Abdul Rehim, J.
1. The assessee is in appeal against an order of the Income Tax Appellate Tribunal, Cochin Bench in ITA No.92/Coch/2018, dated 28.11.2018. The assessment year concerned is 2013- 2014.
2. Facts in brief are that, the assessment with respect to the year concerned was completed under Section 143(3) of the Income Tax Act(hereinafter referred to as 'the Act', for short) on 30.03.2016 by making additions to the tune of Rs. 87,25,235/-, with respect to which set off was given against the carry forward loss(unabsorbed portion of depreciation) claimed. The assessable income stood at 'Rs. Nil', after the set off. Against the order of assessment a suo motu revision proceedings was initiated by the Principal Commissioner of Income Tax, Kochi, in exercise of the power vested under Section 263 of the Act, on the basis that;
“Assessee's income included Rs. 56,24,264/-, deemed income being unexplained cash credit under Section 68. Deemed income u/s. 68 to 69D are not classified under any heads of income u/s 14 of the Act. Therefore, set off of brought forward loss against this deemed income is not correct”.
In the revisional order, the Commissioner of Income Tax (CIT) held that, the Assessing Officer(AO) had committed a mistake in allowing the set off, in a manner prejudicial to the interest of the revenue and therefore the assessment order was set aside and remitted to the AO to complete the assessment de-novo, after affording opportunity to the assessee. Aggrieved by the said order of the CIT the assessee had approached the Tribunal in the appeal.
3. The Tribunal while considering the appeal had relied on its own decision in M/s Beema Jewels v. Pr.CIT(ITA No.208/COCH/2018 dated 20.08.2018). It was noticed that, the case in M/s Beema Jewels was passed on the basis of a judgment of this court in CIT v. Ker. Sponge Iron Ltd.(379 ITR 330) in which it was held that, for the purpose of set off or for any other purpose, the unexplained income could not be treated as business income under any one of the heads provided under Section 14, in which case the question of set off did not arise. This court in the case Kerala Sponge Iron (supra) held that, the order of the Tribunal to the extent it set aside the order of the Commissioner (Appeals) which directed the AO to allow the set off of the current year's business loss as well as brought forward business loss and unabsorbed depreciation, against the income assessed under Section 68, has to be reversed.
4. The Tribunal also relied on a judgment of the Gujarat High Court in Fakir Mohmed Haji Hasan v. CIT [(2001) 247 ITR 290] in order to arrive at a finding that, the source of unexplained cash credit is not known and hence they cannot be linked to any known source/head of income, including the 'income from other sources'. In order to constitute 'income from other sources', the source, namely the 'other sources', has to be identified. Income from unexplained or unknown source cannot therefore be considered or taxed as 'income from other sources'. In view of the principle laid based on the decisions mentioned as above, the appeal of the assessee was dismissed. The assessee is approaching this court challenging the order of the Tribunal. The following are the questions of law framed;
“A. Whether in the facts and circumstances of the case the Commissioner of Income Tax erred or not in exercising jurisdiction u/s 263 of the Income Tax Act?
B. Whether in the facts and circumstances of the case, whether the Commissioner of Income Tax erred or not in holding that the Assessing Officer has erroneously allowed the set off of brought forward losses against the deemed income?
C. Whether in the facts and circumstances of the case, whether the Commissioner of Income Tax could have exercised jurisdiction under Section 263 in the light of the binding judgment of the Jurisdictional High Court in P.D. Abraham's case?
D. Whether the order of the Hon'ble Tribunal sustaining the order of Commissioner of Income Tax is sustainable in law, despite the Tribunal being noticed of the judgment in P.D. Abraham's case and has the Tribunal erred or not in sustaining the order of the Commissioner of Income Tax without returning a finding on the acceptance or otherwise of the judgment of the Jurisdictional High Court in P.D. Abraham's case?
