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M/s Star Ply Board Ltd., Jagadhri v. Pr. CIT, Panchkula
Structured Summary of Tribunal Order: ITA Nos. 668 & 669/Chd/2019
Factual and Procedural Background
These consolidated appeals were filed by two sister concerns — M/s Star Ply Board Ltd. and M/s Star Board Industries — against separate orders dated 07.03.2019 passed by the Principal Commissioner of Income Tax (PCIT), Panchkula, exercising jurisdiction under section 263 of the Income-tax Act, 1961 and setting aside assessment orders of the Assessing Officer (AO).
A survey under section 133A was conducted at the assessee's premises on 14.03.2014. During the survey discrepancies were noticed and the assessees surrendered additional income of Rs. 95,00,000/-. In their return of income the assessee declared income of Rs. 95,32,760/-, which included the surrendered amount and interest income of Rs. 60,193/-. The AO made a disallowance of interest expenditure of Rs. 16,988/- and completed assessment.
The PCIT reviewed the assessment records and concluded that the AO's order was erroneous and prejudicial to the interests of revenue because, in the PCIT's view, the surrendered income should have been taxed under section 115BBE at the special rate (30%) without allowing any deduction or set-off. The PCIT invoked section 263, set aside the AO's order and directed fresh assessment.
The assessees appealed to the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench. The two appeals were heard together and disposed of by a common order; ITA No. 668/Chd/2019 was treated as the lead case for narration of facts.
Legal Issues Presented
- Whether, for assessment year 2014-15, a business loss (or current-year depreciation leading to a loss) could be set off against surrendered / declared income that could potentially be taxed under section 115BBE?
- Whether the PCIT rightly exercised revisionary jurisdiction under section 263 to set aside the AO's assessment on the ground that the AO ought to have taxed the surrendered income @30% under section 115BBE without allowing any deductions or set-offs?
Arguments of the Parties
Appellant's (Assessee's) Arguments
- The assessees claimed current-year depreciation (figures in the record include amounts such as Rs. 7,39,275/- and an initially claimed depreciation of Rs. 11,88,982/- in computation), which resulted in a net business loss for the year (figures in the record include losses such as Rs. 27,433/- or Rs. 4,16,944/-, as presented in the assessee's submissions and profit & loss computations).
- After setting off the business loss against the surrendered income of Rs. 95,00,000/-, the assessees returned the balance as taxable income. Therefore, the assessees contended they were entitled to set off the business loss against the surrendered income in computing taxable income for AY 2014-15.
- The assessees relied on provisions in the Income-tax Act (sections 70 and 71 dealing with set-off of losses) and argued that the restrictive amendment to section 115BBE (which bars set-off) took effect only from 01.04.2017 (i.e., AY 2017-18 onward) and was not applicable to AY 2014-15.
- The assessees submitted their written reply to the PCIT's notice under section 263 and argued that portions of that submission were omitted in the PCIT's order; they pointed to documentary annexures (profit & loss) to demonstrate the set-off applied in the assessment computation.
Respondent's (Revenue's) Arguments
- The Departmental Representative supported the PCIT's conclusion that the AO had not applied or discussed the special provisions of section 115BBE in the assessment order.
- The Revenue submitted that the PCIT correctly found the AO's order to be erroneous and prejudicial to the interests of revenue for failing to tax the surrendered income under section 115BBE without allowing deductions or set-offs.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CBDT Circular No. 11/2019 dated 19.06.2019 | Clarifies that the amendment to section 115BBE(2) inserting "or set off of any loss" is effective from 01.04.2017 (AY 2017-18 onward); for assessment years prior to 2017-18, assessees are entitled to set off losses against incomes assessable under provisions like section 115BBE as the amendment was not retrospective. | The Tribunal relied on this circular to hold that for AY 2014-15 the assessee was entitled to set off current-year business loss against the surrendered income and therefore the AO's order was not erroneous on that ground. |
| Various decisions of the Tribunal (unnamed in the order) | Prior Tribunal decisions (as referenced in the order) supported the proposition that set-off of business losses against incomes treated as deemed or assessed under sections such as 68 may be permissible for years prior to AY 2017-18. | The Tribunal noted these earlier, unnamed, Tribunal decisions as forming part of the settled position that set-off could be allowed for years prior to AY 2017-18 and relied on this settled position along with the CBDT circular in deciding the appeals. |
Court's Reasoning and Analysis
The Tribunal proceeded step-by-step, constrained to the material on record and the submissions before it:
- Fact analysis: The Tribunal examined the assessee's return, the profit & loss account and the assessment computation. It noted that the assessee had claimed depreciation in computation (figures in the record include both an initially claimed depreciation and an adjusted admissible depreciation figure) and had, in the assessment computation, ultimately arrived at a declared total income of Rs. 95,32,760/-, which included the surrendered income and interest income.
