was not called for by the Ld. PCIT. 4. That the Ld. PCIT had failed to appreciate that at the time of survey, it was clearly stated that the nature of Income offered during survey was business Income and the same was credited in the profit and loss account and the AO was of the view that the income offered during survey, being the business income, has to be charged at the normal rate of tax and, as such, the same has rightly been set-off against the current year business loss. 5. Notwithstanding the above said grounds of appeal, it is submitted that even on merits, the finding of Ld. PCIT that no set-off of losses is to be allowed, if the income offered during survey is to be taxed as per provisions of Section 115BBE, is wholly misconceived and not correct finding, because as per the Board Circular No. 11/2019 dated 19 th January, 2019, it has been clarified that the set-off of the deemed income, so determined u/s 115BBE is liable to be set-off against the normal business loss upto Assessment Year 2016-17 and the amendment of sub-section (2) of Section 115BBE, is only effective from Assessment Year 2017-18 and hence, the finding of the Ld. PCIT of this issue is devoid of any substance. 6. Without prejudice to the above ground of appeal, it is submitted that the order of the Ld. Assessing Officer as passed u/s 143(3) in the light of the above Board Circular is, therefore, neither erroneous nor prejudicial to the interest of the revenue and hence the order of the Ld. PCIT vide order dated 22.03.2022 deserves to be set-aside. 7. Notwithstanding the above said ground of appeal, the Ld. PCIT has erred in assuming the jurisdiction u/s 263 on the basis of audit objections, which is apparently wrong and incorrect in view of the judgment of Jurisdictional High Court in the case of Sohana Woollen Mill and other judgments of jurisdictional ITAT, Chandigarh Bench, Chandigarh in the case of M/s Ganga Acrowools Ltd. in ITA No.196/Chd/2021 and in the case of Sh. Surinder Pal Singh in ITA No. 576/Chd/2021 vide orders, dated 31.01.2022 and also that 263 proceedings have been initiated at the best of proposal sent by the Assessing Officer/Addl.CIT and, thus, the proceedings are void abinitio. 8. The appellant craves leave to add, amend, alter any of the above grounds during the appellate proceedings have been considered.” 2. Briefly the facts of the case are that a survey under section 133A was carried out at the business premises of the assessee on 09/10/2015 and during the course of survey operation, certain discrepancies were noticed and assessee surrendered a sum of Rs. 1,00,00,000/- for the F.Y. 2015-16 relevant to the impugned assessment year 2016-17. Subsequently the assessee filed its return of income declaring NIL income and case of the assessee was selected for 3 compulsory manual scrutiny and notices under section 143(2) and 142(1) were issued and after taking into consideration the requisite information as called for from time to time, the return of income so filed by the assessee was accepted by the Assessing officer. 2.1 Subsequently, the assessment records were called for and examined by the Ld. PCIT, Patiala and a show-cause dt. 31/01/2022 was issued. In the show- cause, it was stated that the assessee has filed its return of income on 15/10/2016 wherein the assessee has shown the surrendered income of Rs. 1,07,00,000/- besides other business receipt of Rs. 38,97,500/- and after claiming various deductions against these incomes, has declared current year loss of Rs. 47,28,534/-. It was stated by the Ld. PCIT that the assessee has nowhere specified the nature of additional income surrendered nor AO made any inquiry regarding the nature and the head of income under which assessee has offered additional income. It was accordingly held by the Ld. PCIT that in absence of any inquiry and details furnished by the assessee, the income offered cannot be termed as business receipt and chargeable to tax under section 115BBE of the Act. Accordingly it was held by the Ld. PCIT that the order so passed by the AO is erroneous and prejudicial to the interest of the Revenue and needs to be revised under section 263 of the Act and an opportunity was granted to the assessee to show cause and file necessary submission where so advised. In response, the assessee filed its submissions which were considered but not found and the assessment order so passed was held by the Ld. PCIT as erroneous as well as prejudicial to the interest of the Revenue and the same was set aside to the file of the AO for passing the order afresh in accordance with law. 3. Against the said findings and direction of the Ld. PCIT, the assessee is in appeal before us. 4 4. During the course of hearing, the Ld. AR submitted that the ground of appeal no. 1 to 4 challenges the exercise of jurisdiction u/s 262 by the ld PCIT as the original assessment was framed with due application of mind after taking into consideration all the replies and the amount surrendered during survey and, therefore, the Ld. PCIT could not have exercised his jurisdiction u/s 263. It was submitted that Ground of Appeal No. 5 & 6 deal with the fact that, even if the loss as determined by the Ld. Assessing Officer is accepted then the same had to be set off against the income offered during the survey as per the Board Circular. The Ground of Appeal No. 7 deals with the proceedings u/s 263 which have been initiated on the basis of Audit Objections and it was submitted that the assessee doesn’t wish to press the same. 5. In respect of aforesaid grounds of appeal, it was submitted that the assessee is running a marriage palace and have filed its return of income at Nil after setting-off of the allowable depreciation as per the computation of income placed at paper book pages 1 to 3. The return was filed on the basis of audited books of accounts and while furnishing the return, an amount of Rs. 1,07,00,000/- was offered as business income on account of the survey conducted by the department on 09.10.2015 and copy of the surrender letter is placed at page 11 of the paper book. It was submitted that during the course of assessment proceedings, a questionnaire was issued and copy of which have been placed at pages 13 to 16 and, to which the assessee has replied, as per copy placed at pages 17 to 18 of the paper book and copy of the partnership deed was placed at pages 19 to 21 and the business of the assessee is that of marriage palace only. A detailed list was also provided of the name & postal addresses and also the amount received from each party along with the facilities provided as per page 22 of the paper book and at page 23, the gross profit and NP ratio have been given. It was submitted that a comparative chart of the expenses is given at page 24 of the paper book and then another questionnaire was issued as per page 25 & 26 of the paper book to which the reply was given at page 27. Then again, another show-cause notice was issued 5 to which the assessee reply as per page 32 of the paper book and thereafter the assessment was framed as per the returned income and while framing the assessment, the Ld. Assessing Officer has mentioned that the requisite information was called from time to time and which have been furnished and /examined. It was accordingly submitted that there was due application of mind by the Assessing officer while passing the assessment order. 6. It was further submitted that subsequently, a notice u/s 263 dated 31.01.2022 was issued by the ld PCIT and the only issue raised was that no enquiry was made with regard to the nature of surrendered income and to which, the assessee furnished a detailed reply which have been placed in the paper book pages 33 to 40 of the paper book and the followings contentions were raised: a. “The amount offered was over & above the normal business income and, since no other activity was noticed of any other business carried on by the assessee, the same had to be treated as business income and, thus, the said income have been derived from the regular business carried on by the assessee. b. During the course of survey, certain transactions which contained entries of receivables were found which were not recorded in the books of accounts and the same was offered has been derived from the same business. Various case laws had been referred to and further it was submitted as an alternative ground that, even if, the income offered, is taken as the deemed income as per provisions of Section 115BBE of the Act, even then the loss would be allowable as per books as per the Board Circular, for which, a computation was given at page 38 to 39 of the paper book and, thus, it was stated that the assessment was not prejudicial to the interest of revenue. Copy of the Board Circular was also relied upon, for which, a copy is placed at page 40 & 41 of the paper book. c. The Ld. PCIT has held that the case laws as cited are not applicable and relied upon the judgment of the Kim Pharma & others has set-aside the order as passed by the Ld. Assessing Officer and directed to frame the assessment denovo.” 7. It was submitted that from the above sequence of events, it is clear that the Ld. Assessing Officer has duly applied his mind during the course of hearing and had accepted the surrendered income as business income and, thus, has passed a speaking order and taken a possible view on the taxability of income 6 surrendered by the assessee and, thus, it is not a case of lack of enquiry. Further, the revision proceedings u/s 263 of the Act have been initiated merely on the basis of difference of opinion which cannot be taken as a ground to determine the order passed by the AO as erroneous and prejudicial to the revenue. Reliance was placed on the various decisions including the decisions of the Chandigarh Benches of the Tribunal wherein it has been held that the action of the ld PCIT u/s 263 of the Act is bad in law where the AO, after due application of mind during the course of assessment proceeding, took a possible view which is different from the view of the ld PCIT and has accepted the additional income surrendered as a business income of the assessee. 