E. Whether or not the Commissioner of Income Tax and Hon'ble Tribunal erred in not noticing/adverting to Section 115BBE and the amendment to sub-section (2) of Section 115BBE vide Finance Act 2016 and also the binding departmental circular clarifying sub-section (2) of Section 115BBE to be prospective in nature.
F. Whether the Tribunal and the CIT have erred or not in disallowing the set off of the brought forward losses against the deemed income allowed by the assessing authority in its original order and whether or not such disallowance is contrary to law insofar as assessment year 2013-2014 concerned?”
5. Heard Sri. A. Kumar, learned counsel appearing for the appellant and Sri. Jose Joseph, Standing Counsel for Government for India (Taxes) for the respondents.
6. One of the main contention raised on behalf of the appellant is that, the reliance placed by the Tribunal on the decision of this court in Kerala Sponge Iron Ltd.(supra) and on the decision of the High Court of Gujarat in Fakir Mohmed Haji Hasan(supra) are not legal and proper in view of the subsequent decision of the High Court of Gujarat in Dy. CIT v. Radhe Developers India Ltd. [(2010) 329 ITR(1) and in CIT-II v. Shilpa Dyeing and Printing Mills Pvt. Ltd.[(2013) 219 Taxman 279(Gu) in which the High Court of Gujarat itself had distinguished the decision in Fakir Mohmed Haji Hasan's case(supra). The counsel had also placed reliance heavily on the decision of this court in CIT v. P.D. Abraham @Appachan[48 Taxman 352].
7. The appeal of the assessee was rejected by the Tribunal on the basis that, the income under Section 68 of the Act, which arose out of unexplained source of cash credit, cannot be termed under any of the heads of the income, including 'income from other sources'. Therefore such income cannot be classified under any of the heads contemplated under Section 14 of the Act. Any deductions or set off, which corresponds to such income cannot be allowed with respect to the undisclosed income assessed under Section 68.
8. We may refer to the decisions cited above at the first instance. First among in point of time is the decision of the High Court of Gujarat in Fakkir Mohmed Haji Hasan(supra). It is held that the provisions of Sections 69, 69A, 69B or 69C applies when no source is disclosed at all. It would not be possible to classify the deemed income under anyone of the heads specified under Section 14. Therefore such deemed income will not fall even under the head of “income from other sources” and corresponding deductions which are allowable under various heads cannot be allowed in the case of such income. It is observed that, if it is possible to peg the income under any one of the heads enumerated under Section 14, by virtue of satisfactory explanation being given, then provisions of Sections 69, 69A, 69B and 69C will not apply, in which event the provisions regarding deductions etc., applicable to the relevant head of income under which such income falls will automatically be attracted. The decisions in Fakkir Mohmed Haji Hasan(supra) was rendered in August 2000. But the High Court of Gujarat in the decision in Radhe Developers(supra), rendered in April 2009, made reference to the decision in Fakkir Mohmed Haji Hasan(supra) and observed that, the decision in Fakkir Mohmed Haji Hasan(supra) are not relevant or germane to the issue involved therein, because the scheme emanating from a conjoint reading of the provisions of Sections 14 and 56 of the Act was not considered. Referring to the decisions of the Honourable Supreme Court in CIT v. D.P Santo bros.Chembur Pvt.Ltd [(2005) 193 CTR SC 578] and in United Commercial Bank Ltd.v. CIT [(1957) 32 ITR 688 SC] it was held that, the Act does not envisage taxing of any income under any head not specified in Section 14 of the Act and therefore there is no question of trying to read any conflict in the judgments of that court.
