IT : Since, income declared in survey falls under one of the heads of income, current year losses can be set off against such undisclosed income
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[2013] 39 taxmann.com 3 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - II
v.
Shilpa Dyeing & Printing Mills (P.) Ltd.*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
Tax Appeal No. 290 of 2013
APRIL 4, 2013
Section 71, of read with sections 69 and 14, of the Income-tax Act, 1961 - Losses - Intra head set off [Set off against undisclosed income] - Whether for income declared in survey to be taxed, it has to fall under one of heads of income under section 14 and cannot be taxed separately - Held, yes - Whether, therefore current year loss can be set off against undisclosed income declared in survey - Held, yes [Para 10] [In favour of assessee]
FACTS
| ■ | During survey, the assessee company declared Rs. 100.98 lakhs on account of excess stock and claimed set off of current years loss against such income. | |
| ■ | The Assessing Officer held that income from unlisted source would not fall under any of the heads of income and current losses could not be set off against such income. | |
| ■ | On appeal, the Commissioner (Appeals) held that for income declared in survey to be taxed, it has to fall under one of the heads of income and is available for set off against current year business loss. He, therefore, allowed assessee's appeal. | |
| ■ | On appeal by revenue, the Tribunal dismissed its appeal. |
On revenue's appeal:
HELD
| ■ | Section 71 permits an assessee to set off loss other than that of capital gains against income from other head. This very issue came up for consideration before the Madras High Court in case of CIT v. Chensing Ventures [2007] 291 ITR 258/163 Taxman 175, wherein it was held that income tax is only one tax and levied on the sum total of the income classified and chargeable under the various heads. Section 14 has classified the different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not a collection of distinct tax levied separately on each head of income and it is not an aggregate of various taxes computed with reference to each of the different sources separately. | |
| ■ | Once the loss is determined, the same should be set off against the income determined under any other head of income including undisclosed income. [Para 8] | |
| ■ | The statutory provisions contained in section 71 was applicable in the present case. | |
| ■ | In the result, no question of law arises. Tax appeal is, therefore, dismissed. [Para 10] |
CASE REVIEW
CIT v. Chensing Ventures [2007] 291 ITR 258/163 Taxman 175 (Mad.) (para 8) and Dy. CIT v. Radhe Developers India Ltd. [2010] 329 ITR 1/[2011] 198 Taxman 58 (Guj.) (Mag.) (para 10) followed.
Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11 (Guj.) (para 10) distinguished.
CASES REFERRED TO
CIT v. Chensing Ventures [2007] 291 ITR 258/163 Taxman 175 (Mad.) (para 3) Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11 (Guj.) (para 3) and Dy. CIT v. Radhe Developers India Ltd. [2010] 329 ITR 1/[2011] 198 Taxman 58 (Guj.) (Mag.) (para 4).
Manav A. Mehta for the Appellant.
ORDER
Akil Kureshi, J. -The revenue is in appeal against the judgment of the Income Tax Appellate Tribunal ('the Tribunal' for short) raising following substantial question of law:
| "1. | Whether in the facts and circumstances of the case and in law the Hon'ble ITAT is justified treating income of Rs. 1,00,98,672/- as income falling under the head 'income from other sources'? | |
| 2. | Whether in the facts and circumstances of the case and in law the Hon'ble ITAT is justified in not treating income of Rs. 1,00,98,672/- as 'deemed income' as provided under the scheme of Section 69 of the Act? | |
| 3. | Whether in the facts and circumstances of the case and in law the Hon'ble ITAT is justified in deleting an addition of Rs. 1,00,98,672/- by treating the same as business income and thus allowing set off of business loss?" |
2. Brief facts are that, the respondent-assessee is a company engaged in the business of dying and printing. During the course of scrutiny for the assessment year 2008-09, the Assessing Officer noticed that in a survey action conducted at the business premises of the assessee, it had declared a sum of Rs. 100.98 lacs (rounded off) on account of excess stock. In the return, the assessee had suggested current year's loss against such income. Assessing Officer holding a belief that income from unlisted source would not fall under any of the heads of the income, the same has to be taxed separately, the current losses cannot be set off against such income.
3. Assessee opposed such proposal and relied on Section 71 of the Income Tax Act,1961 ('the Act' for short) as also a decision of Madras High Court in case of CIT v. Chensing Ventures [2007] 291 ITR 258/163 Taxman 175. Assessing Officer, however, basing reliance on the decision of this Court in case of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290/[2002] 120 Taxman 11, rejected the assessee's claim.
4. Assessee carried the matter in appeal and contended that the assessee had declared such income in its profit and loss account. After adjusting the business loss suffered during the year under consideration net income of Rs. 15.40 lacs was offered for taxation. Before the Appellate Authority, the assessee has placed reliance on the decision of this Court in case of Dy. CIT v. Radhe Developers India Ltd. [2010] 329 ITR 1/[2011] 198 Taxman 58 (Mag.) to suggest that the decision in case of Fakir Mohmed Haji Hasan (supra) has been explained.
5. Commissioner (Appeals) allowed the assessee's appeal making following observations:
"2.3 I have gone through the facts of the case. The A.O. has accepted the current year business loss. He has not allowed set off of this loss against income disclosed during survey as, relying upon the decision in Fakir Mohmed Haji Hassan, he held that income disclosed in survey did not fall under any head of income and therefore was not eligible for set off with current year business loss. The decision in the case of Fakir Mohmed Haji Hassan has been overturned by the Hon'ble Gujarat High Court itself in their decision in Radhey Developers Pvt. Ltd. which held that income that does not fall within the prescribed heads of income could not be taxed. Therefore, for the income declared in survey to be taxed, it has to fall under one of the heads of income. Once a head of income is assigned to the additional income disclosed, whether business or other source, it becomes available for set off against current year business loss as current year business loss is allowed to be set off against current year income under any other head (Section 71). The assessee was therefore eligible to set off current year business loss with income declared during survey. The A.O. is directed to set off current year business loss against additional income declared during survey."