8. It was further submitted that merely because the AO has not put up the issue in detail in the assessment order does not mean that the issue has not been verified in detail by him. In the case of assessee, specific queries were raised on the issue under consideration and detailed replies were filed by the assessee which were duly considered by the AO and decision has been taken by him on the basis of the facts of the case which clearly identifies that the surrender pertains to the business income of the assessee and therefore, the same has been taxed at normal rates of tax. 9. It was further submitted that the ld PCIT has held the order passed by the Ld. AO as erroneous as well prejudicial by applying the explanation 2 to section 263 which is totally incorrect as the case of the assessee does not fall in any of the limb of explanation 2 to section 263. The AO has made in depth enquiries on the issues concerned and there is no lack of enquiry as specific enquiry was asked by the AO on the concerned issue and in depth reply was also filed on the same. Therefore, even after the thorough application of mind by the AO, merely because it seems to the ld PCIT that issue had remain unattended by the AO, he cannot call for application of section 263 of the Act by treating the 7 order passed by the AO as erroneous and prejudicial to the interest of the revenue 10. Further reliance was placed on the Coordinate Chandigarh Benches decision in the case of Famina Knit Fab Vs. ACIT reported in 104 Taxmann.com 306 (Chd-Trib.) wherein it was held that the surrender was made on account of debtors/ receivables, relating to the business of the assessee and the i revenue has accepted the surrender and, thus, it follows that the debtors were generated from the sales, made by the assessee during the course of carrying of the business of the assessee. Even otherwise, no other source of income of the assessee is there on record, either disclosed by the assessee, or unearthed by the revenue and, thus, it is the business income of the assessee and cannot be tax u/s 69 of the Act. 11. It was further submitted that two conditions have to be satisfied before resorting to action u/s 263 that the assessment should be prejudicial to the interest of revenue and the assessment order has to be erroneous. In the present case, even if the income surrendered is considered as deemed income, the set- off of loss has to be allowed against the deemed income as per the copy of the Board Circular placed at page 41 to 42 of the paper book and since, this is the assessment year 2016-17, the amendment came into force from AY 2017-18, and, hence, since the assessment is not prejudicial to the interest of revenue as per calculation given to Ld. PCIT at page 38 to 39 of the paper book and, hence, the proceedings u/s 263 are liable to be set-aside. 12. Per contra, the Ld. CIT DR submitted that the assessee in its surrendered letter admitted that certain discrepancies were pointed out and such transactions were not reflected in regular books of account as per trial balance as on 08.10.2015, therefore, the assessee had voluntarily offered additional 8 income of Rs.1,07,00,000/-. It was submitted that non-reflection of transactions related to the surrendered amount in books of account clearly indicates that the amount so involved is nothing but unexplained income of the assessee. The assessee in its return of income declared current year loss of Rs.47,28,534/- and in the P&L account, the assessee had shown Rs.1,07,00,000/-as "surrendered money" besides business receipts of Rs.38,97,500/- and claimed various deductions against these incomes resulting into current year loss of Rs.47,28,534/-. If the said amount of Rs.1,07,00,000/- was of business income, the assessee could have shown it as business income in its ITR which the assessee didn't show. The contention of the assessee that surrendered amount was receivables/ debtors not recorded in the regular books of the business is nothing but an after-thought because even during the course of assessment proceedings, the assessee had nowhere specified the nature of additional income surrendered. The amount surrendered by the assessee remained unexplained during the course of survey as well as during the assessment proceedings. In the absence of any enquiry and details furnished by the assessee, the income offered cannot be termed as business receipts and is, accordingly, chargeable to tax u/s 115BBE of the Income Tax Act, 1961. Further the reliance of the assessee on the case laws of DCIT, Ludhiana Vs Khurana Rolling Mills Pvt. Ltd and Famina Knit Fabs Vs ACIT, Ludhiana is totally misplaced as the facts of those cases are entirely different from the fact of the case of the assessee. In assessee’s case the assessee himself has admitted (in its surrender letter) that during the survey proceedings on his business premises, certain discrepancies were pointed out and such transactions were not reflected in regular books of account, it clearly shows that such surrendered amount was unexplained income of the assessee and can't be treated as business income 13. It was submitted that under section 115BBE, it has been specifically provided that no benefit or deduction of any expenses or set off of any losses 9 shall be allowed against the income in nature of sections 68 to 69D. This also reinforces the view that once any income falls under deeming provisions, such income loses its nexus or live link to the legitimate expenses or losses of the business/ profession which assessee might have been carrying. By implication it would mean that income in nature of incomes prescribed u/s 68 to 69D shall be subject to higher tax rate @60% u/s 115BBE, irrespective of whether such income is otherwise in nature of business income or not. 14. It was accordingly submitted that the order so passed by the AO has been rightly held as erroneous and prejudicial to the interest of the Revenue and therefore the order so passed by the Ld. PCIT invoking his jurisdiction under section 263 should be confirmed and the appeal of the assessee be dismissed. 15. We have heard both the parties and perused the material available on record. Firstly we refer to the alternate contention raised by the Ld. AR that even if the income offered is taken as deemed income as per provisions of Section 115BBE of the Act, the assessee would still be eligible to set off loss against the said deemed income and therefore the one of the essential conditions that the order of the AO should not be just erroneous but should also be prejudicial to the interest of the Revenue is not specified in the instant case therefore the very basis of invocation of jurisdiction under section 263 is not specified. In this regard, we refer to the submissions filed by the assessee before the Ld. PCIT and the relevant contents thereof read as under: “2. Further for the time being hypothetical if it is considered that the surrendered income by the assessee is not on account of business income and the provisions of sec. 115BI3E as observed in the show cause notice are to be made applicable even then the entire exercise of cancellation of the concluded assessment and the revision thereof shall be futile and revenue neutral as the provisions of sec. 115BBE as applicable upto the A.Y. 2016-17 (relevant to the A.Y. of the assessee) duly allows the setting up of losses and accordingly even if the surrendered amount is to be excluded from the profit and loss account of the business and considered as deemed income, the business losses and the depreciation losses including the brought forward losses shall be 10 set off against this deemed income and the net result of computation of income shall remain the same as has been assessed in the assessment order. The same is demonstrated as under: Net (Loss) as per P/L A/c as has been originally filed (4728534) Less: surrendered income considered as business income credited to the P/L A/c now excluded therefrom and considered as deemed income 10700000 Loss under business head Add: depreciation debited to P/L (15428534) 8369043 Net Loss before depreciation Add: deemed income (surrendered Income) (7059491) 10700000 3640509 Less: depreciation u/s 32 (allowable depreciation is Rs. 8369043/- but restricted to Rs. 3640509/- to the extent of income. 3640509 Net Taxable income NIL From the above it is clear that there is no revenue loss even if the surrendered income is to be considered as deemed income for the time being for the relevant assessment year (i.e. A.Y. 2016-17) thus the assessment is not prejudicial to the interest of the revenue. The respective amendment made by the taxation laws (second amendment) Act 2016 in sec. 115BBE which prohibits the setting up of the losses against the deemed income is prospective in nature and is applicable from 01.04.2017 i.e. from A.Y. 2017-18. This view has been upheld by the various following judicial pronouncements:- (i) DCIT vs. Marshal Machines Pvt. Ltd. (IT Appeal No. 57(Chd)2017 dated 22.05.2018. (ii) Renny Strips (P) Ltd, vs. ACIT (IT Appeal No. 1018 (Chd) 2014 dated 28.12.2015. iii) Sanjay Bairathi Gems Ltd. 84 Taxmann.com 138/166 ITD 445(Jaipur ITAT). (iv) Pitamber Commodity Futures (P) Ltd. vs. ACIT (IT Appeal No. 863(JP) of 2017 dated 21.03.2018. (v) Gaurish Steels (P) Ltd. vs. ACIT (2017) 82 Taxmann.com 337 11 Thus in the case of the assessee the provisions of sec. 115BBE applicable upto A.Y.2016-17 which does not prohibit the setting up of losses shall be applicable and accordingly the order passed by the Assessing Officer might have been erroneous as is being alleged in the show cause but it is not prejudicial to the interest of the revenue and accordingly the provisions of sec. 263 should not be made applicable to the case of the assessee because for invoking the provisions of sec. 263 the Hon We Pr. CIT has to be satisfied of the twin conditions namely (i) the order of the A.O. sought to be revised is erroneous and (ii) it is prejudicial to the interest of the revenue. If one of them is absent - if the order of the A.O. is erroneous but is not. prejudicial to the interest of the revenue or if it is not erroneous but it is prejudicial to the revenue - the recourse cannot be had to sec. 263 of the I.T. Act.” 16. On perusal of the aforesaid working and computation of income where the surrendered income of Rs 1,07,00,000/- is considered separately as deemed income and not as business income, after setting off the same against the business loss of 1,54,29,534, it will still show a net loss figure of Rs 47,28,534/- and there wouldn’t be any taxable income resulting in nil tax liability for the impugned assessment year 2016-17. The same is not different from what the assessee has done while filing its return of income. The tax impact under both the scenarios is nil and in such a situation, the order so passed by the AO cannot be held as erroneous as well as prejudicial to the interest of the Revenue. It is a settled legal position that for exercise of jurisdiction u/s 263 of the Act, the assessment order should be erroneous as well as prejudicial to the interest of the Revenue and both these conditions needs to be satisfied. If due to an erroneous order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase prejudicial to the interest of the revenue has to be read in conjunction with an erroneous order passed by the Assessing Officer. In the instant case, we find that even where the AO had considered amount surrendered as deemed income as against business income, he would still be required to allow set off of the same against regular business income, being the legal position under pre-amended law (as we have discussed subsequently) and the order so passed cannot 12 therefore be held as erroneous in allowing set off of business income against income surrendered irrespective of different classification and also cannot be held as prejudicial to the interest of the Revenue as there is clearly no loss to the Revenue. 17. As regard the assessee’s eligibility to set off business loss against deemed income for the impugned assessment year 2016-17, the matter is no more res integra as it has held by various Benches of the Tribunal that the amendment brought in by the Finance Act, 2016 is prospective in nature. In this regard, we refer to the Coordinate Jaipur Benches decision in case of Sanjay Bairathi Gems Ltd. (Supra) wherein, speaking through one of us, it was held that 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 1-4-2017 and will accordingly, apply to assessment year 2017-18 onwards and for the year under consideration i.e, assessment year 2013-14, there is no restriction to set off of business losses against income brought to tax under section 69B and the findings read as under: “7. We have heard the rival contentions and perused the material available on record, the factual matrix and various decisions relied upon by both the parties. The Assessing officer has brought to tax, undisclosed investment in excess stock of stones, gold & jewellery found and surrendered during the course of search proceedings which has not been recorded in the books of accounts of the assessee, under the provisions of section 69B read with section 115BBE of the Act. Further, the Assessing officer has not allowed the set off of business loss of Rs 86,96,733 against the said income of Rs 2,31,41,217 which has been brought to tax under section 69B read with section 115BBE of the Act. The Assessing officer has however allowed the carry forward of said business loss to be set off in the subsequent assessment years. The fact that the business loss has been incurred during the year is thus not in dispute. The limited dispute relates to set off of said business loss against the income which has been brought to tax under section 69B read with section 115BBE of the Act. 13 8. Firstly, regarding the contention of the ld CIT DR that the provisions of section 115BBE comes under Chapter-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 as under: "Currently, there is uncertainty on the issue of set-off of losses against income referred in section 115BBE of the Act. The matter has been carried to judicial forums and courts in some cases has taken a view that losses shall not be allowed to be set-off against income referred to in section 115BBE. However, the current language of section 115BBE of the Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, it is proposed to amend the provisions of the sub section (2) of section 115BBE to expressly provide that no set off of any loss shall be allowable in respect of income under the sections 68 or section 69 or section 69A or section 69B or section 69C or section 69D." 10. In light of above, 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 14 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. 11. Further, the matter could be looked at from another perspective. 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 short-term or long-term capital losses. There is no specific provision which restrict set off of business losses against income brought to tax under section 69B. Interestingly, both section 69B and section 71 falls under the same chapter VI. In the absence of any provisions in section 71 falling under Chapter-VI which restrict such set off, in the instant case, set off of business losses against income brought to tax under section 69B cannot be denied.” 18. Further, we find that the CBDT has also clarified the aforesaid position vide its CBDT Circular No. 11 of 2019 dt. 19/06/2019 stating that the term 'or set off of any loss' was specifically inserted only vide the Finance Act 2016, w.e.f. 01.04.2017 and the assessee is entitled to claim set-off of loss against income determined under section 115BBE of the Act till the assessment year 2016-17 and contents therefore read as under : “Subject: Clarification regarding non-allowability of set-off of losses against the deemed income under section 115BBE of the Income-tax Act, 1961 prior to assessment-year 2017-18-reg. With effect from 01.04.2017, 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) 68/69j69A/69B/69Cj69D 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 15 of the Assessing Officers have allowed set off of losses against the additions made by them under Section(s) 68/69j69A/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 pt of April, 2017 and applies from assessment year 2017-18 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 115BBE of the Act did not convey the intention that losses shall not be allowed to be set-off 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 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. S. 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.” 19. In the instant case, the show-cause pertaining to assessment year 2016-17 has been issued by the ld PCIT on 31/01/2022 which is subsequent to issuance of aforesaid CBDT Circular dated 19/06/2019 which itself shows that the initiation of proceedings u/s 263 are not in compliance with the aforesaid CBDT Circular. It has been emphasized by the CBDT that the pending assessment and litigations should be handled taking into consideration the clarification so issued and in the instant case, a fresh litigation has been started by the Department by initiation of action u/s 263 which is clearly in the teeth of the CBDT Circular and cannot be sustained in the eyes of law. 16 20. In light of aforesaid discussions and in the entirety of facts and circumstances of the case, we are of the considered view that the impugned order passed by the ld PCIT u/s 263 of the Act cannot be sustained in the eyes of law and the same is hereby set-aside and the order of the AO is sustained. In the result, Ground of Appeal No. 5 & 6 of the assessee’s appeal is allowed. 21. In light of aforesaid, Ground no. 1-4 have become infructious and are thus dismissed. 22. Ground of Appeal No. 7 was not pressed during the course of hearing and hence, the same is dismissed as not pressed. 23. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 09/03/2023. Sd/- Sd/- संजय गग !व"म $संह यादव (SANJAY GARG) ( VIKRAM SINGH YADAV) या यक सद य / JUDICIAL MEMBER लेखा सद य/ ACCOUNTANT MEMBER AG Date: 09/03/2023 ( + ! , - . - Copy of the order forwarded to : 1. The Appellant 2. The Respondent 3. $ / CIT 4. $ / 0 1 The CIT(A) 5. - 2 ग 4 5 & 4 5 678 ग9 DR, ITAT, CHANDIGARH 6. ग 8 : % Guard File ( + $ By order, ; # Assistant Registrar
Other Referred Cases
DCIT, Ludhiana Vs Khurana Rolling Mills Pvt. Ltd, Famina Knit Fab Vs. ACIT, Sanjay Bairathi Gems Ltd. Vs. ACIT, Pitamber Commodity Futures (P) Ltd. Vs. ACIT, Gaurish Steels (P) Ltd. Vs. ACIT
Laws Referred To
Income Tax Act, 1961
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