- Legal question: The Tribunal framed the core legal issue as whether the assessee could set off current-year business loss against the surrendered income (potentially taxable under section 115BBE) for assessment year 2014-15.
- Authority and timing of amendment: The Tribunal relied on CBDT Circular No. 11/2019 which explicates the legislative position that the restriction on set-off (expressly inserted into section 115BBE(2) by the Finance Act, 2016) applies from 01.04.2017 and therefore to AY 2017-18 onwards. The Circular clarifies that prior to that date the pre-amendment wording did not clearly convey an intention to disallow set-off of losses against such income.
- Application to facts: Because the relevant assessment year in these appeals is 2014-15 (i.e., prior to AY 2017-18), the Tribunal concluded that the assessee was entitled to set off the current-year business loss against the surrendered income. The Tribunal also observed that the assessee, being a company, had already paid tax at the 30% rate.
- Conclusion on revisionary jurisdiction: Given that the AO's order was not, on the record, erroneous or prejudicial to the interests of revenue (in that the set-off was permissible for the assessment year in question and tax at the applicable rate had been paid), the Tribunal held that the PCIT had wrongly exercised jurisdiction under section 263 to set aside the AO's order.
The Tribunal limited its reasoning to the material before it and to the legislative and administrative clarification (CBDT Circular). It did not rely on any specific, named appellate court precedent beyond the generic reference to earlier Tribunal decisions (which were not individually identified in the order).
Holding and Implications
Holding:
The impugned orders passed by the Principal Commissioner of Income Tax under section 263 of the Income-tax Act are quashed; both appeals filed by the assessees are allowed.
Implications / Consequences:
- Direct effect: The Tribunal restored the assessment position arrived at by the Assessing Officer (i.e., the order set aside by the PCIT is not sustained). The PCIT's direction to make a fresh assessment under section 263 was set aside.
- On legal principle: The Tribunal applied the CBDT Circular to conclude that for assessment years prior to 2017-18 (including AY 2014-15), an assessee is entitled to set off business loss against income that might otherwise be assessable under section 115BBE; the restrictive amendment to section 115BBE(2) barring set-off applies only from 01.04.2017 (AY 2017-18) onward.
- Broader precedent: The order does not purport to set a new binding precedent beyond applying the CBDT Circular and the view of earlier, unnamed Tribunal decisions. The Tribunal's decision reverses the PCIT's exercise of revisionary jurisdiction in these specific appeals and confirms that for the facts and AY in question set-off was permissible.
Disposition
The ITAT allowed both appeals (ITA Nos. 668 & 669/Chd/2019), quashed the PCIT's orders passed under section 263, and restored the assessment position as made by the AO. The order was pronounced in open court on 29.01.2020.
Documentary Notes
All factual statements, figures and legal references in this summary are taken exclusively from the Tribunal's written order as provided. No additional facts, cases or arguments have been added beyond what appears in that order.
, , IN THE INC OME TAX A PPELLA TE TR IBU NA L DIVISION BEN CH, B , CHAN DIGA RH . . , , BEFORE SHRI N.K. SAINI, VICE PRESIDENT & SHRI SANJAY GARG, JUDICIAL MEMBER ./ITA No. 668/C HD /2019 / Assessment Year : 2014-15 M/s Star Ply Board Ltd, Gauri Shankar Link Road, Jagadhri, Yamunanagar The PCIT, Panchkula . /PAN NO: AACCS8011L $/Appellant &'$ /Respondent ./ITA No. 669/C HD /2019 / Assessment Year : 2014-15 M/s Star Board Industries, Village Sugh, Amdalpur Road, Jagadhri, Yamunanagar The PCIT, Panchkula . /PAN NO: ACLFS6154J $/Appellant &'$ /Respondent (*/Assessee by : Shri Tej Mohan Singh, Advocate */ Revenue by : Shri G. S Phani Kishore, CIT DR *./Date of Hearing : 22.01.2020 *./Date of Pronouncement : 01.2020 /Order Per Sanjay Garg, Judicial Member: The captioned appeals have been preferred by the assessees, who are sister concerns, against the separate orders dated 07.03.2019 of the Pr. Commissioner of Income Tax, Panchkula [hereinafter referred to as ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar PCIT] agitating the action of the Ld. PCIT in passing the impugned orders u/s 263 of the I.T. Act exercising his revision jurisdiction and thereby setting aside the orders of the Assessing Officer.
2. Since the facts and issue involved in both the appeals are identical, hence, these have been heard together and are being disposed of by this common order. ITA No. 668/Chd/2019 is taken as a lead case for narration of facts. ITA No. 668/Chd/2019
3. Brief facts of the case are that survey action u/s 133A of the Income Tax Act, 1961 (in short 'the Act') was conducted at the premises of the assessee on 14.3.2014 and during the course of survey, several discrepancies were noticed and confronted to the assessee but the assessee could not explain the source of investments viz. the excess cash found, excess stock, unaccounted advances given for purchase of land and advances received from customers not recorded in the books of account. The assessee, therefore, surrendered additional income of Rs. 95,00,000/- during the course of survey action. The assessee in the return of income declared an income of Rs. 95,32,760/- which included the surrendered amount of Rs. 95 lacs. The Assessing Officer made further disallowance of interest expenditure at Rs . 16,988/- and assessed the total income of the assessee at Rs. 95,49,750/-. Thereafter, the Ld. PCIT noted from the assessment records that the assessee had declared the returned income at Rs. 95,32,760/-, which included an ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar interest income of Rs. 60,193/-. He, therefore, noted that the assessee declared the total income of Rs. 94,72,567/- after setting apart the interest income of Rs. 60,193/-, however, the assessee had declared the additional income of Rs. 95 lacs during survey action. He noted that the assessees declared / returned income was short / less by Rs. 27,433/-. The Ld. PCIT, therefore, observed that the Assessing Officer had accepted the returned income of Rs. 95,32,760/- including the interest income of Rs. 60,193/- and worked out the tax liability by adopting / calculating the normal tax rates applicable for the relevant assessment year, whereas, the entire additional income surrendered during the course of survey amounting to Rs. 95 lacs was required to be taxed @ 30% as per the provisions of section 115BBE of the Act, without allowing any deduction in respect of any expenditure or allowance under any provisions of the I.T. Act, 1961. He, therefore, held that the order of the Assessing Officer was erroneous and prejudicial to the interest of Revenue. The Ld. PCIT, therefore, invoking his jurisdiction u/s 263 of the Act and after giving opportunity to the assessee to explain the above, held the order of the Assessing Officer as erroneous in so far as it was prejudicial to the interest of Revenue. He, accordingly set aside the same with the direction to the Assessing Officer to make the assessment afresh after considering the issue as discussed by him in the impugned order. ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar
4. Being aggrieved by the above order of the PCIT, the assessee has come in appeal before us. The Ld. Counsel for the assessee, at the outset, has invited our attention to the written submissions filed before the Ld. PCIT, wherein, the assessee has submitted that against the current year business income / loss, assessee had claimed current year depreciation amounting to Rs. 7,39,275/-. That after claim of the aforesaid depreciation, net resultant income of the assessee was at a loss of Rs. 27,433/-. That as per the provisions of section 115BBE of the Act, as applicable for the assessment year under consideration i.e. assessment year 2014-15, there was no bar in setting off of the loss against the declared / surrendered income. That the assessee accordingly set off the business loss of Rs. 27,433/- against the declared / surrendered income of Rs. 95 lacs and returned the remaining amount as taxable income of the assessee wherein the Assessing Officer made the addition of Rs. 16,988/- assessing the total income at Rs. 85,49,750/-.
5. The Ld. Counsel for the assessee has further submitted that the Ld. PCIT has reproduced some part of the written arguments in the impugned order passed u/s 263 of the Act, however, part of the written submissions explaining the aforesaid facts have been skipped by the PCIT. The Ld. counsel in this respect has relied upon the paper book pages 27 to 31, which is a copy of the reply submitted by the assessee to the notice u/s 263(1) of the Act. The relevant part of the submissions of the assessee in this respect is reproduced as under;- ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar Further, it is submitted that as per profit and loss submitted & produced before the Ld AO at the time of assessment, copy of which is also enclosed as per Annexure - II, If we go through the contents of the profit & loss account submitted during the assessment proceedings, in the credit side of profit and loss account, the assessee has shown the amount surrendered amounting to Rs. 95,00,000/- during the course of survey and offered for Tax. While arriving at the net profit, the assessee has claimed set off of current year depreciation amounting to Rs. 7,39,275/-against the income surrender during the course of survey amounting to Rs. 95,00,000/-. In this concern, your attention is invited to the provision of section 71, wherein it is clearly mentioned that as per provision of the Act, Inter head set off of business loss is allowed under section 71 against all other income except income from salary. Same head adjustment of business loss against other business income is allowed under section 70 of the Act. As per the above said provision of the Act, the depreciation is allowed to be set off against the income of other head even after the insertion of section 115 BBE that any income assessed under section 68 to 69D will be taxed under section 115BBE and not under regular provision of the Act w.e.f A.Y. 2013-14. Further section 115BBE has got amended w.e.f A.Y. 2017-18 that set off of loss will not be allowed to the assessee under any provision of the Act in computing his income. Therefore, it is clear that w.e.f A.Y. 2017-18, any type of loss will not be allowed as deduction and set off against the income and the amendment is not retrospective in nature.
6. The Ld. DR, on the other hand, has relied on the findings of the Ld. PCIT and has submitted that the Assessing Officer has not discussed ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar about the special provisions of section 115BBE in the assessment order and that the Ld. PCIT has rightly noted that the order of the Assessing Officer was erroneous in so far as it was prejudicial to the interest of Revenue.
7. We have heard the rival contentions of the Ld. Authorized Representatives of both the parties and have gone through the record. A perusal of the copy of the Income Tax Acknowledgment along with computation of profit & loss account of the assessee reveal that after claiming depreciation of Rs. 11,88,982/-, assessee had claimed the loss of Rs. 4,16,944/-. The assessee thereafter added the amount of Rs. 95 lacs surrendered income and after setting off of the loss of Rs. 4,16,944/-, the assessee declared net profit at Rs. 90,083,055/-. However, while computing the income as per the provisions of the Income Tax Act, the assessee added back the depreciation claimed of Rs. 11,88,982/- and thereafter claimed deduction of depreciation at Rs. 7,39,275/- (as admissible as per Income Tax Act) and after adding the interest income of Rs. 60,193/-, the total income was declared at Rs. 95,32,760/-.
8. Now the question is that as to whether the assessee was eligible to claim set off of loss of the current year from the business as against the declared / surrendered income of Rs. 95 lacs?. The issue has been settled by the various decisions of the Tribunal and even by the CBDT Circular No. 11 of 2019 dated 19.6.2019, wherein, it has been provided that even ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar if the said income is treated as an income assessed u/s 68 of the Act, still the assessee is entit led to set off of the said income against the business loss. The contents of the said CBDT Circular No.11/2010 are reproduced as under:- Circular No. 11/2019 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North-Block, New Delhi, dated the 19th of June, 2019 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) 68/69/69A/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 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 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 ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar 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.
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. 6.Hindi version to follow. Sd/- Under Secretary (ITA.II), CBDT
9. Since the assessment year involved in the present case is assessment year 2014-15 and whereas the amended provisions of section 115BBE(2) are applicable from 1.4.2017, hence, the assessee as per the above reproduced Board Circular was entitled for set off of loss against surrendered income. In view of this, there is no merit in the action of the Ld. PCIT in making the impugned addition and not allowing the set off of income. So far as the observation of the Ld. PCIT that the Assessing Officer has computed the income as per the normal provisions of the Act, whereas, as per the provisions of section 115BBE of the Act, the Assessing Officer should have calculated the tax @ 30% of the declared RajarajeswawR.) ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar income is concerned, we find that the assessee being a company has already paid the tax @ 30%.
10. In view of the above, the order of the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue, therefore, the PCIT has wrongly exercised the jurisdiction u/s 263 of the Act and the action of the Ld. PCIT in setting aside the assessment order cannot be held to be justified. The impugned order passed by the Ld. PCIT u/s 263 of the Act is, therefore, quashed. ITA No. 669/Chd/2019 :
11. The facts and issue involved in ITA No.669/Chd/2019 are identical to that of in ITA No.668/Chd/2019, therefore, our findings given above will mutatis-mutandis apply to this appeal and the order of the Ld. PCIT u/s 263 of the Act is accordingly set aside in this appeal also. In the result, both the appeals of the assessees are allowed. Order pronounced in the Open Court on 29.01.2020. Sd/- Sd/- (. . / N.K. SAINI) ( / SANJAY GARG) "# /Vice President $%/ Judicial Member Dated : 29.01.2020 ITA No. 668 & 669-Chd-2019- Star Ply Board Ltd and Star Industries Ltd., Yamunanagar *&3454/ Copy of the order forwarded to :
1. $/ The Appellant
2. &'$/ The Respondent
3. 6/ CIT
4. 6 ()/ The CIT(A)
5. 4&8, .8, :/ DR, ITAT, CHANDIGARH
6. / Guard File / By order, / Assistant Registrar
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