6. Revenue carried the matter in appeal before the Tribunal. Tribunal dismissed the revenue's appeal in following manner:
"5. Having heard the submissions of both the sides and on careful examination of the facts, we are of the considered view that the AO has incorrectly appreciated the facts as also the law involved in this case. We have noted that the impugned amount was disclosed under the head "other income" as miscellaneous income. The Schedule-12 of the balance sheet contained sales along with other income and the total of this Schedule was at Rs. 11,30,85,527/-. As per the profit & loss account, it was carried over as income of "sale of products" and "other income". Against the said total income, as expenditure of Rs. 11,03,85,047/- was claimed. A resultant profit of Rs. 29,16,195/- was computed. This was the profit which was computed by the AO and made part of the total income computed which was disclosed; after claiming deduction; at Rs. 15,40,400/-. This computation thus made it clear that in the said profit there was an amount of undisclosed income which was offered at the time of survey. As per the statement made at the time of survey, the assessee has stated that there was additional cloth of 10,18,340 meters which was valued at Rs. 1,00,98,672/-. The AO's only objection is that the said disclosure ought not to be reduced from the income from the business being not part of the business income and the resultant loss ought not to be adjusted against the said undisclosed income which is to be taxed independently in the hands of the assessee. In our considered opinion, the AO had gone wrong by not considering the provisions of Section 71 of the IT Act. In this regard, the law pronounced in the case of Chensing Ventures (supra) is to be followed, wherein it was held that once a loss is determined, the same should be set off against the income determined under any other head of income and there was no reason for denial of benefit u/s. 71 of IT Act by the Revenue Department. In the result, we find no force in this ground of the Revenue, hence dismissed."
7. Before us, learned counsel for the revenue placed strong reliance on the decision in case of Fakir Mohmed Haji Hasan (supra) and submitted that when the income from undisclosed source does not fall in any of the heads specified in Section 14 of the Act, the business loss of the current year could not have been set off against such income. He submitted that in Radhe Developers India Ltd.'s case (supra) this Court had not, in any manner, disagreed with the view in case of Fakir Mohmed Haji Hasan (supra) and thus, such ratio still hold the field.
8. We, however, find that Section 71 of the Act permits an assessee to set off loss other than that of capital gains against income from other head. This very issue came-up for consideration before the Madras High Court in case of Chensing Ventures (supra). The Division Bench of the Court considered the issue in following manner:
"6. Heard counsel. The Assessing Officer has not given any reason whatsoever to deny the set off of the business loss against the income declared under the head & "other sources". Section 71 deals with set off of loss against income under any other head. After setting off losses against the income under the same head, if the net result is still a loss, the assessee can set off the said loss under Section 71 of the Act against income of the same year under any other head, except for losses which arise under the head "capital gains". The income tax is only one tax and levied on the sum total of the income classified and chargeable under the various heads. Section 14 has classified the different heads of income and income under each head is separately computed. Income which is computed in accordance with law is one income and it is not a collection of distinct tax levied separately on each head of income and it is not an aggregate of various taxes computed with reference to each of the different sources separately. There is only one assessment and the same is made after the total income has been ascertained. The assessee is subject to income-tax on his total income though his income under each head may be well below the taxable limit. Hence the loss sustained in any year under any heads of income will have to be set off against income under any other head. In this case, the Assessing Officer made addition of Rs.28,50,000/- as undisclosed income under Section 69 of the Act. Once the loss is determined, the same should be set off against the income determined under any other head of income. In the assessment, no reasons were given by the Assessing Officer to deny the benefit of Section 71 of the Act. The benefit provided under Section 71 of the Act cannot be denied and the learned Standing Counsel appearing for the Revenue is also unable to explain or give reasons why the assessee is not entitled to the benefit of Section 71 of the Act. The reasons given by the Tribunal are based on valid materials and evidence and the same is in accordance with the provisions of Section 71of the Act. We find no error or legal infirmity in the impugned order."
9. We may further notice that the decision in case of Fakir Mohmed Haji Hasan (supra) came-up for consideration in case of Radhe Developers Incia Ltd. (supra),it was observed as under:
"The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 & 56 of the Act have been considered. The Apex Court in the case of D.P. Sandu Bros.Chembur P. Ltd.,(supra) has dealt with this very issue while deciding the treatment to be given to a transaction of surrender of tenancy right. The earlier decisions of the Apex Court commencing from case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 (SC) have been considered by the Apex Court and, hence, it is not necessary to repeat the same. Suffice it to state that the Act does not envisage taxing any income under any head not specified in section 14 of the Act. In the circumstances, there is no question of trying to read any conflict in the two judgments of this Court as submitted by the learned Counsel for the Revenue."
10. In our opinion, the statutory provisions contained in Section 71 was applicable in the present case. By applying the decision in case of Fakir Mohmed Haji Hasan (supra) as explained in case of Radhe Developers Incia Ltd. (supra), the same cannot be declined. In the result, no question of law arises. Tax appeal is, therefore, dismissed.
P.SEN *In favour of assessee.
Regards
Prarthana Jalan
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