Rachitech Engineering Pvt. Ltd., Faridabad V. ACIT, Circle-2, Faridabad

ITA 9375/DEL/2019

AI Insights

The case involves M/s. Rachitech Engineering Pvt. Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) - Faridabad, which had enhanced the income of the assessee by not allowing the set off of business losses against deemed income arising from a survey conducted under section 133A of the Income Tax Act, 1961. The survey had revealed unaccounted investments and cash, which were treated as deemed income under sections 69, 69A, and 69B of the Act. The Tribunal examined the applicability of CBDT Circular No. 11/2019 and relevant judicial precedents to determine whether the losses could be set off against the deemed income for the assessment year 2009-10.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 115676 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 21-12-2022
• Assessment Year: 2009-2010
• Appeal Filed On: 04-12-2019
• Other Referred Cases: Wingsfield Knitwear Pvt. Ltd. vs. ACIT, Rajender Kumar Anand vs. ITO, Dulari Digital Photo Services Pvt. Ltd. vs. CIT, M/s. Kim Pharma (P) Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B.S.YADAV
• Assessee Lawyers: RAKESH GUPTA; SOMIL AGGARWAL
• Keywords: Unexplained investment; Business income; Income from undisclosed sources; Principle of natural justice; Deemed to accrue or arise in india
• Section: 143(3); 133A; 69B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI (DELHI BENCH ‘H’ : NEW DELHI) BEFORE SH. SHAMIM YAHYA, ACCOUNTANT MEMBER AND SH. ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.9375/Del/2019, A.Y. 2009-10 M/s. Rachitech Engineering Pvt. Ltd. Plot No. 172, Sector-25, Faridabad PAN : AAACR7762F Vs. ACIT, Circle 2, New Delhi (APPELLANT) (RESPONDENT) Assessee by Sh. Rakesh Gupta & Mr. Somil Aggarwal, Adv. Revenue by Sh. B.S.Yadav, Sr. DR Date of hearing: 22.12.2022 Date of Pronouncement: 09.01.2023 ORDER PER ANUBHAV SHARMA, JM: The appeal has been filed by the Assessee against order dated 31.10.2019 passed in appeal no. 10016/12-13 for assessment year 2009-10, by the Commissioner of Income Tax (Appeals)-Faridabad (hereinafter referred to as the First Appellate Authority or in short ‘Ld. F.A.A.’) in regard to the appeal before it arising out of assessment order dated 30.12.2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by ACIT, Circle-II, Faridabad (hereinafter referred as Ld.Assessing officer or in short Ld. AO). ITA No. 9375./Del/2019 Rachitech Engineering P. Ltd. 2 2. The assessee has raised following grounds of appeal :- 1) “That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in making enhancement of income on the ground that appellant is not allowed to set off loss of Rs. 20,14,481/- under the head business against deemed income of Rs. 1,50,54,481/-.and more so when such power could not be exercised by him in the facts and circumstances of the present case. 2) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in enhancing the income u/s 251(1) of the Act, denial of set off of losses and making the addition under new .source of income contrary to law settled in this regard. 3) That in any view of the matter and in any case action of Ld. CIT(A) in making enhancement of income is bad in law and against the facts and circumstances of the case. 4) In any view of the mater and in any case action of Ld. CIT(A) in not allowing the set off loss of Rs. 20,14,481/- against the business income of the assessee is bad in law and against the facts and circumstances of the case. 5) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O. in passing, the impugned order without giving adequate opportunity of being heard and without observing the principle of natural justice. 6) That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and' all the. grounds are without prejudice to each other.” 3. Heard and perused the record. 4. Ld. AR for the assessee restricted his arguments primarily to the aforesaid grounds no. 1 to 4 submitting that Ld. CIT(A) has fallen in error in not allowing the assessee to set off loss under the head ‘business’ against the deemed income. Relying judgment of Chandigarh Bench in ITA No. 1406/Chd./2017 in Wingsfield Knitwear Pvt. Ltd. vs. ACIT dated 28.02.2020 it was submitted that ITA No. 9375./Del/2019 Rachitech Engineering P. Ltd. 3 based upon the CBDT Circular of 19/06/2019 the Bench had held that the circular clarifies the matter that assessee will be entitled to set off loss against income determined u/s 115BBE of the Act till the assessment year 2016-17. The assessment year under consideration being 2009-10, the assessee is accordingly entitled to the set off the current year losses against the deemed income. The co- ordinate Bench decision at Delhi in ITA no. 4305/Del/2018 in Rajender Kumar Anand vs. ITO dated 25.05.2022 has also been relied in that regard. 5. Ld. DR however submitted that the Ld. CIT(A) has rightly taken into account the judgments of jurisdictional high court in Dulari Digital Photo Services Pvt. Ltd. vs. CIT, ITA No. 189 of 2012 dated 10.09.2013 and M/s. Kim Pharma (P) Ltd. vs. CIT in ITA no. 106 of 2011. It was also submitted that the circular of Board has prospective effect and circular is of year 2019 and the assessment year under dispute is 2009-10 so based on Board’s Circular dated 19.06.2019, assessee could not have been benefited. 