Income surrendered during search can set off against Business Loss for Other Years as S. 115BBE Amendment effective from AY 2017-18: ITAT [Read Order]

In M/s. Pitamber Commodity Futures Private Limited vs. ACIT, the Income Tax Appellate Tribunal (ITAT), Jaipur bench held that Income surrendered during search can be set off against business loss for AY 2013 -14 as the amendment in Sec 115BBE of the Income Tax Act, 1961 is operative only from AY 2017-18.

In the instant case, a search and seizure operation were carried out on the members of Morisons group, of which the assessee was one of the members. During the search, the authorities found sale deed of a residential plot from the house of one of the directors. In its statements recorded u/s 132(4) during the course of search, the Director of the assessee company, admitted undisclosed investment of Rs. 36 Lacs in the purchase of the said residential plot and surrendered the same in the hands of the company. While filing the returns the assessee company has disclosed and offered to tax the said surrendered amount of Rs. 36 Lacs under the head “income from other sources” and at the same time, claimed set off of the said income against the current year business loss of Rs. 7.69 Lacs

However, Assessing Officer (A.O.) held that no set off of any expenses can be claimed against surrendered income as it is on account of undisclosed business transaction and not the recorded business transaction. The AO further referred to the provisions of Section 115BBE(1)(a) of the Income Tax Act and held that the undisclosed income of the assessee will be charged @ 30%.  Aggrieved appeal was filed before, Commissioner of Income Tax (Appeals). He confirmed the order of the A.O. Thereafter appeal was filed before ITAT.

The counsel for the assessee argued that the current year business loss including current depreciation being part of current business loss was to be allowed set off against income from other sources and income assessed u/s 69A. He contended that Section 115BBE (2) only bars (prior to 1-4-17 before its amendment made by Finance Act, 2016) that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Income Tax Act in computing his income referred to in clause (a) of Sub-Section (1) of Section 158BBE. In this case, the Counsel pointed out that it was surrendered income of Rs. 36 Lacs assessed u/s 69A. However, he stated that the said section does not bar set off of loss in other head of income allowable under section 71 of I.T. Act from the income referred to in section 115BBE. He concluded by explaining that It was from A.Y. 2017-18 by virtue of an amendment by which words ‘or set off of any loss’ were inserted in sub-section 115BBE that such set off of loss would be inadmissible.

The bench comprising of Judicial Member Vijay Pal Rao & Vikram Singh Yadav relied on the decision of the tribunal in the case of ACIT CC-2 Vs. Sanjay Bairathi Gems Ltd. the Tribunal explained that the amendment brought in section 115BBE wherein no set off of losses against surrendered income brought to tax is prospective in nature and doesn’t apply for the assessment

year under consideration.  “For the year under consideration, there is no bar for set off of current year business loss u/s 71 against income brought to tax under the head “income from other sources”. We are therefore of the view that the assessee will be eligible for set off of current year business loss of Rs 767,768 against the undisclosed investment of Rs 36,00,000 towards purchase of plot of land which has been surrendered during the course of search” observed the Bench.