9. But the High Court of Gujarat itself in a still later decision in Shilpa Dyeing and Printing Mills Pvt.Ltd.(supra) found that, by applying the decision in Fakkir Mohmed Haji Hasan(supra), as explained in Radhe Developers(supra) the benefit of Section 71 as applicable to the facts involved in the said case cannot be declined when the question of set off was considered. While deciding the issue as to whether set off can be given with respect to income from an unlisted sources, the benefit of Section 71 with respect to set off was denied by the Assessing Officer by relying on Fakkir Mohmed Haji Hasan(supra). Relying on to the decision of the Madras High Court in CIT v. Chensing Ventures [(2007) 291 ITS 258 (Chennai) it is held that, once a head of income is assigned to the additional income disclosed, whether business or other source, it become available for set off against the current year business loss, as the current year business loss is allowed to be set off against the current year income under any other head, by virtue of Section 71. In CIT v. Chensing Ventures(supra) it was held that, the income tax is only one tax levied on the sum total of the income classified and chargeable under various heads. Section 14 has classified different heads of income and the income tax under each head is separately computed. The 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 does not a category of various tax 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 the income tax of his total income, though his income under each head may be well below the taxable limit. Hence, the law sustained in any year under any heads of income will have to be set off against income under any other head. Based on the above principal it was held that set off cannot be declined.
10. This Court while deciding the case of Kerala Sponge Iron Ltd. (supra) in the year 2015 had placed reliance on Fakkir Mohmed Haji Hasan's case (supra) and considered the question as to whether income determined under Section 68 will fall under any head of Section 14 and is not such income beyond Section 17 which deals with set off and held that when the income cannot be classified under any one of the heads under this Section, it follows that giving any deductions under provisions which correspond to such heads of income will not arise. Once the income is treated as unexplained cash credit under Section 68 of the Act, for the purpose of set off or any other purpose, the said unexplained income cannot be treated as business income under any one of the heads provided under Section 14, in which the question of set off does not arise.
11. Contention raised by Sri. A.Kumar, learned counsel for the appellant is that, while deciding the case in Kerala Sponge Iron Ltd.(supra), this court had failed to take note of the principle settled in the decisions of the High Court of Gujarat in Radhe Developers(supra) and Shilpa Dyeing & Printing Mills (P) Ltd. (supra) and also the decision of the High Court of Madras in Chensing Ventures (supra) as well as the decisions of the Honourable Supreme Court relied upon in those cases. It is further pointed out that this court while deciding Kerala Sponge Iron Ltd. (supra) had also omitted notice of an earlier decision of this court in P.D Abraham(supra), which was decided in March 2014. One of the issues considered in P.D Abraham(supra) was that, whether in the absence of any satisfactory explanation regarding source of the creditor, can it be said that the credit is not a business income. Referring to the decisions of the Honourable Supreme Court in Lakhmichand Baijnath v. Commissioner of Income Tax [(1959) 35 ITR 416 (SC)], in which it was found that it is not unreasonable to infer that the addition made under Section 68 is receipt from the business of the assessee; and also relying on the decision of this Court in Annamalai Reddiar v. Commissioner of Income Tax [53 ITR 601 (Ker). the tribunal in the said case had formed an opinion that exercise of Section 263 was not warranted. But this Court in the said case found that the finding of the Assessing Officer based on the above said proposition cannot be treated as erroneous. In Lakhmi Chand Baijnath(supra) the apex court found that, even if the explanation given by the assessee as to how the amount came to be received is rejected as untenable, the credits were treated as business receipt which are chargeable. It was found that, in view of such a proposition held by the Honourbale Supreme Court, the exercise made under Section 263 by the Commissioner was unsustainable.
12. On the basis of the contentions as mentioned above, it was argued on behalf of the appellant that, the income assessed, with respect to which it was found that there is no proper explanation forthcoming and which was found credited in the books of accounts, need to be treated as 'income from other sources' with respect to which set off can be permitted under Section 72 of the Act against the unabsorbed portion of depreciation, which will fall within the category of Section 32(2) of the Act. It is further contended that the carry forward unabsorbed portion of depreciation can be allowed set off against the profit and gains of any business and going by sub section (2) of Section 72, such carry forward amounts coming within the purview of Section 32(2) shall be adjusted. In this regard, the learned counsel had placed reliance on a decision of the High Court of Madras in Commissioner of Income Tax v. Spell Semiconductor Ltd. [(2013) 212 Taxman 506]. It is held therein that, if the assessee had income under other heads, Section 32(2) provides relief and Section 72(2) does not prevent set off of the carried forward depreciation being given under head of income from business or income from other sources. It was explained that, as far as the income from other sources are concerned, there is provisions for set off of the unabsorbed depreciation allowance as against the income from other sources as contemplated under Section 32(2). Therefore, it is not necessary that one should wait for the assessee to earn income from business so as to exhaust the carry forward loss to be set off against the business income and then apply the unabsorbed depreciation. A reading of Section 32(2) thus makes it clear that if the unabsorbed depreciation allowance would not be wholly set off under clause (i) and clause (ii), the amount of depreciation not set off can be set off from income from other head, if any, available for the assessment year. It was observed that the language of Section 32(2) is very clear and there is hardly anything contained in Section 32(2) to prevent such set off of carried forward depreciation being given to the assessee under the head of income from business or income from other sources.
13. Controverting the arguments on behalf of the appellant, learned Standing Counsel for Government of India (Taxes) made an elaborate scanning of the various provisions under which the scheme of the Act is framed. Referring to the charging provision in Section 4, it is pointed out that the income tax shall be charged with respect to the total income of every person for the previous year. Section 5 provides that the total income includes all income from whatever sources derived. Such income takes in the income which is deemed to have accrued, going by sub-section (1)(b) of Section 5. The method of computation of tax is governed under the provisions of Section 14 to Section 59. Section 14 would provide that, while computing the total income for the purpose of charging of income tax, the income shall be classified under different heads, provided therein. Therefore, for the purpose of computation of income tax the income need to be classified under any one of the heads contained in Section 14. But, apart from the classifications contained in Section 14, there are other groups or class of income for which separate method of computation is provided under different provisions of the Act. For example, it is pointed out that, Section 158(b) provides special procedure for assessment of undisclosed income unearthed through search or seizure conducted under Section 32 of the Act. It is pointed out that Section 115BBE is a similar special provisions introduced with respect to any undisclosed income coming within the purview of Sections 68, 69, 69A, 69B, 69C and 69D. It is pointed out that Section 115BBE was introduced in the statute book through Finance Act, 2012, with effect from 1.4.2013. Subsection (2) of Section 115 BBE as it stood with effect from 1.4.2013 provides that, notwithstanding anything contained in the Act, no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provisions of this Act in computing his income referred to in clause (a) of sub-section (1). Therefore it is clear that, with respect to any sum for which proper explanation is not forthcoming and which is credited in the books, which is liable to be assessed under Section 68, no deduction in respect of any expenditure or allowance can be permitted. It is pertinent to note that, by virtue of a further amendment introduced to Section 115BBE through the Finance Act, 2016, which was brought with effect from 01.04.2017, set off of any loss was also excluded with respect to the income referred to under Section 68 of the Act. Contention of the Standing Counsel is that, the method of computation with respect to profits and gains of business, the provision enumerated under Section 28 and 29 of the Act provides that it has to be computed in accordance with the methods provided under Sections 30 to 43(d). The depreciation, which remains unabsorbed, need to be treated as carried forward loss in accordance with provisions contained under Section 32. Since the undisclosed income cannot be treated as an income from profits and gains of the business, no set off can be allowed against the unabsorbed portion of depreciation carried forward, is the contention.
14. Based on the rival contentions, on analyzing the factual situation, it is evident that the assessment pertains to the period from 1st April 2013 to 31st March 2014. It is not in dispute that the addition of Rs.56,24,264/- made in the assessment is undisclosed income coming within the purview of Section 68, it being a sum found credited in the books of the assessee with respect to which the explanation offered was not found to be satisfactory by the Assessing Officer. Since Section 115BBE was introduced with effect from 01.04.2013, it cannot be disputed that no deduction in respect of any expenditure or allowance can be allowed with respect to the said amount. But question is whether set off of any loss shall be allowed against the said undisclosed income. In order to decide the question it is crucial to decide the nature of such income. Contention for the revenue is that, it will not fall within any of the category of income under the classifications contained in Section 14. In other words, such income cannot be treated as “profits and gains of business” or it cannot be considered as “income from other sources”. As the provisions of law which stood applicable for the relevant year of assessment, there is a specific bar with respect to allowing any deductions from such income, by virtue of Section 115BBE, as it stood unamended. The amendment declining set off was introduced only with effect from 1.4.2017. Therefore, question whether set off permissible under Section 72(2) read with Section 32(2) of the Act would apply with respect to the said income, assumes importance. There again, the crucial aspect relevant for consideration is the nature of the said income. In one of the oldest cases decided by the Honourable Supreme Court, Govindarajulu Mudaliar v. Commissioner of Income Tax [(1958) 34 ITR 307] it is held that, “there is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income Tax Officer is entitled to draw an inference that the receipts are of an assessable nature”. Following the said observations in Lakhmi Chand Baijnath (supra) the Honourable Supreme Court observes that, “when an amount is credited in the business books, it is not an unreasonable inference to draw that it is a receipt from business”. Even though Standing Counsel contended that the said observations of the apex court cannot be treated as a precedent of binding nature, mainly because it is made with respect to the provisions contained in the erstwhile Income Tax Act of 1922, we are not persuaded to accept the same. It is basically on an identical circumstance that the apex court had found that the income credited in the business book with respect to which the assessee fails to prove satisfactorily the source and the nature of receipt of the amount, it shall be deemed to be of receipt from business. The decisions of the High Court of Madras in Chensing Ventures (supra) as well as the decision of the High Court of Gujarat in Shilpa Dyeing & Printing Mills (supra) are to the effect that income of such nature from undisclosed source need to be treated as income from other sources. Therefore, we are of the opinion that the undisclosed income assessed under Section 68 need not be treated as an income falling totally outside the ambit of the classifications contained in Section 14 of the Act. Even assuming for the sake of argument that, it will not fall within the classifications contained in Section 14, it is evident that, as on the date of the assessment such income was included under a special classification by virtue of Section 115BBE. It is pertinent to note that, 115BBE had prohibited allowance of d
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eductions alone, as it stood unamended as on the relevant date of the assessment. The explanatory notes to the provisions of the Finance Act, 2016 enumerates the reasons for introduction of the further amendment barring the set off, with effect from 1.4.2017. It is stated that, “Currently, there is uncertainty on the issue of setoff of losses against income referred to in Section 115BBE of the Income Tax 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 Income-Tax Act does not convey the desired intention and as a result the matter is litigated. In order to avoid unnecessary litigation, the provision of the sub-section (2) of Section 115BBE of the Income Tax Act has been amended as to expressly provide that no set off any loss shall be allowable in respect of income under the Section 68 or Section 69 or Section 69A or Section 69C or Section 69D.” The intention of the legislature in introducing the amendment, as stated in the explanatory note, is to avoid unnecessary litigation and to expressly provide that no set off of any loss shall be allowable in respect of income under Section 68. Therefore, it has to be held that, as on the relevant date of the assessment, there was no bar existed with respect to allowing set off against the carried forward unabsorbed depreciation on fixed assets, with respect to income under Section 68. Therefore, we are of the view that, Tribunal had committed an illegality in coming to the conclusion that the deemed income will not fall even under the head of income from other sources and therefore the deductions and set off applicable to income under other heads will not be attracted in the case of deemed income covered under the provisions of Section 68. Accordingly we answer the question of law under clause (F) in favour of the Assessee and as against the Revenue. In view of the decision of the said question of law, other questions framed are not of consequence and become irrelevant. 15. Hence, the above appeal is hereby allowed and the impugned order of the tribunal is set aside. The original order of assessment passed by the Assessing Officer on 30.03.2016 will stand sustained. Needless to observe that, any coercive steps for recovery initiated based on the revised assessment cannot be allowed to continue.