6. Given thoughtful consideration to the matter on record it can be observed that in para no. 19.1 Ld CIT(A) has made following relevant finindings : “19.1 A survey u/s 133A of the Act was carried out in the case of the appellant on 18.02.2009. During the course of survey, various discrepancies in respect of stock, cash in hand and construction were noticed and confronted to the appellant. In consequence to the same, the appellant has made disclosure of additional income relating to the year under consideration in his statement recorded during the course of survey and again confirmed vide letter dated 19.02.2011, as under: Unaccounted excess stock found Rs. 1,80,00,000/- Unaccounted excess cash found Rs. 9,00,000/- Unaccounted investment in construction Rs. 41,00,000/- Total unaccounted Income : Rs. 2,30,00,000/- The appellant has furnished the return of income on 27.09.2009 ITA No. 9375./Del/2019 Rachitech Engineering P. Ltd. 4 declaring income of Rs.1,30,39,900/-. On going through the P & L Account, it was observed that the appellant has disclosed amount of Rs. 50 lacs on account of unaccounted investment in construction/unaccounted cash found and Rs. 1,00,54,481/- on account of unaccounted stock found during the course of survey. Thus, the appellant has disclosed amount of Rs.1,50,54,481/- in the return of income on account of unaccounted investment made in stock, construction and unaccounted cash. Resultantly, after excluding the unaccounted income of Rs. 1,50,54,481/- from the returned income of Rs.1,30,39,900/-, the appellant has shown loss of Rs.20,14,481/- under the head business. It is relevant to mention here that these unaccounted investments in construction/stock and unaccounted cash found during the course of survey represents deemed income as specified under the provisions of Section 69/69A/69B of the Act. In view of these facts, the appellant was required to explain, vide letter No.825 dated 05.09.2019, why the loss of Rs.20,14,481/- should not be allowed to be set off against deemed incomes Rs.1,50,54,481/- specified u/s 69/69A/69B of the Act, and income be enhanced accordingly u/s 251(1) of the Act. Reliance was placed upon the decisions of Hon'ble Jurisdictional High Court in the cases of Dulari Digital Photo Service (P) Ltd. vs CIT in ITA 189 of 2012 and Kim Pharma (P) Ltd. vs CIT in ITA No. 106 of 2011. In response to the above the Learned AR on behalf of the appellant vide letter dated 13.09.2019 placed reliance upon the provisions of Section 115BBE of the Act inserted w.e.f. 01.04.2017 and CBDT Circular No. 11/2019 dated 19.06.2019 stating that denial of set off loss will be applicable for assessment year 2017-18 and not from earlier years. It was further stated that the facts of the case are different from the facts of the cases as relied upon (supra).” 7. Thereafter relying the judgment in Dulari Digital Photo Services case (supra), Ld. CIT(A) observed as follow :- “19.2 The facts of the case along with material on record on the above issue have been gone through. It is noted that the appellant has disclosed income of Rs. 1,50,54,481/- on account of unaccounted investment in construction/stock and unaccounted cash found during the course of survey, which are ITA No. 9375./Del/2019 Rachitech Engineering P. Ltd. 5 in the nature of deemed income as specified u/s 69/69A/69B of the Act. The appellant has claimed set off business loss of Rs.20,14,481/- against the said deemed incomes. The deemed income u/s 69/69A/69B of the Act are not covered under any specific heads of income as specified u/s 14 of the Act. It is relevant to mention here that the incomes under various heads as specified u/s 14 of the Act are from any specific source of income. Where the source of a revenue receipt cannot be linked to any particular source, provisions of section 14 of the Act, including income from other sources, will not apply and such income would necessarily fall u/s 69/69A/69B of the Act and will not fall within the definition of income from other source.” 8. The bench is of considered opinion that Ld. CIT(A) has fallen in error in not taking into consideration 19 th June, 2019 Circular no. 11/2019 of CBDT in correct perspective as the vary subject of the Circular was “clarification regarding non-allowability of set off of losses against the deemed income u/s 115 BBE of the Income Tax Act, 1961 prior to assessment year 2017-18” and the Board clarified that : “the legislative intent behind amendment in Section 115 BBE(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 115 BBE of the Act till the assessment year 2016-17’.” 9. Accordingly, Chandigarh Bench and Co-ordinate Bench at Delhi have benefited the assessees where issues involved were for the assessment year prior to 2016-17, while taking note of the judgment of Jurisdictional High Court in M/s. Kim Pharma (P) Ltd. case and Dulari Digital Photo Services Pvt. Ltd. which are foundation for the order of Ld. CIT(A). 10. The Bench is of considered opinion that Ld. CIT(A) has fallen in error in contradicting himself as having accepted that unaccounted investment in ITA No. 9375./Del/2019 Rachitech Engineering P. Ltd. 6 construction/ stock and unaccounted cash found during the course of survey represents deemed income tried to distinguish it by observing that as the source of revenue receipt cannot be linked to any particular source the income will not fall within the definition of income from other sources and that such income would be ‘other class’ falling under section 69/69A and 69B of the Act. 11. Thus, the grounds no. 1 to 4 deserve to be sustained holding that appellant is allowed to set off loss of Rs. 20,14,481/- under the head ‘business’ against the deemed income and to that extent the order of Ld. CIT(A) is set aside. Accordingly, the appeal of assessee is allowed. Order pronounced in the open court on 9 th January, 2023. Sd/- Sd/- (SHAMIM YAHYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Date:- 09 .01.2023 *Binita, SR.P.S* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI