2018 (1) TMI 1539 - AT - Income Tax

Assessee's Appeal Granted: Business Loss Setoff Allowed Against Additional Income

The Tribunal allowed the appeal of the assessee, directing the Assessing Officer to permit the set off of business losses against the additional income ... Claim of set off against the additional income offered by the assessee - HELD THAT:- CIT(A) has applied the memorandum of explanation and treated the amendment of retrospective nature, treating the same as clarificatory in nature. We are unable to affirm this view of the authorities below. In view of the judgment of CIT, Mumbai vs. M/s. Walfort Share & Stock Brokers P. Ltd. [2010 (7) TMI 15 - SUPREME COURT] . The Hon'ble Apex Court while examining the amendment made in section 94 of the Act, after considering the law In view of the fact that in the explanatory notes itself states that this amendment takes effect from 1st April 2017 and would accordingly be applicable from assessment year 2017-18 and subsequent assessment years. The year under appeal is 2013-14, therefore, in our considered view the authorities below have wrongly disallowed the set off of loss and taxed the same @ 30%. We, therefore, reverse the finding of Ld. CIT(A) and direct the Assessing officer to allow the set off of loss as claimed by the assessee - Appeal of the Assessee is allowed. Issues Involved:1. Set off of business loss against additional income offered.2. Applicability of provisions of section 115BBE on the additional income offered.3. Nature and applicability of amendments to section 115BBE.Issue-wise Detailed Analysis:1. Set off of business loss against additional income offered:The primary issue in this appeal was whether the assessee could set off business losses against the additional income of Rs. 1,80,00,000 offered during the assessment proceedings following a search and seizure operation. The Assessing Officer (AO) disallowed this set off by invoking section 115BBE of the Income Tax Act. The assessee argued that the authorities misinterpreted the law, asserting that the amendment to section 115BBE, which disallows such set offs, was applicable only from the assessment year 2017-18. The Tribunal noted that the explanatory notes to the Finance Act, 2016, explicitly stated that the amendment would apply from April 1, 2017, thus supporting the assessee’s claim for set off of business losses for the assessment year 2013-14.2. Applicability of provisions of section 115BBE on the additional income offered:The AO applied section 115BBE to tax the additional income at a flat rate of 30% without allowing any set off of business losses. The assessee contended that the income offered could not be classified under sections 68, 69, 69A, 69B, or 69C, which are covered under section 115BBE. The Tribunal examined the explanatory memorandum and the legislative intent behind section 115BBE, which was introduced to curb the laundering of unaccounted money. The Tribunal concluded that the amendment to section 115BBE was not applicable retrospectively and thus, for the assessment year 2013-14, the assessee was entitled to set off business losses against the additional income.3. Nature and applicability of amendments to section 115BBE:The Tribunal scrutinized the nature of the amendment to section 115BBE, which expressly disallows the set off of any loss against income referred to in sections 68, 69, 69A, 69B, 69C, and 69D. The explanatory notes clarified that this amendment was effective from April 1, 2017, and intended to avoid litigation by clarifying the legislative intent. The Tribunal referenced the Supreme Court’s decision in CIT, Mumbai vs. M/s. Walfort Share & Stock Brokers P. Ltd., which emphasized that amendments clarifying legislative intent should not be applied retrospectively unless explicitly stated. Consequently, the Tribunal held that the amendment to section 115BBE did not apply to the assessment year 2013-14, and the set off of business losses should be allowed.Conclusion:The Tribunal concluded that the authorities below had erroneously applied the provisions of section 115BBE retrospectively. It directed the AO to allow the set off of business losses against the additional income offered by the assessee for the assessment year 2013-14. The appeal of the assessee was thus allowed.Order Pronouncement:The order was pronounced in the open court on January 31, 2018.